Digital Commerce in China: Cheap Tricks or Deep Love?

06/16/2015 09:16 am ET | Updated Jun 16, 2016

In China, 46 percent of consumers shop online. E-commerce was slow to take off. However, the country's Internet players adjusted business models to overcome Chinese consumers' aversion to "virtual" transactions. Online security and payment innovations, combined with low-priced delivery and generous return policies, resulted in commercial revolution. Single's Day, TenCent's online sales event targeted to lovelorn Millennials, generated $10 billion in sales within 24 hours.

Online commerce is dangerous for many leading brands. Unilever retail sales dropped 20 percent during the third and forth quarters of 2014. Clearly, the company had not adequately prepared for the migration of millions of consumers to online platforms hawking competitive products.

Actually, no one knows why declines, also suffered by Nestle, P&G and Beiersdorf, were so severe. The causes were likely more nuanced than a mad online rush. Changes in Mainland welfare policy could have resulted in fewer purchases of multinational brands by state owned enterprises. President Xi Jinping's anti-corruption could have played a part as well; gifting, even for low priced items, is now risky business. And a slowing economy could have increased price sensitivity to the benefit of local competitors.

One thing, however, is clear. Digital disruption is most pronounced in China due to several factors including:

a) rapid penetration of smartphones,

b) lack of offline retail alternatives in lower tier cities,

c) price sensitivity of Chinese consumers and

d) scale of online mega-portals such as Alibaba's

China's digital scene is "high risk, high return."

The pitfalls are obvious. The country has always been transactional. Commoditization is an ever-present danger. Many still consider low price the ultimate weapon on dog-eat-dog commercial terrain. "Brand equity" is degraded as a theoretical abstraction.

Across China's still untamed brandscape, e-commerce threatens to be the great leveler. Price comparison is instantaneous. According to Reinhold Jakobi, Nestlé China's food and beverage managing director, "If we like or not, e-commerce will change our business. If you go online, everyone gets the same screen space."

What's more, China has entered the era of O2O, or offline to online marketing. Digital platforms wring further efficiencies from excess human capital to provide new -- and cheap -- services. For example, employs idle salon workers to deliver anytime, anywhere nail beauty service., a grocery delivery service, now covers more than 10,000 small communities across Beijing, Shanghai and Guangzhou. And offers on-demand house cleaning.

But, if managed skillfully, digital commerce can enhance -- rather than degrade -- value perceptions. High-tech cheap tricks can morph into deep love. When marketers harmonize digital and offline assets, online transactions blossom into intimate relationships.

Salvation beckons on the higher plane of "cross-platform integration." With alignment across digital and traditional channels, at every stage of the shopper journey, marketers kill two birds with one stone. First, the brand's value proposition is reinforced at the point of purchase. Second, consumer confusion is mitigated. Both reduce price sensitivity. Both elevate margins.

Let us not forget that Chinese consumers love brands. In China, a Confucian society, brands are weapons on the battlefield of life, generators of "face," the currency of forward advancement. In a survey conducted by TNS, only 1 percent of consumers regarded "luxury" labels as "superficial," while 65 percent believed they "denote success."

In fact, China's brandscape is bimodal, polarized between omnipresent discounting versus high prices born of aspiration. Cheap Xiaomi mobile phones, Yili ice cream and Nestle "three-in-one" instant coffee exist in the same universe as premium Apple, Haagen Dazs and Starbucks.

When it comes to asset alignment, China still has much to learn from foreign brands.

For years, Uniqlo, the fast-fashion brand, has set a standard for "cross-platform harmonization." Back in 2007, it created a phenomenon in Japan with its "Uniqlock" blog widget, which told time through dance and music. Throughout the day dancers wearing Uniqlo apparel performed energetic-but-controlled dance routines, moving to the "tick, tick, tock" beat of the Uniqlock. Every hour they performed a different dance. Critically, the effort reflected Uniqlo's long-term position of "Style for real people," which has always been underscored by mix-and-match clothing. (The company's success in Asia lies in the careful balance of sleek yet conservative garments that enable consumers to create their own style without crossing into "stylish rebellion.") Uniqlo's Asia-friendly brand character infused the steady beat of the Uniqlock -- always progressing, always changing.

More functionally, the widget also served as a screen saver and alarm, as well as a link to Uniqlo's online store. The initiative ran throughout the year but changed with the seasons. During summer dancers wore Uniqlo polo shirts; in the fall they donned cashmere sweaters and scarves. To reinforce the brand's internationalism the widget always displayed the number of worldwide online fans.

Ikea, the Danish home furnishing retailer, boasts a content ecosystem that spans the entire shopper journey. To launch its "Small spaces" campaign, an online video was distributed on social media. Consideration of Ikea as the answer to cramped rooms was sparked with demonstrations of how to make "more out of less." The film's voiceover led to a call for action, "Small ideas can transform a small space into a generous space. Does a living room really need a sofa? There. We just created a whole wall for storage. And, by adding a love seat, a cozy little nest for two. Now you can do what you want. Together. To make the most of the space you've got, all you need is an open mind... It's about finding and using hidden space and choosing furniture that does more than one thing. And it works. And it's not about waiting. It's about doing it today." The video included links to an online catalogue of space-saving products. Virtual reality apps let people see different decoration and furnishing options, and they could buy their chosen items via Ikea's e-commerce site.

For a variety of reasons, cross-platform alignment occurs too infrequently. First, marketers have become disorientated, even intimated, by the emergence of quantitative technologies that promise algorithmic salvation. Second, advertising agencies have yet to identify models of collaboration that pair conceptual distillers - that is, "storytellers" -- with systemic thinkers, the latter capable of devising innovative transactions. Finally, many organizations have siloed operational structures. This is particularly true in China where sales departments wield control over marketing. To boot, online and offline units function independently.

Chinese marketers - indeed, marketers everywhere -- need to "rebuild" corporate structures to align assets. True, "pain from change" is unavoidable. But downward vortex of commoditization will be more difficult to bear.