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At the recent ad:tech Shanghai, with over 1,500 people in attendance, I moderated a discussion over the future of e-Commerce in China with leading experts from companies like Dell (DELL). Below is a transcript of that panel.


Moderator: Shaun Rein, China Market Research Group

Panelists: Joe Nguyen from Omniture, (OMTR) Tony Chen from Dell, Robin Zhou from TaoBao, and Lin Li from LiNing


Shaun Rein: Some analysts are not optimistic about the prospects for e-Commerce in China. They argue that Chinese consumers do not trust buying items online and that there are lots of problems with payment methods since credit card penetration rates are still low in China. However, we have already seen some very successful examples of e-Commerce companies in China, such as Ctrip (CTRP). Will e-Commerce catch on, or is Ctrip an exception? How should companies approach selling items online? How have your companies approached online sales?

Tony Chen: Dell sells computers online, a high value product. Selling high value products requires more salespeople to build trust. We have many salespeople chatting online to help customers complete the whole sales process on the internet. We also have a hotline customers can call with questions, and our customer service representatives are very professional. About half of our customers go through the online purchasing process by themselves, the other half need some assistance from our salespeople. So whether or not our customers need assistance, our model works well.

Shaun Rein: How about for Li Ning, do you need to spend a lot of money employing over-the-phone sales support or can the customers shop online by themselves?

Lin Li: Even less expensive products require an entirely seamless e-Commerce purchasing process, so many communication tools are needed. Whether via online chat, phone hotline, text messaging, effective communication platforms are a must for e-Commerce.

Shaun Rein: What does Taobao use? What is the trend? Are more salespeople involved in sales of high value products?

Robin Zhou: Taobao sells very expensive as well as very cheap products, it is not as if expensive products cannot be sold. The top items sold are clothes, then mobile phones, then cosmetics, and then products for home use. Products sold on the internet are standard items, this is very important. If a product is too complicated, too personalized, then it might be hard to sell online.

Shaun Rein: You mentioned mobile phones sold well, are these new or second hand? Many consumers will spend a whole month’s salary on a phone from a company like Nokia (NOK), and need to make sure they can trust its quality.

Robin Zhou: When it comes to shopping for mobile phones on Taobao, you can find all kinds of different choices and styles, some styles you cannot find in other markets. We do a lot to win the trust of consumers, we encourage them to purchase from highly rated sellers, and we have Alipay, where the seller only gets paid after you receive and approve the product. This way, any trust issues over online sales are solved.

Shaun Rein: There are a lot of pirated goods on the internet, how do online shoppers and merchants deal with this type of problem?

Lin Li: If you purchase on Taobao, you can use Alipay. If you purchase on the Li Ning official website, the payment system is not exactly the same. We have Alipay too, but we also have COD and other payment options that help reassure customers.

Shaun Rein: You do not think payment is a problem? Some say you must own a credit card-- no credit card, no e-Commerce. For example, I’ve heard if you sell a product to Xinjiang, for example, and you use a courier like EMS, it can take six months to get the payment. So how do you solve this problem in terms of cash flow?

Lin Li: Other e-Commerce websites, such as DangDang, have been doing this for a long time, almost 10 years, they have already trained many express deliver companies to provide good COD service. They’ve ironed out most of the kinks, including any payment issues. When we started providing COD service, we did it according to these industry standards. We actually haven’t had many major problems like a six month delay in payments.

Tony Chen: Dell has online payment options, but many customers still prefer to pay with cash. Actually it depends on the bank. Someone customers can use a credit card, but some people’s cards have a 1000 RMB spending limit, not enough to pay for a computer, which is often more than 4000 RMB. We use Alipay too now. So if customers have enough money in their Alipay account, they can just as easily use Alipay for their purchases.

Shaun Rein: So people tend to prefer Alipay to, say, a Bank of China where 80% of consumers we talk to say they are dissatisfied with customer service? What are the difficulties of doing e-Commerce in China? What were the difficulties people faced in other countries, and how did they overcome them?

Joe Nguyen: e-Commerce in China is still in the early stages. Some companies in China must learn how to do business in China. They need to learn how to do marketing here, and improve the way they use e-Commerce. Especially for export, factories can use e-Commerce to sell directly to foreign purchasers. That would be big step forward for e-Commerce in China, with huge potential.

Shaun Rein: For those of us who are already online, do you sell online via Taobao, your own company website, or other ways? Taobao’s users are young, for example, don’t have a lot of money, and prefer to buy simpler products. So how do you manage targeting them without hurting your overall brand image? And how do you choose where to sell which products?

Lin Li: We sell different products in different offline stores. In our flagship online store, for example, all the items are new and full price. We also have special stores for selling older items. Our official online store is just like our flagship store, it sells new, full price products, and even some limited edition items, such as autographed items. TaoBao’s customers are young, and majority of them are price sensitive. We have a combination of new and older products on TaoBao. B2C is great way to sell slightly older inventory to customers who like getting a good deal.

Shaun Rein: So the first reason people shop for LiNing products on a place like TaoBao is for lower prices?

