Successful online business requires new instruments

Successful online business requires new instruments

By Virginia F. Bodmer-Altura

When observing the growing online business development, especially in retailing and sourcing, as well as spare parts and services in the textile machinery area, one notes that the requirements to successfully succeed are manifold. The progress of communication and IT technology has closely to be monitored and followed, the business model needs to be adapted and certainly the peripherals (including logistics and other supporting functions) of the operative business has to undergo continuing adaptation. Especially the ongoing changes in emerging countries such as China deliver the confirmation, how quickly business opportunities can change

The development of online business will certainly further enhance and allow success for those companies interpreting the requirements of customers at its best and including the solutions into their existing business models. Those firms doing business B2C which occurs mostly in the fashion business and those doing B2B such as in the textile machinery industry will note that some requirements for both business segments are alike, whereas others differ completely because of the nature of the business and the business partners.

We have chosen to have a look at the recent developments in online business worldwide and with a focus on China and we thank the Hong Kong Development Corporation for the revealing research features and the contributions of other research bodies mentioned namely below.

The B2C perspective with a focus on China

When looking at the 2011 consumer’s average monthly online purchases in some selected countries, we note that China has reached – according to a PriceWaterhouseCoopers study – a new record with a monthly average of 8.4 purchases, followed by Hong Kong with 5.5 purchases and only third follow the U.S.A. with an average of 5.2 purchases, the Great Britain with 4.3, Germany with 2.9, the Netherlands and France 2.6 and Switzerland 2.3 purchases.

When looking more into details of the Chinese marked, we note that the main group of online buyers are the segments of 18 to 24 (share 27.2 %) and 25 to 30 years old (33.6 %), rather active is also the age bracket 31-35 (share 16.4 %) and above 40 (share 8.5 %) and under 18 but their share has dropped 2010 from 12.4 % to 5.3 %. Interesting is also the financial background of Chinese online shoppers: In 2011 13.7 % (9.7 %) had a monthly income of better than CNY 5000, 18.5 % (17.3 %) earned between CNY 3000 to CNY 5000, 25.9 % (23.2 %) disposed between CNY 2000 to CNY 3000 and 24.3 % (27.3 %) of CNY 1000 top CNY 2000. Further 5.4 % (10.5 %) had a monthly income of less than CNY 1000 and interestingly enough 12 % (unchanged) had no regular income (however this is not a problem, because in general online sales are paid in cash upon delivery).

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The web browsing attitude has also changed, because initially consumers were inexperienced online shoppers and had to make use of general search engines such as Baidu and Soho to look for online shops and products, today they refer directly to these websites such as Toabao and 360buy.com. There are some figures proving these changes: In 2010 41.8 % (20.6 %) made use of shopping websites’ tools. Those seeking access by search engines amounted to 30.8 % (27.1 %) and the ones browsing the first page of shopping websites to 28.5 % (23.6 %). The ones steering at a specific websites numbered 16.6 % (9.9 %), 13.0 % (9.3 %) are guided by ranking or recommendations and further 10.2 % (9.1 %) shop at independent online stores. And those with diverse habits amount to 2 % (0.3 %).

It looks like that standardised products are more apt for Chinese online sales because the consumer is aware of their functions, performance and qualities and thus such goods meet their expectations.

The share of computer products amounts to 31.6 %, books 31.4 % and stored-value cards 27.7 %. Nevertheless the most popular online purchases in China are clothing, footwear and headwear with a share of 70.1 %.

But as everywhere in the world, Chinese customers ascertain the suitability of the product and its sizes and the fittings in a physical store and if there is no such real store, then online stores provide the necessary information, and of course the same item usually can be bought online at a lower price and online stores provide free return and exchange services. All of this leads to the fact that younger Chinese consumers are more and more becoming online shopping freaks. Another decisive factor is time and distance they would have to cover to go to various physical stores carrying each different styles and the online choice is quick and easy in finding ideal designs and additionally, very often they find customers’ comments on particular products.

The different online marketing and promotion channels

iResearch studied the Chinese online advertising market and its finding is that between 2007 and 2011 online advertising grew at an average annual rate of 48.2 % mostly because online advertising compared with traditional media is less costly and the audience coverage is more extensive. Online advertising allows companies to build-up direct relationships with consumers and to better understand the demand of their customers and it allows additionally the establishment of a customer database assisting to develop products catering to the market and determine the direction and exact positioning of their brand development.

