In this, our get-go China Online Shopper Report, we depict on proprietary Alibaba information to paint the clearest picture show ever of who Mainland china’s online shoppers are, how they shop and what information technology all means for companies hoping to sell to them. For this written report, we have drawn central insights from the data produced past hundreds of millions of Tmall and Taobao consumers. Information technology is the offset time that this unparalleled data mine was fabricated bachelor for systematic analysis. Nosotros use it to explore the dimensions of a critical new direction in fast-moving consumer goods (FMCG): the major shift from a product focus—the traditional mindset of single-mindedly pursuing increases in gross merchandise value (GMV)—to a consumer-focused approach to selling, in which companies invest to accurately understand who the real consumers are and how they shop.
Written in collaboration with
Written in collaboration with
There is no question that the e-commerce channel, growing at an annual rate of 35%, is now the primary growth engine for China’s FMCG marketplace. It has achieved loftier levels of penetration and get a cadre sales channel in subcategories every bit diverse as babe formula and color cosmetics.
The new digital capabilities and vast stores of data that e-commerce generates take helped transform forrad-thinking consumer goods companies. Brands at present have access to sophisticated consumer data that they could not accept imagined even a few years agone. We have encouraged companies to use that rich data to inform their moves on three major battlefields: consumer strategy, product choices and marketing/promotion. The traditional product-centered arroyo has proven itself outmoded. The best companies now apply what we call a consumer prism to more than effectively build core brands, acquire consumers and fend off mounting competition from the likes of insurgent brands, while besides winning persistent cost wars. Merely by focusing on consumers and their needs, and using that as their starting indicate, tin brands outperform. With the growing importance of e-commerce as a sales aqueduct, and the availability of invaluable data, information technology becomes increasingly articulate that employing whatever other approach is akin to shooting in the dark.
Relying on Alibaba’south mount of data and our insights gained from working with consumer goods and retail companies in Cathay, we accept identified eight strategic segments of China’southward online consumers, the demographics and consumption behavior that define each distinct group, the role they play in a host of timely category trends and the touchpoints that entreatment best to them.
Those consumer groups are Rookie White Collars, Wealthy Middle Class, Supermoms, Small-Town Youth, Gen Z, Urban Grayness Hairs, Small-Town Mature Crowd and Urban Blue Collars. Collectively they business relationship for 80% of FMCG platform users and represent over 90% of gross merchandise volume.
Upon further analysis, we determined that these 8 groups fall into 3 clusters: Backbone consumers (Rookie White Collars, Wealthy Centre Class and Supermoms); New Power consumers (Small-Town Youth and Gen Z); and Blue Ocean consumers (Urban Gray Hairs, Pocket-size-Town Mature Oversupply and Urban Bluish Collars).
Rookie White Collars
are educated people in their early on 30s who live in Tier i–3 cities. Their careers are advancing. They work in a fast-paced surround and greatly value convenience—hence, they prefer online shopping. They represent higher per-capita spending on Tmall and Taobao, with annual spending growth of around twenty% from 2016 to 2018.
Wealthy Middle Grade
consists of financially stable consumers, typically in their early 40s. They live in Tier one–3 cities, and primarily work as ceremonious servants or in corporate middle or senior direction. They are less passionate than their younger counterparts when buying the latest new products. As more rational consumers, they value quality, and a college proportion of their online purchases are premium products.
are women who are significant or take children under the age of 12. They live in Tier 1–3 cities and are concerned about raising healthy families while taking neat care of their ain careers—and their own wellness and beauty. They are the chief shoppers for their families and are willing to pay a premium for convenience. Among all groups, they have the strongest spending ability. Information technology is reflected in the number of categories and brands they buy, their shopping frequency and the corporeality they spend.
These three segments can best exist described with three simple words: saturated, sophisticated, premium. Their online penetration has reached a plateau, exceeding lxx% for each of the iii groups in 2018. These three segments stand for the core of online sales, contributing more than lx% of the gross trade volume for FMCG platforms. They maintain sophisticated standards, ownership the highest number of brands, and spending the nigh on premium products and foreign brands. The brands that communicate all-time with these consumers use key words in marketing relating to specific products, places of origin and ingredients. Insurgent brands that meet their demands for quality are gaining stiff growth momentum in both sales book and average selling prices.
consists of students or others born after 1995 and living in Tier one–3 cities. These consumers are digital natives. Unlike their older counterparts, they value trendy items over established brands and are major fans of insurgent brands. This group represented the fastest per-capita spending growth on Tmall and Taobao FMCG, with per-capita spending growing 30% annually from 2016 to 2018.
are consumers in their 20s in Tier 4 or smaller cities. They take their cues from big-city youth, eagerly following the latest urban trends. Without the pressure of exorbitant housing prices, they take considerable disposable income at their fingertips. The slow pace of life also provides them with enough fourth dimension to enjoy games, video streaming and other online leisure activities. Their income and gratuitous time make them a huge potential forcefulness in online shopping.
Gen Z and Small-Town Youth are the most dynamic segments. They represent the highest growth in the consumer base and number of transactions. In add-on, their value-per-transaction growth remains robust.
As they proceeds in spending power, they eagerly merchandise up to premium products. They thirst for new products and are the consumers who purchase new brands at the fastest rate. They strongly prefer content-rich marketing touchpoints and are devoted followers of primal opinion leaders. These youngsters are active in brand blogs such as Weitao and new-product-focused channels such as Free Trial and Tmall’south Hey Box.
