October 2, 2019 – This post was written by Eric Johnson, Engagement Manager, and Sunny Xu, Senior Analyst.
In our previous blog post, What You Need to Know about China’s Newest E-Commerce Opportunity, we outlined China’s new and exciting e-commerce opportunity, daigou. This fast-growing channel offers multinational executives the chance to formalize and expand their presence in China’s e-commerce space.
However, executives interested in this opportunity cannot simply apply the same tactics that have worked in the past for e-commerce. For example, if you are in the retail sector, you are likely already selling in this space whether you realize it or not. This article explores five key components of establishing and maintaining a successful daigou e-commerce channel strategy in China.
Challenge: Daigous and suppliers prioritize pricing strategy. For both, a large concern is the inconsistent price across different platforms (online/offline), and a pricing war that leaves little or no profit for daigous, resulting in daigous abandoning a product altogether. Avoiding such a situation can be extremely challenging given the large number of independently managed stores without official partnerships with suppliers.
Approach: FSG recommends identifying your existing product portfolio across a representative sample of daigous and platforms, and monitoring price movements to determine price trends. Next, interview daigous—likely in Mandarin on a mobile app— that carry your products about how prices are determined, which will provide insight into what tools are available to your company to influence the market. By following this approach, you will be able to monitor, influence, and maintain price consistency across different channels, ensuring healthy daigou partnerships based on mutually profitable and successful products.
Challenge: Managing international logistics can be both costly and time consuming. Identifying the most efficient way to transport goods across borders remains difficult for MNCs—according to the World Bank, importing products into China takes nearly twice as long as importing products into other East Asian countries.
Approach: FSG recommends learning all logistic models available to your company and carefully considering the pros and cons of each. Consider your own product portfolio, internal logistics capacity, and any existing or potential partnerships with cross-border e-commerce platforms. By considering different models and selecting the one that works best for your internal capacity, you can save operating costs and ensure smooth international logistic transactions.
Challenge: Companies, even those with experience in China, need to build a unique marketing approach applicable to the new and constantly evolving landscape of the daigou channel. This is especially important for brands that are less well-known among Chinese consumers.
Approach: As Joel Backaler, FSG’s global marketing managing director, highlights in his recent book Digital Influence: Unleash the Power of Influencer Marketing to Accelerate Your Global Business, partnering with local influencers (i.e., celebrities) can play a critical role in your e-commerce and overall marketing strategy. FSG recommends identifying the right local influencers and launching marketing plans through a multipronged approach. By leveraging key opinion leaders, your company will be able to create highly efficient marketing champions that attract new customers and build loyalty among existing ones.
- DEMAND GENERATION
Challenge: Local competition in China is a primary concern among MNCs, according to a survey by the American Chamber of Commerce. Standing out among foreign and local players and consistently generating demand is now more important than ever. In particular, maintaining relationships with customers and cultivating loyalty is an important part of strategic planning.
Approach: One way to keep customers’ attention is to provide regular discounts. Major e-commerce platforms such as Taobao and TMall offer seasonal discounts around major holidays, most famously Singles Day (November 11). In addition, some sellers carry out their own discounts by simply offering a discount, conducting a raffle, or establishing a tiered membership system where customers receive higher discounts the more they spend. Another way to maintain customer relationships is to build an internal circle with loyal customers, similar to Facebook groups. Daigous frequently do this on WeChat.
By maintaining regular communication with your customers, daigous can ensure constant demand and cultivate loyalty gradually. FSG recommends identifying your preferred demand-generation tactics and comparing them to the tactics currently used by potential daigou partners to select the best partners and fill in any demand-generation capability gaps. When MNCs identify their different demand-generation tactics, they can monitor and support daigou partners in developing and executing demand generation.
Challenge: There are hundreds, if not thousands, of daigous available in your industry, presenting many opportunities but making it challenging to identify and select the right partners. Compounding this challenge, many daigous offer little to no public information. Our study found that it takes approximately eight times as long to communicate with daigous as with traditional wholesalers/retailers, and they are generally much less interested in formal partnerships.
Approach: FSG recommends your team first identify the most relevant daigou capability requirements for your business. Then develop and evaluate a list of potential candidates against these criteria before finally selecting partners that are most aligned with your objectives. This two-phased approach will help you find the right daigou partners to expand your market reach and capture unrealized revenue opportunities in e-commerce.
If executives can get these five components right, they will be better positioned to successfully establish and maintain their daigou e-commerce channel in China.
Interested in learning more about how you can make daigou part of your larger China strategy? Through our Shanghai office, FSG is supporting multinational executives in China who leverage our expertise in channel management to explore, establish, and manage the daigou channel.
If you are a client, please contact your client relationship director to learn about this solution. If you are not a client, Contact us to learn more about how FSG can support you.