Lin Li: Yes. We did some market research on why sports buyers buy on the internet. They have two main reasons: convenience and the better prices. For second and third tier cities, where you can’t get the same products you can in Shanghai, Beijing and Guangzhou, people do a lot of their shopping online. Our main sales come from Guangdong, Jiangsu, Zhejiang, Shandong, Beijing, Shanghai, all in the coastal, more developed areas of eastern and southern China. In terms of cities, products sell better in Shanghai, Beijing, Suzhou, Guangzhou, Shenzhen. People in those cities tend to have access to a wider array of products, and are often shopping online to get a good deal. So there are two motivations for shopping online. One is convenience, and the other is for lower prices.

Tony Chen: Online sales can be personalized. Someone might want a bigger CPU, someone else might like more RAM. We allow customers to personalize their products, they can buy exactly what they want.

Shaun Rein: When you set up a website, do you want to establish a social community like a Facebook? Or do you want to sell? I’ve met many digital marketing experts who are good at branding, but not setting up a sales site. What does LiNing do?

Lin Li: Community for e-Commerce is very important. For example, KaiXin became popular very quickly, it proved that customers like the community aspect, they communicate and share personal things there. Whether it’s Taobao, an American website, or our own official website, you can see customers are very interested in expressing their feelings and experiences on BBS including comments on different products, or customer service, or the delivery process. These comments have huge impacts on other customers. If the feedback on a product is positive, the product will usually sell very well. Otherwise, it’s harder and harder and sometimes impossible to sell a product if someone has been saying bad things about it online. Consumers love this feedback, it’s definitely a trend.

Shaun Rein: What about Dell? Bloggers love to talk. If they say bad things about Dell, will you get trouble?

Tony Chen: With Web 2.0, people buy what they trust, so people want to buy from Dell. They also like to get professional advice and points of view from different channels. If some customers have already bought Dell computer, and give their comments on the internet, we will note the webpage and recommend it to other customers to help them make their purchasing decision. If our products weren’t competitive, we would never do that. But our products are competitive, so we always publicly share our customer’s opinions. You must take advantage of the power of the online community, it can really drive e-Commerce.

Shaun Rein: From marketing perspective, what will you do next? How do you attract people to visit your website? When I’m walking down the street, and I see something I like in the window of a LiNing store, I just go in and buy. But how does your website catch people? Do you do online marketing or offline marketing? Or search marketing from a company like Baidu (BIDU)?

Lin Li: We use a lot of offline marketing resources. For example, we put our website on all of our advertisements. In terms of online marketing, if we want to advertise our website, we use search, website alliance, CPC, CPS, all these are effective tools with good ROI. Besides these, we also advertise on websites, especially new internet media such as social network websites. We choose the websites where our target consumers go, like NetEase (NTES), QQ, and new media like community websites.

Robin Zhou: For Taobao, the first step of e-Commerce is market research. We look at how popular an item is in the market, and what we can do to make it better. Then we do product advertisements. e-Commerce is a good opportunity for brand building. If we want to establish a brand off line, and build brand awareness, it may take two to three years. But it can be done very quickly online. After the brand is established, you have to build your online sales channel. Then we will use CPA to make sure all our products and prices appear when searched for, and that by clicking them people can enter our store directly. These are the four steps for e-Commerce.

Shaun Rein: What has been the impact of economic crisis on Chinese consumers? And Chinese retailers? Based on our research 70% of Chinese consumers remain optimistic on the Chinese economy. So what has been the impact of the financial crisis on online sales? Will there be more people buying online in the future? What about next year? What are your estimates both for your company and the whole industry?

Lin Li: We did similar market research. We found some industries might be impacted more than others, such as automobile, real estate, and luxury. But for those industries relating to people’s everyday lives, the impact will probably be relatively small. For the sports industry, and particularly for LiNing as a mid-level brand, we do not expect a big impact. The more premium and more expensive, the bigger the impact. So I think for e-Commerce, the impact might be less than for regular offline sales.

The only change LiNing has seen thus far started this October – as the economic crisis deepened, we found an increasing number of discount sales online. Usually Christmas marketing starts in December, but this year it had already begun at the end of October and in November. Everyone’s offering larger discounts than usual, which has forced us to start promotions too. I think this is a result of the economic crisis. People are worried, and are making efforts earlier to get consumers to spend.

But we still think growth in e-Commerce will be pretty big for LiNing next year. e-Commerce is really still in the very early stages of development in China, and for many consumers, their purchasing frequency is growing, it’s not yet mature. I think LiNing will have 50% growth in e-Commerce sales next year.

Robin Zhou: In some ways the financial crisis is actually a very good opportunity for TaoBao and for B2C e-Commerce in general. People will spend a lot more on advertisements directly related with sales. I consider this an opportunity for us.

Tony Chen: I would say that we are cautiously optimistic. We think the outlook is good, and that the overall Chinese economy is strong. Our competitors are lowering their prices aggressively, which is challenge for us but also a good opportunity. We will work to make our products better and more competitive. This is a time for us to become stronger.

Joe Nguyen: In terms of their sales budgets, lots of people are spending an increasing amount on digital media and digital marketing. This trend will continue going forward, more and more companies will do this. It will be easier and easier to see business moving towards online ads, and online sales, which is great for Taobao.

Shaun Rein: Thanks everyone!

More background info on the subject can be found in Shaun Rein's commentary in Forbes In China, Online Shopping Soars.

Source: ad:tech Shanghai's e-Commerce Panel