The O2O Revolution
Why 020 is Crucial to your Marketing Strategy in China
by MARK TANNER
O2O is one of the most cost effective and engaging marketing strategies brands can adopt in China. Most aspirational brands selling in China have a strong O2O component in their marketing mix, yet many foreign brands have been falling behind in implementing O2O initiatives in China.
What is O2O?
Online-to-Offline (O2O) is one of the most used buzzwords in China today, and with good reason. In Western markets, O2O refers to ‘click-and-collect’ items – goods bought online and picked up at a bricks & mortar store. Whilst retailers such as Ikea and Walmart are dabbling with it in China, cheap delivery and low car ownership rates mean that click-and-collect hasn’t taken off here like other countries. Nevertheless, China is pioneering in the O2O category.
Why is China Leading the World in O2O Innovation and Adoption?
Chinese consumers boast the highest rates of mobile internet usage, QR code adoption, mobile commerce and mobile payments globally. Government policy encourages Chinese innovation and leadership in the area and, importantly, Chinese consumers are some of the most enthusiastic consumers for new and convenient smartphone applications. This has led to physical and digital objects being far more intertwined in the Middle Kingdom than in the West leading to a much broader definition of O2O in China.
O2O covers everything from ride sharing and travel, to in-home massage and dry cleaning pickup. The value of China’s O2O ecommerce sales is picked to grow from USD 335 million in 2015 to USD 626 million in 2018 according to iResearch.
O2O Beyond the Traditional Definition
Although most O2O forecasts are based on ‘Online-to-Offline,’ ‘Offline-to-Online’ is equally important, particularly for marketers. Chinese consumers are increasingly interacting with brands over the Internet, with 72% online throughout the day according to Epsilon. However, 40% of consumers prefer to interact with a brand in a store – making it the most popular channel and one of the most effective touch points to connect online to build a sustainable and engaging relationship. Stores that integrate online channels backed up with great service, can take advantage of the 63% of consumers who follow brands on WeChat after a good experience.
Shopping center operator Intime is one retailer starting to tap into O2O opportunities to drive foot traffic and sales to its stores, growing revenue at a time when offline sales at China’s top-50 retailers declined 3.1%.
Even the humble bicycle has been enhanced by O2O in China. For many Chinese, bicycles were for poor people and a cold or sweaty reminder of when few could afford a car and cities had no subways. In Beijing, just 12.5% of residents cycled in 2015, versus 38.5% in 2000.
Thanks to more than around EUR 200 million of investments, China’s bike-sharing schemes have changed the face of city streets. Hundreds of thousands of shared bicycles from at least eight competing companies now line footpaths, with consumers in need of pedal power using their smartphone to find the closest bike, scanning a QR code on the bike and then riding. Bike lanes in cities like Shanghai and Beijing are now unrecognizable from the beginning of 2016. Launching just eight months ago, Mobike already has four million monthly active users of its 100,000 bikes across five cities.
Traditional retail and bicycle sharing schemes are representative of an overall O2O revolution in China, evolving at a faster rate than any other major market. With so many O2O applications, the trend is making Chinese consumers’ lives more convenient and creating a gold mine for those who can utilize the data.
Which Chinese Consumers are using O2O?
The most fervent users of O2O services in China are the Millennials. They are the consumers who have the highest smartphone ownership, highest adoption of new technology, highest incomes, and greatest willingness to spend and consume. With Millennials in mind, it is the all-important females who are embracing O2O like no one else; 73% of women have used O2O restaurant and dining/food delivery services in the past 12-months versus 49% of men according to eMarketer. Females are also 38% more likely to have used O2O travel services than males.
China’s O2O Innovations are Awash with Funding
All the buzz around O2O has attracted plenty of cash for startups. Many commentators are comparing China’s O2O hysteria to the late-90s dot-com bubble in Silicon Valley, where significant wads of cash were invested in unprofitable business models. Chinese O2O start-ups are using their investment capital to subsidize and incentivize Chinese consumers to join the service, hoping they will be the last one standing in a war of attrition. An estimated RMB 50-80 billion (EUR 7-11 billion) a year is being poured into subsidies alone.
The highest profile subsidies are from the ride sharing apps, led by Didi Kuaidi, who’s valuation was EUR 19 billion in July 2016 – 33% up from a year earlier. The company had set aside EUR 3.5 billion to suffocate Uber and their estimated EUR 1 billion of subsidies before the two eventually merged. Likewise, restaurant and cinema reservations service Meituan Dianping vaguely alluded to providing discounts and subsidies of RMB 58 billion (EUR 8 billion) in 2015, just as Alibaba and financial arm Ant invested RMB 1.2 billion on online food delivery service Ele. me, not long after the company was rocked by a food scandal. The subsidies have increased the attractiveness of O2O services, further speeding up adoption rates.
What does it mean for Brands Selling in China?
The huge figures and innovations should illustrate the popularity and consequential opportunities O2O presents in the consumer market is right now. It is not just the realm of Fortune 500 brands with large marketing budget, but is within reach for any brand hoping to appeal with these consumers and businesses.
In the retail segment, even back in 2014, the average Chinese consumer who was engaged with a brand online and offline, spent 60% more than in-store-only customers. In the first half of 2015, China’s O2O sector grew 80% year-on-year according to HSBC, who believe the sector is a RMB 10 trillion (EUR 1.37 trillion) market that is only 4% penetrated.
Understanding Chinese consumers’ rational and emotional drivers and how they feature in their customer journeys allows brands to ensure that O2O features are both relevant and engaging to ensure the greatest chance of success in the market.
Agencies such as China Skinny work with brands to determine how online functions can be integrated into offline touchpoints, creating increased engagement, sales, loyalty, and much higher advocacy rates through easy-to-share channels such as social media.
The Future of O2O
The explosive growth of O2O in China has seen the lines blur between online and offline touchpoints. With new monthly innovations, online and offline will continue to crossover. Now Virtual and Augmented Reality are adding a whole new dimension to the mix.
Virtual Reality (VR) was the most-searched for tech term on Baidu (China’s Google) in 2016. Alibaba sold 150,000 VR goggles for a fraction of a cent on Single’s Day, a trend that echoes many brands’ use of VR from Tourism Australia to Dior. The explosion of games such as Pokemon Go has allowed widespread acceptance of Augmented Reality (AR).
Uses for VR and AR will span beyond marketing and sales functions and will be increasingly used for training and engagement for customer care, sales, and other staff across China, making them an important consideration to complement O2O strategies.
There are quick and obvious wins for O2O that every brand in China should consider, but introducing smart and creative O2O initiatives can complement other marketing and sales initiatives ensuring they are relevant and engaging to the consumer, which will ultimately increase sales. Viel Glueck!
Mark Tanner is the managing director of Shanghai-based China Skinny, one of China’s best known market research, strategy and digital agencies. He authors the most-read newsletter about marketing to Chinese consumers, is a regular international speaker and is often quoted in media such as Bloomberg, Reuters and Forbes for his view on the China market. He can be contact via firstname.lastname@example.org