Urban Gray Hairs
are consumers born before 1970 who live in Tier i–3 cities. The bulk of them are retired and take substantial pensions. This group could be considered a subconscious golden mine for online sellers. They now spend relatively little online. In fact, their per-capita spending dropped 20% annually from 2016 to 2018.
consumers are older than 35 and live in Tier 4 or smaller cities. With their tiresome pace of life, they typically have an abundance of time to scout videos or news online. They make about of their purchases offline, a preference that allows them to socialize with acquaintances face-to-face up. The Small-Boondocks Mature Crowd registered the lowest per-capita FMCG spending on Tmall and Taobao of any group in 2018.
Urban Blue Collars
are less flush consumers in Tier 1–three cities who are typically engaged in such professions as catering, transportation or retail. They are familiar with the same east-commerce infrastructure and online channels that influence their middle-course counterparts. Yet, compared with the Rookie White Collars or Wealthy Eye Class groups, they are more than concerned near value for their money when shopping online and tend to buy fewer items. Their per-capita spending on Tmall and Taobao is far below that of middle-grade shoppers and grew at a relatively tiresome 5% rate from 2016 to 2018.
The population of these last three segments may exist large, just their online penetration remains low. In fact, both the Minor-Town Mature Crowd and Urban Gray Hairs have less than 20% penetration on Tmall and Taobao FMCG platforms.¹ Withal, the big population and low penetration suggests that they hold great potential for conversion to online shopping with the right cultivation. These consumers want “value for the money”—they aspire to buy loftier-quality products at the lowest possible prices. In about categories studied, the value per transaction is dropping for the products they purchase, every bit they outspend their counterparts in other clusters through discount-oriented channels such as Daily Deals and Special Selected. Furthermore, they favor uncomplicated approaches to communication. For case, they are nearly likely to react to online displays that characteristic few products and simple, direct descriptions. In addition, they tend to favor user-acquisition events, such equally WeChat group buying events initiated by friends or acquaintances.
How brands can win
Winning online means adopting a consumer-centered mindset and regarding strategic consumer groups as the cornerstone for competitive strategy. Brands tin follow a four-stride process for turning that strategy into action.
Pace 1. Conspicuously empathise the targeted strategic consumer groups and their preferences in products and content/promotion channels
There is no “ane-size-fits-all” standard of strategic consumer group segmentation that applies for all brands. In fact, sectionalization widely varies for different product categories and subcategories. Brands should brand employ of the massive information sets available to systematically and accurately allocate their unique strategic consumer groups. For example, strategic consumers in the baby formula category tin can exist segmented according to roles, such as different types of parents and grandparents, besides as various occasions, such every bit self-indulgence or gifts to friends. Furthermore, a brand needs to analyze both its own strategic positioning and the industry landscape before determining its targeted strategic consumer groups.
Step 2. Identify key growth drivers to customize a category- and brand-specific strategy
Subsequently identifying the strategic consumer groups, brands demand to look at three measures: penetration (number of consumers who buy the brand), repurchasing (consumption frequency) and premiumization (average value per transaction). This enables them to identify the growth drivers for key strategic consumer groups and empowers companies to create a customized category and brand strategy (encounter Figure ane).
In abode care, we identified the superlative five contributors to sales growth from 2016 to 2018: Rookie White Collars, Urban Blueish Collars, Supermoms, Gen Z and the Wealthy Heart Class. Combined, these five consumer groups represented more than seventy% of the sales growth in dwelling house care categories.
When we closely examine the data, nosotros run into that penetration, repurchasing and premiumization amidst Rookie White Collars and Supermoms maintained healthy growth, indicating that brands can further learn new consumers, foster consumer loyalty and bulldoze premiumization in these two groups.
Meanwhile, penetration improvement plays a large office in increasing sales growth among Gen Z, the Wealthy Middle Class and especially Urban Bluish Collars. Brands can adapt their production portfolios (introduce high-value-for-the-money products for Urban Blue Collars or innovative products that highlight emotional propositions for Gen Z) and use specific marketing tools that accept college conversion rates among Urban Blue Collars and Gen Z to attract new consumers efficiently. Withal, amongst these iii consumer groups, repurchasing and premiumization has a limited influence on sales—in fact, average value per transaction declined for Urban Blue Collars. Brands should consider means to activate repurchasing and trading upwardly.
Step iii. Optimize product portfolios, marketing and channel strategy—choosing fundamental growth initiatives for reaching and converting targeted consumers
Based on their precise analysis of growth drivers for strategic consumer groups, brands tin can optimize their marketing and channel strategies and production portfolios to reach and convert consumers more than efficiently. Companies can pursue the eight strategic segments by taking these steps.
Better product-consumer matching.
Continuously optimize the product portfolio to friction match consumer needs for production functions, price and specifications. For example, as Backbone consumers focus on the ingredients of skin care products and premiumization, beauty brands should continuously encourage trading up by strengthening the premium products in their brand portfolio, developing high-value and personalized products, and embracing new technologies and leading intellectual property to actuate incumbent brands.
Optimize marketing investment.
Comprehensively evaluate how marketing tools influence the stop-to-end consumer journey in terms of brand and product granularity, and enhance capabilities and investment in related marketing tools to run into the demands of strategic consumer groups. For instance, immature people look for key opinion leaders’ recommendations for new products and promotions. Brands can embrace those opinion leaders and invest heavily in popular content channels similar the Weitao store web log, a favorite of immature consumers, to maximize marketing ROI.
Optimize aqueduct portfolio.
Requite full play to the greatest advantages of different channels and make them complement each other. For online channels, brands can position flagship stores as their main platform for branding, new-product launches and consumer education interaction. They can position C2C stores to examination insurgent and niche brands every bit platforms on which they can cooperate amend with key opinion leaders.
Nosotros have determined the all-time ways that companies pursue the three strategic consumer clusters (run across Effigy 2).