A survey conducted by China Internet Network Information Center (CNNIC) reveals that the three most popular promotion channels used by enterprises engaged in online marketing are with 67.8 % e-commerce platforms (mostly used by SME Small to medium sized firms), search engine marketing has a share of 62.3 % and instant messaging 57.2 %.

E-Commerce platforms promotional and advertising methods include disseminating product information on the website, keywords bidding, and buying advertising space. This channel is also used by enterprises starting their online marketing business. Different platform service providers are offering different promotion packages and the most common are advertising space, display ads and keywords bidding.

Participant enterprises have the choice of different advertising spaces on different web pages on the service provider’s e-commerce platform and at also varying fees. Banners on the front page of the service provider can reach the largest proportion of customers and therefore it is the dearest advertising cost, if the ad is placed in other positions of the website, e.g. at the bottom then the banner costs less. Advertising costs are typically charged by day or month. Even if there are no clicks registered the ad has to be paid to the service provider.

There are also display advertising charged on a cost per impression or cost per click basis. Such possibilities are available to the advertisers on a ranking auction basis, e.g. on successful bids for one cost per million (CPM) within a certain time slot during which its promotional image is displayed a certain number of times, at taobao.com for instance, one CPM is 1000 times and the charge is a hammer price. There are a number of varieties available within such a system.

When display ads are charged by the number of clicks, then an advertiser can make a bid for a certain time slot, and the promotional image will be displayed at the required time and if a potential consumer clicks to enter the website of the enterprise, the advertiser will have to pay the hammer price as well as the cost per click. Of course, the cost such companies have to pay depends on the time slot chosen and the product offered, e.g. the charge for garments is CNY 3 to 4 per click and the average ad would be around CNY 15000 a month.

There are also other charging methods for online advertising such as cost per sale (CPS), or cost per action (CPA) and the advertising price will be calculated by the orders received as a result of the ad display. Existing is also a click through rate (CTR) and then the ad charge will be calculated on the basis of the number of clicks and frequency of ad display.

Keywords bidding is based on a higher bidding price at a keywords ranking auction of similar products and the successful bidder’s website will be placed in a priority position on the page showing the search results to attract the attention of consumers. Only when a consumer is interested in the product and clicks on the enterprise’s website then the service provider gets the right to charge the advertiser. Some shopping platforms would offer also a ranking according to the comments of online shoppers. The advantage of keywords bidding and compared with advertising space and display ad is that each click may bring additional potential buyers for the product. On the other hand, advertising space and display ads might help to boost the brand and shop image of the advertiser.

In addition, there are also social media promotions possible and according to a survey by McKinsey, China has the most active social media user groups in the world, around 95 % of the Chinese net users are registered users of social media. Thus the influence of social media has a higher effect on the purchasing decision of Chinese consumers than in other countries.

Copywriting on online promotion channels is an issue because it represents an important element in online marketing. Copywriting aims to promote a brand or product in text form, coupled with images and photographs, giving the consumer a more in-depth understanding of the concept of the brand and the characteristics of the product. For instance fashion accessories inspire the copywriter to sue sentimental wordings to attract consumers.

The most effective promotion channels in 2011 in China are to be had from the following graph

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 And here are the most effective channel tools:

1343721471439_eChart13_369951

 

 

 

 

 

 

 

 

 

 

The role of logistics

Courier, warehouse and distribution centres are the backbone of online businesses. Chinese large-scale courier companies number to 27 have grown in the first four months of 2012 by 46 % as to compare with the same period of 2011 and courier revenues grew 37 % or added 11 % over the same 20011 period. Alone in May the total couriers business’ volume exceeded 15 million orders per day. There are currently six large-scale, branded courier enterprises handling over one million express articles daily.

1344422160592_12-8-2c2-2a_370253It has to be added that there exists also a large number of small and medium sized couriers handling business at regional, provincial and same city levels. And there are also some e-commerce enterprises having rolled out their own courier services. 360buy.com is building actually its own logistics channels and has invested already CNY 3.5 billion in a logistics and information system, to be open also to partner manufacturers at the end of August 2012. All in all, the courier business revenues are exceeding CNY 70 billion – 70 % of online retail sales rely on courier services – and is employing over 700000 persons – and therefore an important and growing economic and social factor. It is expected that the online shopping courier market will grow in the next four to five years in China at an annual rate of over 40 %. In 2011 E-commerce transactions across the country amounted to CNY 6 trillion and online retail transactions exceeded CNY 800 billion, accounting for 4 % of total retail sales of consumer goods. The market is dominated by the international “Big Four” (FedEX, DHL, UPS and TNT) .

