Three important things have happened in consumer China in the past decade.
- Chinese consumers finally started spending money after decades of working and saving. They are now the first or second largest market in the world for most consumer businesses.
- They became connected 24/7 via smartphones, both to businesses and to each other.
- Their behavior became digital-first. Most everything in consumer China begins with smartphones and the behavior there.
The result is Chinese consumers are increasingly acting like a 1B person, interconnected network, which I call the China Digital Consumer Network. And it is really powerful. For example:
- Reviews, experiences and word of mouth spread broadly. A company’s brand and image are now far more determined by what connected Chinese consumers say than by what the company says. If you have a service in China, a hotel in New York or a restaurant in France, Chinese consumers are talking about you online.
- Widely shared content, such as short-videos, long-videos, live-streaming and KOL content, is mostly happening within the CDCN.
- Good and bad events about a company can go viral within hours. Even companies that don’t do much business in China, like United Airlines, have discovered this to their surprise.
- About 25% of retail in China is now done via e-commerce, which means money moving within the CDCN.
More on this last example.
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Ok. Back to the topic.
Point 1: The China Consumer Network is cash rich.
Let’s take a moment and stand in awe of Chinese e-commerce.
It is huge. Add up all the e-commerce of France, Germany, Japan, the United Kingdom, and the United States combined – and China is still bigger. Online retail sales are expected to reach $1.8 trillion by 2022, representing 25% of China’s total retail sales volume.
So what happens when this type of money flows within a network – between consumers and to businesses (who are also often SMEs and solopreneurs)?
Some amazing things can happen. For example:
- Connected Chinese consumers can be powerful marketing agents for clever companies. Digital marketing initiatives by companies like L’Oréal and Burberry are designed to get consumers to talk about their experiences or respond to challenges. And this user created content and commentary spreads in the CDCN.
- Connected Chinese consumers can be powerful sales agents for companies, as shown recently by the stratospheric rise of group buying e-commerce site Pinduoduo. It is sometimes called social commerce but it is really just about getting consumers to convince other consumers to buy. And it happens in social media. But really any product or service that is naturally viral (i.e., its use brings new users on board) can take off incredibly quickly. Examples are WeChat, Alipay, Zoom and other communication, payment and collaboration tools.
If you can activate the CDCN as a business, it can result in a lot of money moving very quickly.
Point 2: The China Digital Consumer Network is becoming a consumer-producer network.
Everything I have mentioned so far has been about consumer interacting with each other – and with businesses. But what happens when these same consumers, start becoming small businesses or producers themselves?
Once you have consumers connected, it is often just a short step for them to start acting as producers of content, goods and services. They can go from buying products online to selling things online as a small merchant on Taobao. They can go from being a renter to starting to rent their own home on Tujia or Airbnb. And they can definitely go from consuming content to creating content, like videos, podcasts and blogs. For example:
- Connected Chinese consumers are now powerful producers of content, as shown by how easy it is to create short videos on Douyin.
- Connected Chinese consumers are increasingly becoming service providers. Unlike the US and Europe, China has a massive pool of low cost labor that is now able to sell their services to the network. They are now offering basic, standardized services like cooking, cleaning, delivery and rides. And we are increasingly seeeing higher skilled and more differentiated services like accounting, design, legal and IT support.
Going from a consumer network to a consumer-producer network is a quantum jump in the number of interactions happening (even though the number of nodes in the network stays the same). And it also leads to producer-producer interactions (another big increase).
Point 3: Digital China Is the World’s First +1B Digital-First, Consumer-Producer Network
Some more thoughts on this:
- It is consumers, not enterprises, that are the engine of digital China. We are seeing some rapid adoption of B2B and enterprise due to coronavirus, but it has mostly been a consumer phenomenon.
- This has a lot to do with the big spending power mentioned. But it also has to do with the mass adoption of smartphones and the fact that Chinese consumers are always on, very enthusiastic and digital-first in their behavior. The overall enthusiasm and changes in consumer behavior were not something people predicted. New mobile apps are just adopted very rapidly. Consumer behavior on smartphones is always changing. There is just tons of sharing, interactions, transactions, content production and consumption. By virtually every measure, the speed and volume of interactions between people on smartphones in China has been exploding.
- Businesses that tap into this network can take off at incredible speed. This is TikTok. It’s WeChat. It’s mobile payment. It’s KOLs creating content. It’s live-streaming. And so on.
- All of this activity is resulting in tons of data, something China now has a huge advantage in on the consumer side. By mining this data, you get rapid introductions of new products and services, increasingly useful machine learning and AI technologies, and more precise targeting and customization.