Step four. Systematically review and continuously improve strategic initiatives
Consumer data makes the route from awareness to purchase more than traceable than ever, allowing companies to track and evaluate the sales conversion process. Brands tin found a brand-asset dashboard to runway existent-time results and brand adjustments along the total AIPL (awareness–involvement–purchase–loyalty) journey. Brands can optimize their direction of consumer assets—brand awareness, operational efficiency, brand loyalty and consumer quality.
Dashboards tin be populated from the data generated by hundreds of millions of online consumers, with high granularity down to the brand and SKU level. Companies can view the data based on each action along the AIPL journey, as consumers click and scan, search for products, inquire about products, add products to their listing of favorites, add them to shopping carts, complete purchases, recommend products, join loyalty programs and become active members. Each indicator tin can be benchmarked against historical data and industry averages.
Moreover, brands can develop a customized KPI (key performance indicator) dashboard based on their development status and strategic positioning. They tin can classify different weights to unlike consumer metrics too as gross merchandise value metrics, reviewing the effectiveness of strategic initiatives from an integrated view and with an heart toward continuous improvement.
To heave ongoing engagement with targeted consumer groups, brands should go data-driven, consumer-axial organizations that develop their own sets of consumer information while also collaborating with outside platforms.
In the evolving FMCG market place, the boundaries of categories are blurring, and the consumer touchpoints are irresolute fast. Only past focusing on consumers tin can brands capture future growth opportunities. This iv-footstep playbook provides the right path. Bain and Alibaba will continue to piece of work with consumer goods companies to generate the consumer insights and actions that will lead brands to achieve their full growth potential—and we will continue sharing our findings in future reports.
Full written report
E-commerce is the engine that is propelling the growth of China’s fast-moving consumer appurtenances marketplace and leading information technology into exciting new directions. Consider that online sales rose by 35% annually from 2014 to 2018. This compares with five% growth for the total FMCG markets (see Effigy 3). In 2018, e-commerce contributed 17% of all FMCG sales, emerging every bit huge contest for such traditional channels as hypermarkets and supermarkets. Already achieving high penetration for categories similar color cosmetics and infant formula, it is quickly becoming a aqueduct of choice for purchases in personal wash, oral care and others where its penetration is steadily growing (see Figure four). Every bit e-commerce gains prominence and wins the hearts of more shoppers, it reveals two undeniable facts of life. First, companies will demand to invest in a digital transformation to build the new digital capabilities required to make the most of e-commerce. Second, winning in China means winning the boxing online. That starts with making a different blazon of transformation—moving from a strategic brand approach built around products to one built around consumers (see Figure 5).
Indeed, the traditional product-centered arroyo, in which a brand uses a production angle and relies on gross merchandise value every bit its target, is no longer appropriate. Information technology comes with loftier consumer-acquisitions costs and the difficulty of building cadre brands while losing existing consumers. It also does piffling to help consumer goods companies deal with multiple challenges: intensified industry competition, frequent cost wars and the aggressive attack from insurgent brands. A production approach tin can no longer sustain a brand’due south healthy growth. The evolving marketplace dynamic requires brands to move to a consumer-centered operations model. That ways embracing deep consumer insights for precise mapping across consumers, products and marketing/promotion channels, and farther improving quality and efficiency. Just by taking such an arroyo can brands attain their full potential and outpace competitors.
For this study, we have drawn key insights from the data produced past hundreds of millions of consumers on the Tmall and Taobao platforms to understand who China’s online shoppers really are, how they behave online and what steps companies tin accept to win them over. It is the first fourth dimension that this unparalleled data mine has been made available for systematic analysis.
The main contents of this study include:
- Strategic consumer grouping definitions. Who are the strategic consumer groups that will be responsible for FMCG growth?
Strategic consumer preference.
What are their preferences in product categories, online shopping touchpoints and communications channels?
How brands tin can win.
What are the best ways for brands to develop authentic and efficient operations to sell to these strategic consumer groups?
Consumers: strategic consumer groups
Consumer segmentation methodology
Our analysis of the consumption behavior of hundreds of millions of consumers, combined with Tmall’southward arroyo to labeling consumers, has led usa to place eight strategic online consumer groups.
Those consumer groups are Rookie White Collars, Wealthy Middle Class, Supermoms, Small-scale-Town Youth, Gen Z, Urban Grayness Hairs, Pocket-sized-Town Mature Crowd and Urban Blue Collars (see Figure 6). Collectively they account for 80% of FMCG platform users and represent over xc% of gross merchandise volume. Allow’s look at these groups one-by-ane:
8 strategic consumer groups
Rookie White Collars
are educated people in their early 30s who alive in Tier 1–3 cities. Many of them hold positions in corporate staff or work in financial services. Their careers are advancing. They work in a fast-paced environment and greatly value convenience—hence, they prefer online shopping. They represent college per-capita spending on Tmall and Taobao, with annual spending growth of around 20% from 2016 to 2018. Their willingness to try innovations leads them quickly to shift to new brands. They are passionate about cocky-improvement. Equally such, they spend heavily to improve themselves mentally and physically. Despite their healthy income, they may have lower-than-expected disposable income, due to high housing costs and other expenses required to maintain their lifestyle.
