China - where the consumer is the boss and brands are at a loss

Ecommerce platforms, low fulfillment costs, and VC funded startups put consumers in control.

The concept of brands in the US started as an antidote to snake-oil salesmen. Brands often represented a reliable, known individual. When Lunsford Richardson created a cough and cold remedy, he decided to name it Vicks after his brother-in-law, who was a doctor, on the basis that his name lent credibility in all the local markets around Greensboro, North Carolina. While China was (and occasionally still is) plagued by scandals around fake food or medicine, regulation and very public punitive action has removed bad players and reduced the risk of buying an unfamiliar brand.

In the West, an unknown brand would struggle to get distribution. In China’s e-commerce ecosystem that accounts for over 40% of total retail, anyone can set up a store on TMall or JingDong. These two platforms collectively command over 80% of the e-commerce market, which means there are very few brand-owned ecommerce sites in China. The platforms create a stage for all brands, new and old, unproven and trusted, to compete for consumers on the basis of price and consumer experience. Social commerce through wechat or Pinduoduo and other experiments constantly push the boundaries of how brands and consumers interact.

VC-funded Chinese entrepreneurs often launch small, niche fashion or consumer goods, bypassing traditional routes to market on the road to success. Real consumers and paid influencers rate and review vendors and products through social media, building credibility that allows these businesses to take share away from multinational brands. Coupled with cheap logistics, generous return policies, and massive discounts – especially on special buying days like retail juggernaut Singles’ Day – and it’s no wonder that consumer-powered ecommerce dominates.

Convenient mobile payment solutions (e.g. Alipay, WeChat Pay), app-based ecommerce, and the saturation-level ownership of smartphones take this trend to another level, moving ecommerce into categories that remain in the province of offline retail in other markets.

While all of this news is good for challenger brands, marketers face diminished brand influence, as well as low levels of accountability and transparency in digital advertising.

Key publishers and exchanges in China operate as walled gardens, blocking third-party ad tracking, ad verification, and completion tools. Alibaba and Tencent, the two dominant players in the digital marketing landscape, drive this effort without dependency on advertising.

Walled gardens, coupled with lack of proprietary data, prevent brands from building a comprehensive view of customer behavior along the path to purchase or optimizing that consumer journey.

This may not matter in era when consumers behave in a very transactional manner, fueled by the immense power that technology, the e-commerce ecosystem, and the flood of well-funded ecommerce startups in China has given them. Those dynamics could change in the future. The ecommerce duopoly could fragment, taking away the power that the platforms wield over brands and removing the pressure to compete solely on price. The flood of VC money could dry up, forcing startups to price for profit and eradicating their temporary advantage over legacy businesses. Over time, if the big digital players get forced to design a more transparent, accountable digital advertising ecosystem, marketers could start to take back control of their digital spend.

These factors could eventually lead to a Chinese market where brands play a bigger role in consumers lives, much as they do everywhere else.

Will these be the brands of today or the ones that getting created as we speak? Will they come from a legacy of many decades of existence or from the credibility of millions of users talking them up on social media? China’s ecosystem has created some unique dynamics around consumer interaction that will permanent impact brand-building in the marketplace.

D. Sriram is the managing director for China at Ebiquity.

GET YOUR CAMPAIGN DAILY FIX

The latest work, news, advice, comment and analysis, sent to you every day

register free