Allie: Hi everyone. Today I’ve got Ker Zheng here from Azoya to talk about cross border ecommerce and especially about Tmall Global.
Azoya is an ecommerce operator and they work across different categories from health, beauty, to mum & baby. So I’m really glad to have you here today. Hi Ker.
Ker: Yeah, thank you.
Allie: I think what I really wanted to talk to you about was this piece of content that you guys put out a few months ago about cross border ecommerce and specifically about how Tmall Global works for brands.
First of all, why is Tmall Global, one of the better places for brands to look at when they’re looking at cross border ecommerce?
Ker: There a few reasons. I think one is it’s the largest. market share wise, Tmall Global is probably 30% of the market. And then Koala another like 25%~30%. And then JD is probably like 12%.
Allie: Just add Alibaba now owns Koala. Right.
Ker: Right.
Allie: Alibaba together is more than 50%.
Ker: Yes, but they are still separate platforms. But another reason is that Tmall results can be found in Taobao search results. So, Taobao users searching for milk powder, they’ll see results from both Taobao and Tmall.
And so if you look at the combined ecosystem of Tmall and Taobao, it’s over 600 million users. I think, JD is only like half of that. And another reason is that it probably has the broadest appeal amongst consumers in China. JD, by comparison has always struggled to sell to female consumers.
It started out as an electronics platform. To sell fashion and beauty products on JD is very difficult. And then the third platform Koala, it’s more of a direct buying relationship between the platform and the supplier. So Koala will buy inventory from suppliers.
They buy it at bulk and they get a big discount and they pass on the discount to the end consumer. But they usually prefer to buy well-known brands that can drive the sales. So for a platform catering to third party suppliers, I think, Tmall is still the best option out there.
Allie: In terms of Tmall, it has several different business models. And the ones that most brands have heard of is the flagship store. But they also have TDI and TOF.So can you give us a little bit of an overview of the different options there are for brand?
Ker: Yeah, so flagship store is basically b2c ecommerce in which the brand owns the store. And then they hire a TP to run the store and do the marketing and customer service for them. So they’re selling directly to Chinese consumers but they’re also responsible for the budget that goes into marketing and whatnot.
And TDI or Tmall Direct Import is kind of a smaller program in which Tmall will buy inventory directly from suppliers and then they’re in charge of the sales and marketing. So they have their own flagship store.
Ker: Then they do the discounting and the promotions for Singles Day and etc. And then the goods are parked in warehouses in Chinese Free Trade Zones. But the downside of this program is that Tmall only wants the larger popular well-known brands.
Because they can better predict demand. They can buy inventory in bulk and then sell it at a discount. So that’s like the value add. They can provide really good prices to the customer. They don’t want to take new brands that are still struggling to gain brand awareness.
So that’s more of a b2b relationship. And TPs like us, are not involved. And then Tmall overseas fulfillment (TOF) is a new program. It’s open to smaller and less well known brands. And they park their inventory in Tmall or Tmall warehouses in the US or Europe.
And then Tmall is also responsible for the sales and marketing. I think they purchased a TP to handle these stores. But basically they do the sales and marketing and then the goods are only shipped to the Chinese consumer after they make a purchase.
So it’s kind of like an incubation program. But to my knowledge, it’s still a relatively small program. TPs like us are not directly involved. So I don’t know that much about it.
Allie: Sure. But also as a brand, you would have to be willing to put your China marketing strategy into the hands of Tmall’s team as they’re managing lots of different brands at the same time. And I think, it depends on your goals as a brand.
But if you’re looking for long term equity in the market, then you’d be much better off probably to go with someone like you where you’re in the market and you’re building a brand on a flagship store.
Ker: Yeah. I mean, with TOF, the brand has put in less resources but they also have less control, that’s the main difference.
Allie: But it’s a delicate balance which brands have to think about, I guess. If we were talking about sort of the route that your clients work on, the biggest challenge for new brands on Tmall.
So when you bring a brand on board, obviously, you’ve had some that are already really established and then some that are new.
What would you say the biggest challenges are that brands face when they first start on Tmall?
Ker: I think, it’s hard to get brands to kind of accept the fact that the customer journey is longer in China. And I would say there’s two main reasons.
One is because there’s a general distrust of new brands and then two, the ecosystems of the various internet platforms in China are just so dislocated and separate from each other. For example, you can’t put Tmall links on WeChat.
But at the same time, social media is where a lot of the brand building is done. So if you just have a store on Tmall, you don’t do anything else, then you’re not going to get much in terms of sales. And it takes a while to do this.
