Basically, anything in the digital world that brings customers to the physical stores or makes them buy products and services that are traditionally sold offline can be classified as O2O.

According to the recent report by McKinsey on O2O in China, it has been growing the fastest in 3 areas: travel, mobility and dining services:

China O2O in travel sector

McKensey’s data indicate that travel is one of the most popular O2O categories used by 36% of O2O consumers nationwide and 56% in Tier 1 cities:

This segment is lead by companies like Qunar, fast growing Baidu online travel service as well as Ctrip, another hugely popular site. Customers also expect O2O travel service to cost less than the traditional ones putting more pressure on providers

China O2O in dining sector

This segment was indicated as the second growing O2O sector. Convenience and discounts stand out as the most important reasons why consumers choose to use O2O dining services.

In contrast with travel sector, here consumers were actually prepared to pay premium for the service and indicated food quality and safety as their primary concern.

China O2O in mobility sector

Mobility O2O mainly refers to taxi hailing apps such as Uber and Didi-Kuaidi. Both companies have been at each other’s throat to gain market share in this rapidly growing market which we covered in an earlier post about Uber in China. Currently, Baidu is the major backer of China Uber while Tencent and Alibaba are behind Didi-Kuaidi.

Consumers in this sector appear to be the least sensitive to the price of O2O mobility services than to the price of other O2O services. This has probably something to do with the fact that the prices in this segment are already extremely low.

What are the main reasons behind the strength of O2O in China?

#1 Sheer number of smartphones

Large number of smartphones in China is the primary reason for O2O services getting a strong foothold. There are estimated 563 million smartphone users in 2016 representing more than a quarter of users worldwide.

#2 Have we mentioned smartphones?

Another factor in favor of O2O in China is the fact smartphones has long become the primary device of getting online for the majority of Chinese, beating desktops and laptops 2 years ago. Since large part of O2O’s appeal is location, mobile is a natural fit.

#3 Mobile payment systems

Proliferation of secure and convenient mobile payment systems such as Alipay or WeChat wallet has become the industry enabler. In this regard, China is well ahead of most other countries.

#4 Everyone loves QR

QR codes can be used in many creative ways to facilitate O2O based connections and, incidentally, they have been extremely popular in China. While QR codes have been declared dead in the West on more than one occasion, they have been embraced in China and popularized by apps like WeChat.

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What is unique in China’s millennials who are born around 90’s is the their size – 211 million which is already 5 times larger than their US counterparts. Perhaps not surprisingly, they are also glued to their phones – 50% reported checking their cellphones every 15 minutes.

Social media is the main source information for 70% of Chinese millennials and they spend almost twice the time of Americans watching online videos.

Although Chinese and US millennials online behaviors are similar, the sites and platforms they are using are completely different – primarily due to the fact that all major Western social media platforms are blocked in the Mainland.

They are also big on online shopping and, primarily on mobile and they prefer branded products. Here is more on that.

Chinese millennials market and online behavior infographic

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Alibaba still dominates Chinese ecommerce with Taobao for C2C and Tmall for B2C. The other major player in B2C space is JD.com, currently this company holds about a quarter of the total market.

WeChat Weidian is another newcomer that is quickly gaining traction in Chinese m-commerce but it is not featured in this infographic due to lack of available data.

Other platforms in China ecommerce landscape are significantly smaller with market share in single digits. They also tend to be more specialized – for example, Suning and Gome mainly sell appliances and electronics while Vancle is a clothing branded retailer.

China ecommerce landscape

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In China, smartphones are involved in every step of the typical sales funnel – from discovery and research to payment and feedback. As a result, Chinese m-commerce has been undergoing meteoric rise in recent years.

According to recent KPMG online consumer behavior report, smartphone remains the primary device for online purchases – well ahead of other countries, while laptop and desktop PC are used the least.

There is a number of main drivers behind Chinese m-commerce rapid development:

1. Highly developed mobile payment ecosystem.
   The primary systems are Alipay and WeChat Pay which are ruling Chinese m-commerce as well as becoming an increasingly common payment method offline. They also enjoy high degree of consumers’ confidence in payment security;
2. Large number of mobile users.
   According to data from the Ministry of Industry and Information Technology (MIIT), China’s mobile users exceeded 1.3 billion at the end of 2015, with 29.6 percent of them using 4G. Furthermore, China sold 457 million smartphones in 2015, up 17.7 percent from 2014;
3. Convenience and accessibility.
   Chinese m-commerce has leveled the playing field for all types of consumers regardless of location. While physical stores of some brands may not be available in 3rd and 4th tier cities, the shoppers can still gain the same access to brands as that available to people living in major cities;
4. Continuously growing economy.
   Last but not least is the fact that, despite the recent slowdown, Chinese economy continues growing at about 6.7 percent rate. In recent years, this growth has been primarily driven by local consumption with e-commerce being large part of it.