Point 4: The China Digital Consumer Network Is Driving Business Behavior and Development.
Everyone doing business with Chinese consumers, whether in China or abroad, is struggling to keep up with their rapidly evolving digital behavior. Digital-first consumers are forcing businesses to change their behavior and development. And to make it more suitable for digital behavior.
- If you are marketing and selling to the China digital consumer network, that means digital marketing and social media first. It means KOLs. It doesn’t matter if you are a shopping mall in Shanghai, a tour operator in Paris or an exporter in Mexico, you have to be up to speed on the latest events in Chinese digital marketing and social media. You have to understand the newest features on WeChat, Weibo and Little Red Boo. More and more multinationals, like Zara and Budweiser, now consider China their innovation hub for digital marketing globally.
- And when it comes to payment, you have to accept mobile payments. Because that is how Chinese consumers expect to pay for things. Try paying in cash in China. If you are a hotel or café in Thailand, try not accepting AliPay.
- Cheap and fast delivery is also now the norm. Chinese consumers are now longer willing to wait 3-5 days for anything. For e-commerce, they expect delivery today or maybe in 1-2 days. For food and coffee they expect it in like 20-30 minutes. Note: Starbucks ignored digital and delivery in China and gave Luckin Coffee an opening. Starbucks then rapidly partnered up with Alibaba to offer delivery.
So you can see we almost have a virtuous cycle. Chinese consumers are a +1B digital-first network and this is forcing businesses to change their operations. Which then makes their services superior for a digital age. Which then makes consumers more digital-first in their behavior.
Point 5: The China Consumer Network Is Also Driving the Creation of Digitally Superior Infrastructure
But it gets better.
Not only are digital-first consumers leading to more digitally savvy businesses. They are also resulting in infrastructure that is superior for digital behavior by both consumers and businesses.
Look at how rapidly the infrastructure in China is changing with regards to:
- Payment and credit (and financial services). Mobile payment is just a better solution for consumers. You always have your phone. so you can buy anywhere you go. You can scan and buy bikes on the streets. You can buy while watching videos. You can even buy what you see in the videos. Mobile payment is just better. And we are also seeing instantly approved micro-credit for e-commerce purchases. We are seeing supply chain credit for e-commerce merchants. There is micro-gifting for online performers. Payment, credit, insurance and other types of financial services are rapidly changing in China and are providing a digitally superior type of infrastructure that others can build upon.
- Logistics and delivery. This is another area where China is in the lead. Logistics networks that are increasingly intelligent and automated are being built by companies like Cainiao and JD Logistics. They can deliver anything, anywhere. And they are increasingly extending to globally. Durians can be picked in Thailand on Monday and timed for delivery to a Chinese consumer on Thursday when they are at peak ripeness.
- Regulations. The new regulations, especially around e-commerce, tend to be more digitally savvy in China than in the US and definitely in Europe. And definitely better than India.
- Physical stores for retail and services. China is now far ahead in reimagining the physical assets of retail and in combining them with online. Alibaba’s new Freshippo stores are a mix of retail space, service center and logistics hub. Compare that with Amazon’s struggle to integrate with Whole Foods and their handful of Amazon Go stores.
- Smart cities. About half of the world’s 1,000 smart city pilot projects are in China. As the streets, subways, traffic lights, utilities, and government / security services become increasingly smart and connected via cloud, AI, IoT sensors, cameras, and other tools, cities are becoming like operating systems that apps and services can run on.
Again, it’s almost another virtuous cycle. The +1B digital-first consumer network is driving changes in businesses and infrastructure. Which are enabling more possibilities for services and pushing consumers towards a more digital-first lifestyle.
Final Point: All of this is more powerful and urgent in developing economies.
This cycle of digital-first consumers driving the creation of digital-first businesses and infrastructure is mostly a developing economy story. Because it gets you a bigger improvement in the consumer experience, which drives adoption. Retail, payment / financial services, communication and such are far less developed than in the US so these digital tools get the consumer a much bigger jump in the user experience. Mobile payments are bigger deal in China because people mostly didn’t have credit cards.
Developing economies also have bigger problems and greater urgency in areas such as pollution, food safety, traffic and congestion, corruption and crime, and poverty. This also drives the adoption of digital tools.
This all raises the question of whether India, SE Asia and other developing economies will follow China or the West in their development? Are we seeing an entirely new development path for countries, driven by digitally-connected consumers, emerging?
Ok. That’s it for today.
Have a great day and thanks for reading, – jeff
I write, speak and consult about digital strategy and transformation.
My book Moats and Marathons details how to measure competitive advantage in digital businesses.
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