Wealthy Centre Class
consists of financially stable consumers, typically in their early 40s. They live in Tier ane–3 cities, agree available’south or avant-garde degrees, and primarily work every bit civil servants or in corporate eye or senior management. They are less passionate than their younger counterparts when buying the latest new products. As more rational consumers, they value quality, and a higher proportion of their online purchases are premium products. When shopping offline, they value the in-store experience.
are women who are meaning or have children under the age of 12. They live in Tier 1–3 cities and are concerned most raising healthy families while taking great intendance of their ain careers—and their ain health and dazzler. They are the principal shoppers for their families and are willing to pay a premium for convenience. Among all groups, they have the strongest spending ability. It is reflected in the number of categories and brands they buy, their shopping frequency and the amount they spend. They value products that promote health and pay special attention to product safety. Their purchasing power influences the premiumization of the categories in which they buy. They also favor high-quality overseas products, such every bit imported baby formula, which they purchase via cross-border online platforms.
consists of students or others born after 1995 and living in Tier i–3 cities. These consumers are digital natives. They buy everything they can online (70% of this group fabricated more than xl% of their total purchases online) and they are extreme repertoire shoppers. Unlike their older counterparts, they value trendy items over established brands and are major fans of insurgent brands. This group represented the fastest per-capita spending on Tmall and Taobao FMCG, with sales growing thirty% annually from 2016 to 2018. They are passionate nearly cocky-expression, developing their interests online through sites dedicated to social activities related to niche hobbies and civilisation. Obsessed with appearance, they are a big force behind the online growth of cosmetics and other beauty categories in Red china.
are consumers in their 20s in Tier 4 or smaller cities. They take their cues from big-city youth, eagerly following the latest urban trends. Without the pressures of exorbitant housing prices, they have considerable disposable income at their fingertips. The slow pace of life too provides them with enough time to enjoy games, video streaming and other online leisure activities. Their income and complimentary time make them a huge potential forcefulness in online shopping.
Urban Gray Hairs
are consumers built-in earlier 1970 who live in Tier 1–3 cities. The majority of them are retired and accept substantial pensions. This grouping could be considered a subconscious gold mine for online sellers. They now spend relatively petty online. In fact, their per-capita spending dropped 20% annually from 2016 to 2018. However, they could be thoughtfully cultivated every bit new customers. Unlike younger groups, they tend to be mindful of prices when shopping online and prefer discounted products. They highly value maintaining stiff relationships with relatives and friends, preferring unproblematic methods of advice. They are influenced past Pinduoduo, Qutoutiao and other social network apps that enable online sellers chop-chop to acquire customers from an existing user base.
consumers are older than 35 and live in Tier four or smaller cities. They use mobile phones and computers in equal measure to surf the Cyberspace. With their slow pace of life, they typically have an affluence of time to sentinel videos or news online. They make well-nigh of their purchases offline, a preference that allows them to socialize with acquaintances face-to-face. The Small-scale-Town Mature Crowd registered the lowest per-capita FMCG spending on Tmall and Taobao of any group in 2018. They tend to follow others’ choices when shopping and, like their urban counterparts, are the key targets of social-network-based promotions.
Urban Blueish Collars
are less affluent consumers in Tier 1–iii cities who are typically engaged in such professions equally catering, transportation or retail. These consumers are probable to reside in the suburban areas of those cities and usually spend their long commutes enjoying entertainment on their mobile phones. They are familiar with the same east-commerce infrastructure and online channels that influence their centre-course counterparts. Nonetheless, compared with the Rookie White Collars or Wealthy Middle Class groups, they are more than concerned nigh value for their coin when shopping online and tend to buy fewer items. Their per-capita spending on Tmall and Taobao FMCG is far below that of middle course shoppers and grew at a relatively irksome 5% rate from 2016 to 2018.
Three consumer clusters
By further analyzing their relative sales contribution and online penetration, we also plant that these eight groups fall into three clusters—the triple engine of online sales (see Effigy 7). Courage consumers (Rookie White Collars, Wealthy Centre Course and Supermoms) are the about mature and sophisticated consumer groups. New Power consumers (Small-Boondocks Youth and Gen Z) exhibit the most potential. Blueish Bounding main consumers (Urban Gray Hairs, Pocket-sized-Town Mature Oversupply and Urban Blue Collars) comprise the most underdeveloped cluster, with the lowest penetration and sales growth. In full general, we found the assay of the eight segments more insightful for brands, but we also establish that information technology was useful, in some cases, to refer to the 3 clusters.
Courage contributes the most; New Power drives new growth
For consumption per capita, the Courage cluster is the strongest, with Supermoms (their families’ primary purchasers) exhibiting peculiarly prominent spending ability. They non only take on all the needs of their children, just typically also intendance for parents, all while pursuing their own careers. Information technology is no surprise that the convenient online channel normally is their preferred method of shopping. Consider that Supermoms’ online per-capita consumption is roughly 50% higher than that of Rookie White Collars and Wealthy Middle Course consumers (come across Figure viii).
New Power and Blue Ocean consumers but spend virtually one-quarter to 1-3rd of what Backbone consumers spend online. However, the New Ability cluster, with its younger members, shows the most hope for continued rapid growth. For example, online consumption per capita among Generation Z grew past about 30% a year from 2016 to 2018. Past dissimilarity, online spending is declining for Blue Body of water consumers. Activating consumption for Blue Body of water consumers can exist a priority for brand owners and platforms akin.
Drivers of growth
Growth in online shopping depends on the number of consumers, frequency (average number of transactions) and the value per transaction. With those drivers in mind, New Power consumers sally as the most vibrant, with very like growth patterns for Gen Z and Small-scale-Town Youth; they prove healthy growth for all three drivers. For example, their consumer base expanded xxx% annually from 2016 to 2018, the highest of all three clusters. Growth in the Backbone cluster resulted mainly from increases in value per transaction in beauty and food and beverage (run across Figure 9). Value per transaction was peculiarly strong amidst Rookie White Collars. However, the numbers of Courage consumers and transactions were stagnant.
Despite a rapid rise in its population, the Blueish Bounding main cluster experienced apartment or even negative growth in the number of transactions and value per transaction, depending on the category, especially for Urban Gray Hairs and the Small-Town Mature Crowd. Amidst the possible reasons for this lackluster performance: declining macroeconomic growth, cautious consumption behavior, and competition from new social e-commerce platforms that compete with Tmall and Taobao.