And then the advertising on social media platforms like WeChat, Weibo, they’re less targeted. And so it’s kind of harder to see ROI. Because a lot of the advertising is… A lot of the budget has shifted towards KOLs.
And so it’s kind of hard to see, you know, you’re spending this much on marketing, but you know, only being to this much in sales. It’s harder to see direct correlation, which is what I’m trying to say.
Allie: I guess that’s where the appeal of live streaming comes in. If you do ecommerce live streaming, then the problem is the ROI is normally not great. It depends. But it’s quite an expensive process, isn’t it?
Ker: Yeah. Live streaming can be really complex. You can either do it yourself or you can hire an influencer. You can either use small influencers or use large influencers. There’s a lot of different platforms that have it now.
In our experience, the only ones that drive a lot of sales are the very, very top influencers. But they’ll charge like 30% Commission. They might require you to discount your product by another 30% or 40%. So you can drive a lot of sales but at the end of the day is your profit and a lot of times, it’s no.
And then smaller influencers, I think, they drive brand awareness but it’s harder for them to drive immediate sales. So I guess, you have to look at it as more of like a long term brand building type of play. It’s getting very competitive now. Everyone’s trying to do it. And so you have to know how to stand out.
Allie: Yeah, absolutely. And I think that is a way of looking at it. If you go even with the big guys, the will maybe shift quite a lot of product, is it easy to brand awareness play?
Because as you said to me make the ROI straight off of one live streaming is very difficult considering all the different factors – commission and discount etc
Ker: I think, when we work with PIXI we work with Austin Lee to do a live streaming session for Double 12. And then we also work with another like 10 or 20 other small influencers at the same time to kind of see the brand and then spread it around their respective networks.
So immediately, you have decent amount of sales but a lot of the sales actually comes in the next month or two.
Because people might not make a purchase on that first glance but they’ll come back to it and then you can use retargeting ads to target and send people browse the product page. So you should give it a little bit more time before you quits.
Allie: That makes sense. And look at the long tail. Like look at that over a certain period of time and see. So, obviously Tmall is the biggest and it is a great option.
But if your brand is a smaller brand, what other options would you suggest for a brand coming into the market and looking to get some traction not on Tmall?
Ker: The main platforms would be WeChat and Xiaohongshu. Yeah, I think, you know, we work with brands, we typically launch a WeChat store and a Xiaohongshu store a couple months before the Tmall store or maybe even earlier.
But there are still social media platforms and I think, there’s still reluctance on the consumers part to, to make actual purchases on platforms. So in our experience, even if you launch on all three, WeChat, Xiaohongshu, Tmall, 90% of the sales will come from Tmall.
I think, it’s different for different categories. And it’s also different if you already have an existing official account with a lot of content on it. So there are certain players that have run WeChat content for years and years before launching on Tmall.
And then these are the types of brands that are… it’s easier to get sales because they already have existing number of follower or customers.
But if you’re starting from scratch and has zero followers on WeChat and Xiaohongshu, it’s going to be really hard because it’s expensive to get followers on these platforms to excel.
Allie: But I mean, I guess something that brands think about if they’re in it for the long term, and they’re looking at reasonable horizon in terms of making a good return on investment, then it’s all about initially building up that awareness.
So as you said, some brands have been on WeChat for a while just giving good quality content to their audience and really working out who your customer is. Because that’s something that I always talk to people about.
China’s so enormous, you’ve got to really dial down to work out what customer you’re targeting because there’s 1.3 billion people and there’s a lot of options.
Ker: With marketing, you should definitely be on these platforms anyways. I think if you’re expecting a lot of sales, it can be tricky. I mean, there’s always cases where something viral and then you’ll all of a sudden see a spike in sales.
But there’s a lot of different things you can do on WeChat now. So there’s things within private traffic. Now, brands are starting to use WeChat work to set up their own WeChat private groups.
And then people are doing live streaming within WeChat and then using these groups to kind of facilitate discussions. Both WeChat and Xiaohongshu, they’re launching more and more tools for brands.
So I think that’s a good sign. But it’s still difficult that they’ve restructured in place. Historically, Xiaohongshu has had a lot of issues with logistics and supply chain. So it’s still kind of difficult.
Allie: Yeah. And ultimately, as you said, the consumer behavior is not there. The consumers go to Xiaohongshu search for information about products and brands, to see what how people are using the product, what people are saying about the product, not purchase.