Here follows a graph presenting the leading Chinese Couriers and their market shares:

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It is of interest to note that a survey conducted by iResearch Consulting Group revealed that there is a shift in Chinese online customer’s thinking, they no longer rank “price” as first decision making consideration to buy online but services and logistics increased against 2010 by 6.4 points to 25.7 % and are now of a certain priority.

Noteworthy is the fact that some Chinese courier companies are willing to expand outside of China. China Post announced that its courier enterprises including ZJS Express of Shenzhen applied to provide international services, because they are much more lucrative. The volume of international, Hong Kong, Taiwan and Macau express services accounted for only 3.5 % of the total volume, however they contributed 24.4 % to total revenues of the Chinese couriers. Also cross-regional courier services are on the rise and in 2011 these revenues amounted CNY 44.5 billion or 41.8 % more than in 2010 and the its share was up by 4.1 %.

Transport intelligence

Just a few days ago, I came across a publication from Goodman Consulting on E-Retailing Research, stressing the fact that e-commerce and e-retailing are offering new opportunities of growth for the logistic industry. However in the White Paper there are outlined also a few challenges and we cite them:

  • In rather saturated developed markets there exist the problems of continually expanding product lines and increased competition with “big brand” retailers who are entering the internet space.
  • For new entrant retailers there are problems of adjusting distribution patterns to serve multiple channels.
  • For the existing logistics and service companies there are the problems of adapting premises, equipment and vehicles to cope with specific e-retailing requirements.
  • Postal providers and deliverers that are providing “final mile” delivery, are facing increasing volumes, the problems associated with home delivery and a requirement to enhance the “customer delivery experience”, all at a competitive cost.

Against the Chinese and international sources cited above, Goodman comes to the conclusion, that Chinese retail and internet selling are growing fast, however the distribution infrastructure has not developed at the same rate. There are no existing single solutions or industry “norms”, with a range of different approaches being used with no clear view emerging. In view of above shown developments, TextileFuture voices the opinion that this might be too harsh a statement.

However the White Paper confirms that the growth of internet sales is resulting in greater demand for dedicated e-fulfilment centres and at the expense of traditional physical outlets. And at the same time this is calling for a greater emphasis on operation tasks, such as fulfilment and last mile delivery, functions that have historically been undertaken by suppliers themselves requiring a far higher level of personnel than standard store based warehouses and the latter, the last mile delivery element, presents opportunities for postal and express parcel companies. Goodman adds in it comment that these two factors have been cited in the surveys being among the most important for retailers when it comes to designing and locating e-fulfilment centres, with the region in which the company operates and is determining the strategy adopted. Above we cited the example of 360buy.com. And the findings of Goodman confirm that retailers are developing their own e-fulfilment centres, designed to accommodate local conditions, rather than relying on logistics companies. This move entails largely the development of existing distribution centres, configuring the facilities to serve the specific needs of the e-retailer and dedicated purpose built properties are increasing on demand, but the investment is high, TextileFuture is adding.

The logistical requirements of e-retailers differ enormously and to date, no blueprint for an optimum e-fulfilment centre has been developed. They are all developed bespoke, in-house, manual fulfilment operations, using mezzanine floors supported by conveyor systems to make best use of high bay warehouses. That kind of system is also used by textile machinery manufacturers for spare and replacement parts.

On the other hand, pure logistics providers, who traditionally operate from fairly standard facilities, this represents a good opportunity for property development companies who can build specific facilities tailored to the precise requirements of individual e-retailers or e-suppliers.

Conclusions

The logistic power of a company lies in the capability to adjust its facilities and services in accordance to the rising demand  and the specificality of e-commerce. It is no longer sufficient to transfer existing systems to geographical regions and markets, the solutions have to be tailor made to serve the expectance of customers (see also TextileFuture Newsletter of August 2, 2012 titled “What means customer service today”), might it be B2C or B2B customers. It will be the future challenge of all participating in effective online business. Whatever we showed in e-retailing has also its effect on the future of other related businesses such as spare parts and replacement deliveries ordered online. We at TextileFuture strongly believe that the developments of the two sectors will have to find some common culture and the glue is customer’s demand!

www.hktdc.com

www.iresearch.com

www.360.buy.com

www.pwc.com

www.mckinsey.com

www.goodman.com

www.gscintell.com

www.ticonferences.com


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