Products: trends in category preference
“Ii-speed” paths to premiumization
Consumers are the get-go battlefield for brands hoping to win online. Products are the second battlefield. Brands need to use the consumer prism to empathize how their target consumers influence a host of critical product trends.
In our continuing Cathay Shopper Written report series, we have examined the dimensions of China’s miracle of two-speed growth among product categories. Some categories have consistently accomplished healthy growth, while others have grown much more slowly. This two-speed growth scenario holds true in online sales among consumer segments. Young consumers, especially Gen Z and Rookie White Collars, pb the premiumization trend. Past comparing, Urban Grayness Hairs, the Small-Town Mature Crowd and Urban Blue Collars are trading down.
Our inquiry plant that premiumization is most evident in the beauty category (run into Effigy ten). An increasing emphasis on personal appearance across all consumer groups has led to an expanding share for mid- to ultrapremium beauty products. Rookie White Collars are peculiarly eager and able to invest in their appearance. As a grouping, their share of mid- to ultrapremium products rose by 8 percentage points from 2016 to 2018. Gen Z and Small-scale-Town Youth were close. Both groups saw 7% share gains for those higher-priced products. These findings highlight how younger consumers are willing to pay for premium dazzler products. Winning brands are taking this tendency to middle past improving their product assortment to cater to younger consumers in search of premium beauty brands.
Backbone and New Power consumers alike have a growing share of mid- to ultrapremium products in about all production categories. Amidst them, Rookie White Collars and Gen Z witnessed the largest share increment in dwelling house care and personal intendance. Past contrast, Urban Gray Hairs, Small-Town Mature Oversupply and Urban Blue Neckband consumers bought fewer mid- to ultrapremium products in all categories except beauty.
Brand variety: Small-scale-Boondocks Youth, Gen Z and beauty have the lead
The more sophisticated consumers become, the more brands they buy. Amid all consumer groups, Gen Z and Minor-Town Youth are the most willing to expand into new brands across all categories (see Effigy xi). With their appetite for the latest way and their preference for social media, these younger consumers easily gravitate toward new categories and brands. Consider that Gen Z consumers bought 23% more brands annually in 2016 to 2018. By contrast, Urban Gray Hairs, Small-Town Mature Crowd and Urban Blue Collars consumers buy fewer and fewer brands.
Beauty was the only product category in which these iii consumer groups bought more brands from 2016 to 2018. Ane of the takeaways from this finding: beauty is a typical repertoire category in which consumers evidence relatively little loyalty. In this “leaky bucket” category, brands continuously need to attract consumers to supervene upon those who decide to purchase competitors’ products. But the prevalence of repertoire behavior also means that there is aplenty room for new brands to grow and flourish.
Insurgent brands on the rise
Young insurgent brands are everywhere today—and they are quickly reshaping the online market, even to the point of finding a place among the superlative 50 brands. In fact, depending on the category, five to seven of the 2018 top 50 brands were launched on Tmall after 2016. The phenomenon raises challenges for incumbent brands, but opens opportunities for new brands. Our research found that Supermoms, Rookie White Collars and Gen Z consumers are the most welcoming to insurgent brands beyond nearly major categories (see Figure 12). These buyers also are the virtually digitally savvy among consumer groups and actively seek recommendations on social media and from trustworthy primal opinion leaders.
The beauty category has emerged as a key arena for insurgent brands. Social eastward-commerce and cross-border e-commerce unlock opportunities for beauty insurgent brands to grow in China, thanks to suitable channel economic science and more efficient route-to-market opportunities. Taking a closer expect at insurgent brands within the top 50, nosotros find that Gen Z consumers prefer local brands, while Rookie White Collars clearly prefer foreign brands. The majority of Gen Z’south new beauty brands in 2018’due south pinnacle 50 are local (Perfect Diary, Abode Facial Pro, Winona, etc.). Local dazzler brands offer a improve value-for-the-money proffer and take nimbler organizations that can chop-chop react to changing consumer needs. They can rely on brand incubation centers and test-and-learn capabilities to introduce new brands catering to Gen Z consumers’ evolving tastes. The foreign insurgent brands preferred by Rookie White Collars succeed in part past capitalizing on such trends every bit aesthetic medicine and home medical treatments.
Rapid category expansion
Younger online shoppers, particularly Gen Z consumers, are willing to buy from more categories (see Figure 13). For case, they have additional penetration by an average 13 pct points in the top 10 beauty subcategories such every bit color cosmetics and fair-priced peel care.² While Rookie White Collars increased their penetration of the height 10 dazzler subcategories by only 4 percentage points, they show a preference for more sophisticated subcategories such equally facial essences and makeup tools.
Winning brands: local vs. foreign
The strange vs. local battle rages on. While strange brands managed to maintain share in most product categories, they lost share to local brands in the beauty and nutrient and drink categories (come across Figure 14). Strange brands lost 7 per centum points of value share to their Chinese counterparts in color cosmetics, for example. Meanwhile, consumers’ increasing needs for premium products helped foreign brands gain share from local brands in many abode care and personal care categories. Strange brands can benefit from the trend amongst Chinese consumers to buy more premium products by adding more of those products to their portfolio.
Foreign brands are rapidly learning what it takes to win in China. Information technology requires keeping stride with the market’s rapid changes and a “4D” arroyo: pattern for Communist china, decide in China, deliver at China speed and digitalize the Communist china business (run into the Bain Brief “Consumer Products: At present’due south the Fourth dimension to Double Down on China”).
