online and offline presence in China

Daxue Talks transcript #13: O2O business model in China

Find here the Daxue Talks episode 13. From the talk with Igor learn in 2-5 minutes about the O2O business model in China.

Full transcript below:

My name is Igor Temirov, I’m an expert in developing foreign markets and for the last five years, I have been in China, helping several companies to enter the Chinese market.

  1. Does the O2O business model have unique features in China compared to the West? What are they?

First of all, O2O is the answer to the problem that offline is experiencing everywhere in the world. So, offline has major problems because they are losing their customers, we see 9 000 stores closing in the United-States per year, we see the closure of the main shopping malls, there is a big, big problem there. So, it is not so dramatically happening in China, but I think traditional retails just decided to experiment, I think they started four years ago opening their own website, trying to sell online; nothing was happening, the sales were absolutely close to zero, but later they realized that in online sales there are two main factors. One is marketing, second is logistics. And, all these traditional offline stores already have logistics. It is only a matter of delivering the so-called last mile, last kilometer. And, because in China there are a lot of small companies which are only e-bikes and can deliver your products, and also because of this incredible system of the locker rooms, locker boxes near your apartment, this makes it extremely easy for them [the traditional offline stores].  

So, just look at the numbers: traditional retail in China is growing maybe from 5 to 6% per year, but if you look at O2O of traditional retail it is growing by 50%. So, they found a niche. So, a lot of consumers, because of the loyalty cards from Carrefour, from Century, from Wumei, they are trying to order also products on their website. The only difference is that, of course, the choice is much smaller, it is basic goods, but we see that this is becoming a major, major factor. And, if you take for example Hema, one of the projects of Jack Ma, most of their orders are online, and you can sell a lot of products.

O2O business model in China

So, the second important factor about online to offline is that four or five years ago everybody was saying “what is the link between online and offline, there is no influence”, they existed completely as two separate worlds. But, starting like two years ago and last year, when the buyer goes to Carrefour, to any retail chain, the first thing that the buyer does is that he takes the mobile phone and he goes to Tmall store, and he looks “what product was sold last thirty days on Tmall”.

This change the whole game plan in China. So, they are telling you “don’t give me this product. Give me what is selling number one, number two”. And what happened inside all sales organization is that this competition between online and offline completely stopped, because people understood that “we are in the same boat”. This is the most important development in China. You absolutely have to watch your data on sales online to influence offline sales.

Daxue Talks is a show powered by Daxue Consulting, a china-based strategic market research company founded in 2010! With Daxue Talks, you will stay up to date with all the latest business updates in China.