You know, that’s not the intent of going to the platform. So I think that’s where, obviously, Tmall has a massive advantage over both WeChat and most of others.
Ker: You could see it as a branding play too. Because there are cases in which brands had stores on all three platforms, but they’ll launch some exclusive products on WeChat only. Because it’s their own official store.
Or they’ll do like a co-branded collection with an influencer or some other brand, that’s only available on WeChat. So you can kind of cultivate that sense of exclusivity. But in generally only works when you’re a little bit better known when you’re first starting out.
Allie: When you’re first starting out. Yeah. And I think something actually, that I think you guys were talking about the other day, because originally quite a few smaller brands would come on to WeChat for cross border ecommerce first because they could use the postal route to get products in from Hong Kong rather than cross border…
But things have changed now with COVID. They’re checking a lot more parcels. And it’s being a bit trickier to do that route. Is that right?
Ker: Yeah, it’s our knowledge. They’re checking the majority of the parcels now. Before it used to be, like 5% or 10%. And then now, I think they tried to do checking most of them.
Allie: Basically, closing that route.
Ker: Yeah.
Allie: I guess there’s no surprise there. With the change with the Daigou and now hopefully, cruelty free route will be possible for general trade.
And then slowly these different routes get closed and it gets sort of centralized into something more organized. It makes sense.
Ker: Yeah. Obviously, there are always ways around it, you talk to different orders and logistics providers, and they’ll come up with it. But it might take longer and then the customer experience won’t be as good. There’s always different kinds of issues to take into consideration.
Allie: Yeah. And that’s something that brands have to be aware of. The Chinese consumer is probably the fussiest with the highest expectations, most customer service needed in the world. So try not to annoy them. Because it’s definitely not a good branding strategy.
Ker: Yeah.
Would there be one trend that you think, a beauty brand, considering the China market should really be aware of?
Ker: I would say that one trend that I’m following but I think doesn’t get a lot of press is kind of the emergence of local Chinese brands. There’s been a few articles out there, but Perfect diary probably the most well-known ones.
There’s a lot of other ones too but it’ll get a lot of press because no one’s ever heard of these brands. But in my opinion, I think these local brands are doing the most innovative types of marketing tactics.
They’re the ones that are doing co-branded partnerships with milk tea brands and museums. One brand did a co-branded collection with a Baijiu brand. So I mean, there’s a lot of other things like virtual influencers or private traffic groups on WeChat. And, you know, it’s crazy.
These brands launch so many new items within such a short period of time [whereas] foreign brands in the beauty space probably only launched new products, like once a year or something. But something like Perfect Diary launch new products like once every quarter.
And I think, in retrospect, you look at foreign brands that do this kind of stuff, you know, only Saara and Uniqlo come to mind. And they are the most successful foreign brands in China. But it just goes to show us what you kind of need to do to keep up.
But I mean, if you’re looking to do something cool and innovative, I think it’s a good idea to follow what these local Chinese brands are doing.
They’re raising lots of venture funding and then they were definitely capturing, I think, the mid-end of the segment in the market in China. So I think that’s pretty interesting.
Allie: I think, I mean, as you said, Perfect Diary is something that has been talked about a lot. But there are plenty of others. And they’re all doing interesting things that maybe foreign brands don’t have the… especially smaller foreign brands.
But it’s such a big thing to get their head around the China market and the ecosystems anyway to then think about, how do I create virtual influencers or private traffic groups or, you know, like, it’s just so many things to think about.
But in terms of looking at keeping an eye on what they’re doing, I definitely agree. I think that it’ll be an interesting space to watch over the next few years. And also I think, [it] will be interesting to see if we can see luxury Chinese brands.
Because most of these ones that we’re seeing now there are, as you said, they’re mid-tier. They’re sort of a couple of hundred RMB for an eyeshadow or whatever. But something a luxury, I think there will be a luxury Chinese brands coming up, you know, that will be interesting globally as well.
Ker: You look at the luxury space globally, and it’s still dominated by the same five or six French or Italian brands out there. And they took basically 50~60 years to build these brands. So, you know, how long it is gonna take to build…
Allie: This is China. Everything shrinks down and it takes a fraction of the time. Thank you very much.
And if people want to get in touch with you or hear more about what Azoya does and as I said at the beginning, Azoya puts out a lot of great English language, educational information about cross border e commerce in China.
Ker: We have a website www.azoyagroup.com. There’s contact information there too.
Allie: Okay, great. Well, thank you very much,
Ker: You’re welcome.