Big brands win online
Overall, the top 50 brands gained market share for food and beverages, home care and personal care. Only in the beauty category did they lose share (come across Figure xv). Large brands typically accept a competitive advantage in digital marketing investments and in frontline expertise that takes years to build. However, the current share gains do non mean that big brands always win. Their market share is failing in the beauty category, where established companies confront competition from young brands on the ascension. This is particularly true in subcategories such as color cosmetics, perfume and men’s care. All accept get more repertoire in the past 2 years with the emergence of new brands. Online and cross-edge e-commerce have helped lower the bulwark to entry for many brands, including niche foreign brands. Digital capabilities let them directly to target consumers instead of spending years building out an extensive distribution network.
Brand communication: online preferences
The online search paths taken by different consumer groups vary dramatically. For example, Gen Z consumers utilise words that describe their basic needs (run into Figure 16). When searching for facial mask products, they rely on such terms as “pore cleansing” or “moisturizing.” Also, because they have weaker make preferences, they tend to search fewer names. They are mostly looking for lower-priced new local brands such as One Foliage or overseas niche brands similar Ray. By comparing, Rookie White Collars’ searches mirror their growing sophistication. They search for specific brands based on land of origin (Nihon and Korea) and ingredients (pearl pulverization and hyaluronic acid). They favor mid- to loftier-cease brands.
Marketing and promotions: different channels for different consumers
Diversified online marketing channels
Marketing and promotions is the third online battlefield for brands hoping to attain their full potential in east-commerce. Again, a consumer prism is essential. Winning starts by acknowledging that all consumer groups engage differently with brands.
Tmall and Taobao provide a wide range of content/promotion channels to appoint consumers online (see Figure 17).
Ordering and promotion.
On ordering channels, consumers place orders through a shopping cart, store folio or other channels. Promotion channels are Alibaba-paid marketing tools such equally ZTC (smart search fundamental words), TBK (advertisers marketing products through external bloggers, website publishers or apps to increment traffic) and SD (smart advertising).
These are major content channels for alive streaming, smart recommendation for products, Weitao (store blog) and smart recommendation for stores.
These are channels with specific themes such as disbelieve and new-product-focused channels.
Basic ordering and promotion channels
Amidst the eight bones ordering and promotion channels, there is no overlap between the peak three favored by Backbone consumers (shopping cart, store and social club history) and those preferred by New Power and Blueish Ocean consumers (search, TBK, ZTC). Backbone shoppers are more sophisticated and tend to know in accelerate what they want (see Effigy 18). Equally a effect, marketing tools influence them less than other online shoppers. They place orders directly from their shopping cart, shop and lodge history. Store channels, mainly contributed from flagship and C2C stores, are preferred by Backbone consumers, demonstrating that cluster’s potent recognition and loyalty toward brands and central opinion leaders. Meanwhile, the large share of previous orders reveals Backbone’s strong propensity for repeat purchases.
The story is completely dissimilar with New Ability and Bluish Ocean consumers, who make more purchases via marketing tools. These consumers like to explore and browse online without a specific purpose in mind. They are more hands influenced by ads and recommendations. Nevertheless, there is a disparity between the behavior of young and older consumers in these clusters. For instance, younger online shoppers rely more on TBK. For brands selling to immature consumers, two effective approaches are what we call “grass seeding” (triggering consumers’ interests outside the Taobao platform) and “harvesting” (in which consumers purchase products inside Taobao).
Finding the right content channel
Backbone consumers business relationship for the about sales on each content channel (run across Effigy 19). Among those consumers, Supermoms spend the most every bit they search for the best products to buy. However, each consumer cluster has its own preference. For example, New Power consumers prefer ownership on store blogs, where their share of spending is the highest among all iv categories. New Power shoppers’ interest in Taobao live streaming is significantly lower than it is for other external apps and websites such every bit TikTok. Aiming for the New Power alive-streaming audience on Tmall/Taobao, pioneers may serve these consumers’ unsatisfied needs and deepen user appointment past enriching live-streaming content. For their part, Blue Ocean consumers—especially Urban Blue Collars—adopt store recommendation.
Bewitchery of disbelieve and new-product channels
Disbelieve channels are where Blue Ocean consumers spend their coin. Their share of spending in these channels is significantly higher than information technology is on other content channels. During a 2-week menstruation this twelvemonth, Blue Sea shoppers deemed for 32% of discount channel sales, and their share of disbelieve aqueduct sales is most 15 per centum points higher than information technology is for content channels (see Figure 20). New Ability shoppers accounted for 18% of discount channel sales, and their share is nigh 6 percentage points higher than it is for content channels, showing how value-for-the-coin is also attractive for that cluster.
New-product channels such every bit Costless Trial (which offers samples to attract first-fourth dimension users) and Hey Box (a new-product launch aqueduct) are extremely popular among New Power consumers, who represent more xl% of overall traffic. That share is highest in Hey Box, where New Ability shoppers make up around 60% of the traffic, far exceeding the activity amid Backbone consumers. Further show that New Power shoppers thirst for new products: they are big fans of Tmall flagship stores, often the official launch site for new products. Equally Tmall flagship stores evolve, brands looking for a competitive edge will target this group with new products, while likewise improving flagship store operations.
The consumption behavior is articulate and distinct amid the consumer groups and clusters. Knowing what these consumers buy and how they shop is a first giant step. Brands need to apply that understanding—that consumer prism—to guide their investments in the channels favored past targeted consumers, while enhancing the consumer experience throughout the shopping journeying.
How brands can win
Winning online ways adopting a consumer-centered mindset and regarding strategic consumer groups equally the cornerstone for competitive strategy.Brands tin can follow a four-step process for turning that strategy into activeness.