KPMG survey shows that more than 90 percent of the respondents made at least one online purchase using a smartphone in the past 12 months:

Consumers often research products using smartphones while in physical shops. In China, nearly 70 percent of respondents have looked up a product on their smartphone or tablet while being in a brick and mortar store. While this figure is still slightly smaller compared to other parts of the world, it is higher than the previous year. Also, this type of consumer behavior is likely to be gaining momentum after rolling out the new feature of Taobao and Tmall mobile apps allowing instant product search from a photo:

Market research company eMarketer estimates that Chinese m-commerce sales accounted for almost half the share of e-commerce sales in 2015. This year, retail mobile commerce sales in China are forecasted to grow by 51.4 percent to account for 55.5 percent of retail ecommerce sales in the country in 2016. By 2019, mobile users in China are expected to spend nearly $1.5 trillion on m-commerce:

Finally, China’s mobile commerce is another reason for the popularity of O2O concept. Companies, both local and multinational, are constantly on the lookout for more innovative ways to engage Chinese mobile consumers from all the angles.

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Presently, ecommerce with WeChat can only be setup for verified service accounts which, in turn, requires local business registration. So, as things stand now, foreign companies without a legal presence in China are not eligible to have a WeChat store. However, once the company is registered locally in China, setting up ecommerce with WeChat is, actually, a fairly simple process.

There are basically two ways to integrate a WeChat shop within a service account: by signing up for a standard option within admin platform or setting it up with a 3rd party platform. The second way allows much more customization allowing creation of much more versatile and visually appealing WeChat stores.

One of the most popular 3rd platforms is WeiDian. It already claims a whopping 50 million users and is backed by Tencent, WeChat developer. It also provides a convenient backend for managing WeChat store: populating product list, managing inventory, CRM system, sales analytics etc. All that can be done from within the app on a phone or inside the browser based admin panel.

As a way of marketing, WeiDian also allows sharing product listings in group chat and Moments feed as well as in other social media platforms such as Weibo, QQ, Qzone, Pinterest and even Facebook.

Although being the most popular, WeiDian is not the only WeChat shop management platform. Other 3rd party WeChat store options are Youzan, MengDian, PaiPai and some others. All of them are quite similar in functionality, although none is currently offering English language option or support.

Although, there are many options for setting up a WeChat shop, it may not be suitable for every category of merchandise. Naturally, since the shopping is done on mobile, customers tend ti use their phone for buying cheaper products. When it comes to big ticket items or products that require a research, most shoppers revert to full size browsers which brings them to traditional platforms such Tmall, Taobao and JingDong.

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• Most Chinese use smartphones as a primary device for getting online;
• Major ecommerce platforms such as Taobao, Tmall and JD already have very successful mobile apps;
• Mobile payments infrastructure is quite well developed with Alipay Wallet being the market leader;
• WeChat, the most popular mobile app in China, already enables built-in ecommerce capabilities within the platform.

In this post we’d like to share a new infographic from Go-globe on the state of m-commerce in Asia Pacific. It clearly demonstrates that Chinese m-commerce is leading the region in number of areas.

• Over 70% of Chinese consumers have made purchases using smartphones, almost double the figures for such advanced places like Hong Kong or Singapore;
• 37.4% of Chinese consumers shop for clothing and accessories with their smartphones. This underscores the importance of mobile component in marketing strategy for fashion brands in China;
• 27.9% of of Asia Pacific consumers are adopting mobile banking. Although, there is no data specifically for China, it is safe to assume that the numbers here are near the top of that scale;

Asia Pacific M-commerce vs. Chinese M-commerce

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It is also a predominantly younger generation’s phenomenon with 50% of mobile shoppers aged between 24 and 30. Thanks to its popular mobile apps for Android and iOS, Taobao came to dominate China’s m-commerce space with estimated 76.1% of the market share. The next largest player, popular online store JingDong, accounts for slightly over 5% of the entire market.

Here is some more figures from this excellent infographic produced by Go-Globe.com:

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