Step ane. Clearly understand the targeted strategic consumer groups and their preferences in products and content/promotion channels
In that location is no “ane-size-fits-all” standard of strategic consumer grouping segmentation that applies for all brands. In fact, partition widely varies for different production categories and subcategories. Brands should make utilise of the massive data sets available to systematically and accurately classify their unique strategic consumer groups. For example, strategic consumers in the infant formula category can exist segmented according to roles, such equally unlike types of parents and grandparents, besides equally various occasions, such as self-indulgence and gifts to friends. Furthermore, a brand needs to analyze both its own strategic positioning and the industry landscape before determining its targeted strategic consumer groups.
Step 2. Identify primal growth drivers to customize a category- and brand-specific strategy
Afterward identifying the strategic consumer groups, brands need to look at iii measures: penetration (number of consumers who purchase the brand), repurchasing (consumption frequency) and premiumization (average value per transaction). This enables them to identify the growth drivers for key strategic consumer groups and empowers companies to create a customized category and brand strategy (see Figure 1).
In habitation care, we identified the top five contributors to sales growth in 2016 to 2018: Rookie White Collars, Urban Blue Collars, Supermoms, Gen Z and the Wealthy Middle Grade. Combined, these 5 consumer groups represented more 70% of the sales growth in dwelling house care categories.
When we closely examine the data, we see that penetration, repurchasing and premiumization among Rookie White Collars and Supermoms maintained healthy growth, indicating that brands can farther larn new consumers, foster consumer loyalty and drive premiumization in these two consumer groups.
Meanwhile, penetration improvement plays a large role in increasing sales growth amongst Gen Z, the Wealthy Centre Class and peculiarly Urban Blueish Collars. Brands tin conform their product portfolios (innovate high-value-for-the-money products for Urban Blue Collars or innovative products that highlight emotional propositions for Gen Z) and use specific marketing tools that have college conversion rates among Urban Blue Collars and Gen Z to attract new consumers efficiently. However, amongst these three consumer groups, repurchasing and premiumization has a express influence on sales—in fact, boilerplate value per transaction declined for Urban Blueish Collars. Brands should consider ways to activate repurchasing and trading up.
Footstep 3. Optimize product portfolios, marketing and channel strategy—choosing key growth initiatives for reaching and converting targeted consumers
Based on their precise analysis of growth drivers for strategic consumer groups, brands can optimize their product portfolios and marketing and aqueduct strategies to reach and convert consumers more than efficiently.
Companies can pursue the eight strategic segments by taking these steps.
Improve product-consumer matching.
Continuously optimize the product portfolio to match consumer needs for product functions, toll and specifications. For example, as Backbone consumers focus on the ingredients of skin care products and premiumization, beauty brands should continuously encourage trading up by strengthening the premium products in their brand portfolio, developing loftier-value and personalized products, and embracing new technologies and leading intellectual property to activate incumbent brands.
Optimize marketing investment.
Comprehensively evaluate how marketing tools influence the finish-to-terminate consumer journeying in terms of brand and product granularity, and raise capabilities and investment in related marketing tools to meet the demands of strategic consumer groups. For instance, young people look for central stance leaders’ recommendations for new products and promotions. Brands can embrace those opinion leaders and invest heavily in popular content channels like the Weitao store weblog, a favorite of young consumers, to maximize marketing ROI.
Optimize channel portfolio.
Give full play to the greatest advantages of different channels and make them complement each other. For online channels, brands can position flagship stores as their main platform for branding, new-production launches and consumer education interaction. They can position C2C stores to examination insurgent and niche brands every bit platforms where they can cooperate better with key stance leaders.
Nosotros’ve determined the best ways that companies pursue the three strategic consumer clusters (see Effigy 2).
Step 4. Systematically review and continuously improve strategic initiatives
Consumer information makes the road from awareness to purchase more traceable than always, allowing companies to track and evaluate the sales conversion process. Brands can establish a make-nugget dashboard to track existent-fourth dimension results and make adjustments forth the total AIPL (sensation–interest–purchase–loyalty) journeying. Brands can optimize their direction of consumer assets—make sensation, operational efficiency, make loyalty and consumer quality.
Dashboards can be populated from the data generated past hundreds of millions of online consumers, with loftier granularity downwards to the brand and SKU level. Companies can view the data based on each activity forth the AIPL journey, as consumers click and browse, search for products, ask almost products, add products to their list of favorites, add together them to shopping carts, complete purchases, recommend products, join loyalty programs and become active members. Each indicator can be benchmarked confronting historical information and industry averages.
Moreover, brands tin develop a customized KPI (central performance indicator) dashboard based on their development condition and strategic positioning. They can allocate different weights to different consumer metrics besides equally gross merchandise value metrics, reviewing the effectiveness of strategic initiatives from an integrated view and with an eye toward continuous improvement.
To boost ongoing engagement with targeted consumer groups, brands should become information-driven, consumer-axial organizations that develop their ain sets of consumer information while also collaborating with outside platforms.
In the evolving FMCG market, the boundaries of categories are blurring, and the consumer touchpoints are changing fast. Only by focusing on consumers can brands capture future growth opportunities. This iv-pace playbook provides the right path. Bain and Alibaba will go along to work with consumer appurtenances companies to generate the consumer insights and actions that will lead brands to achieve their total growth potential—and we will continue sharing our findings in future reports.
General Manager of Tmall FMCG group
Equally this written report details, different consumer groups have vastly various preferences for products and content/marketing channels. Acknowledging this, more companies now view consumers as the starting point for products and content/marketing channel strategy. When companies set up operations for products and content/marketing channels without first investing to understand consumers, they become the proverbial blind person sizing upwardly an elephant. In fact, building consumer-focused operations has become the summit priority for brands in their effort to establish winning online operations. This report provides insightful and actionable guidance to brands as they rely on data to segment consumers then analyze consumption behaviors co-ordinate to those segments. But by start understanding who China’s online shoppers really are tin can brands generate invaluable insights into category and touchpoint preferences beyond the consumer journey and ultimately define targeted initiatives to win over strategic consumer groups. Targeted marketing can just be successful if you optimize products and invest in marketing from the perspective of consumers.
Full general Manager of Omni-Channel Data Operations for Tmall FMCG group
Brands need strong guidance as they begin using a consumer prism to revise strategy and implementation plans for consumers, products and content/marketing channels. Enabled by massive large data resources, they obtain that guidance by using a methodology that precisely defines strategic consumer group characteristics, including their category and touchpoint preferences. These inputs assist a brand build continuously improved, closed-loop consumer operations based on those preferences. In Communist china’due south online market, the strategic consumer groups approach is also the best way to place hereafter growth opportunities.
Partner with Bain & Visitor’southward Consumer Products and Retail practices, President of Bain Mainland china Digital Research Institute
Digital transformation is a progressive course without cease. For example, as Mainland china’s online traffic steadily grew, many FMCG brands focused their efforts on measuring the overall performance of their consumer operations. Now, every bit the focus shifts from traffic operations to consumer operations, brands are finding value in establishing operations based on strategic consumer groups. Winning FMCG companies are systematically diving into the data generated by hundreds of millions of consumers to segment those consumers and analyze their consumption behavior. This approach provides brands with three unique advantages.
First, it enables brands to acuminate their strategy. They no longer aim for pure GMV growth, but instead concentrate on the operation of consumer operations, with the goal of maximizing consumer satisfaction on a strategic level and capturing consumers’ value beyond their life cycle.
2d, it allows companies to operate more comprehensively, and with precision. The division and analysis of strategic consumer groups are drawn from massive big data avails and covers the full consumer journeying of awareness, involvement, purchase and loyalty (AIPL). The data spans beyond multiple dimensions, from transactions and products to brands and categories.
Finally, the arroyo is actionable. By conducting customized analysis of their suitable strategic consumer groups, brands tin flexibly choose key growth initiatives in marketing and advertising, product assortment, channel distribution and other areas. They tin can build a consumer assets management dashboard to facilitate real-time assessment and iterative optimization of those growth initiatives.
In this digital era, profiting from data and innovating for consumers should be the key strategy for FMCG brands. Only by keeping the consumer focus in listen and leveraging large data capabilities can brands continuously win in China.
Partner with Bain & Company’s Consumer Products and Retail practices, Leader of Bain China Consumer Products practice
China’s FMCG brands face many opportunities and challenges. Consumers demand improve-quality products and innovation. The marketplace competition is getting fiercer, with insurgent brands capturing more than their share of the growth. In this environment, it has become increasingly important to brand decisions based on big data analysis.
The all-time companies utilize a methodology that includes a 4-step procedure. Kickoff, they identify the strategic consumer groups and analyze their consumption preference. Second, they pinpoint the growth drivers to develop a customized strategy. Tertiary, they choose primal growth initiatives, implementing the strategic ones. Finally, they fix up a dashboard to enable comprehensive and targeted monitoring and existent-fourth dimension improvement. By investing to clearly understand their consumers’ needs, and using that to dictate their strategy, companies lay the foundation for achieving their full growth potential.
The steering committee, contributors and acknowledgments
is the general manager of Tmall FMCG
is the general managing director of omni-channel data operations of Tmall FMCG
is a partner with Bain & Company’s Consumer Products and Retail practices, president of Bain China Digital Enquiry Constitute, and is based Beijing
is a partner with Bain & Company’s Consumer Products and Retail practices, and is based in Shanghai
is a partner with Bain & Company’s Consumer Products and Retail practices, leader of Bain Cathay Consumer Products practice, and is based in Shanghai
is the full general manager of Tmall Food Sector
is the general manager of Tmall Maternal Sector
is the general manager of Tmall Dazzler Sector
is the full general manager of Tmall Personal Care Sector
is the general manager of Tmall Home Cleaning Sector
is the general manager of Tmall Medical and Health Sector
Qian Zhang is a consumer and category professional person skilful of Tmall FMCG. You can contact her by email at [email protected]
Kun Zheng is a senior expert of Tmall FMCG omni-channel data operations. You tin can contact her by email at [email protected]
Ganglin Peng is a professional consultant of Tmall FMCG omni-aqueduct data operations. You tin contact him by email at [email protected]
Kelly Guo is a senior consultant and project leader at Bain & Company. You lot can contact her by electronic mail at [email protected]
Joe Wang is an associate consultant at Bain & Visitor. You can contact him past email at [email protected]
Please direct questions and comments about this report via electronic mail to the contributors.
This report is a joint effort of Bain & Company and Alibaba Tmall.
The authors extend gratitude to all who contributed to it, especially Pinky He, Hunter Zhu, Jasmine Zhao, Rena Gu, Cathy Li, Huimin Vocal, Jenny Zhang, Jane Wu, Yue Zhu, Yifan Zou, Qiyuan Shi, Xuan Ning, Jingmin Chen, Weiting An, Guosheng Ben, Jinhe Lan, Xuanchun Wang, Wen Wang, Aifen Zhuge, Ning Bai, Sisi Dong, Chao Wang, Qing Liu, Fenfen Yang, Yong Yang, Dan Zhao, Lai Wei, Yi Qin, Yanni Shi, Leilei Tian, Fan He, Yan Cheng, Jiaxin Zhang, Lisha Xu, Jiamin Yu, David Diamond, Dean Inouye, Shahnaz Islam, Renee Bergeron, Laura Sewell.
- Online penetration equals the number of a specific consumer grouping’southward users on Tmall and Taobao FMCG platforms, divided by China’s total population for that consumer grouping.
- Subcategory penetration equals the number of subcategory consumers on Tmall and Taobao platforms, divided by the full number of consumers on the platform.
A Consumer Group Has Determined That the Distribution