06 May 2019

Lessons from China on controlling the universe: ten digital evolutions and one girl band at a time. PART I

lalidah
by biren
on 06 May 2019
Supply Chain Innovation - 2019

So, this is me, posing with Chinese pop sensation 'Produce 101' like I belong there. Only, things aren't always what they seem (if you zoom in, you might see a slight sense of panic radiating from my eyes).

We will get to my fifteen minutes of slightly-terrorised fame later, but first things first. My ten take-aways from a recent trip to China with Retail Detail and a double dozen or so fellow invitees. On our weeklong trip, aptly named Retail Hunt, we flew from Beijing to Shanghai and on to Shenzhen in search of the latest developments in retail. Because, whether we like it or not out here in the West, China is lightyears ahead of us, and showing no signs of stopping. Here's part one on how they do it, why they do it, and what we can do in return. I’ll give you a hint: customer-driven, digital supply chain networks. Let’s digest that as we move along. 

For Chinese retailers to invest any more resources on the online customer would be like beating a dead horse. Instead, they’re cracking the whip on a brand new horse: the customer’s O2O experience.

#1 From Offline to Online

First up: the modern consumer. It’s not exactly front page news that many of our day-to-day behaviours have shifted to the digital realm. From the cinema to Netflix, from the restaurant to Deliveroo, from the high street to online shopping: we have gone from citizens to netizens. The degree of this shift however, is continents apart between the East and West. While many of us, even the most diehard digi-addicts, can still go about our daily lives if we’d lost our phones (the horror, I know), a Chinese consumer would have to reinvent the transactional wheel so to speak. There’s even a new Chinese saying ‘if you lose your phone, you lose your soul’. Granted it’s no Confucius, but it goes to show how deeply digital their lives have become.

Let’s clarify this with some numbers and figures. While people in China spend approximately the same amount of time on their mobiles per day in comparison to Westerners (3 hours and 2.3 hours respectively), they use 95,1% of that time surfing the web while we’re significantly less surf-oriented with 72,9%. The real kicker, however, is the difference in exclusively mobile payments: a whopping 67,5% in China versus a mere 24% in the West. While we still have room for online growth, retailers in China are experiencing stagnating online traffic growth and soaring online customer acquisition costs. For Chinese retailers to invest any more resources on the online customer would be like beating a dead horse. Instead, they’re cracking the whip on a brand new horse: the customer’s O2O experience.

Delve deeper into China’s O2O (r)evolution:

http://dmb-shanghai.com/china/o2o-revolution-leaded-china/

Shenzhen, China: Two females pay for their breakfasts at a street booth with their phones.
Brick and mortar stores are being transformed into experiential hubs that are more about employee-customer interaction than financial transactions.

#2 Back to Offline

Here’s some more on that very much alive O2O horse. First off, O2O is just an acronym for ’Online-to-Offline’, a digital marketing strategy devised to get your online customer into your physical stores. Now that the Chinese consumer has reached quasi full-grown netizen status, they no longer require incentives in order to join retailers in the digital spheres (remember: super dead horse). To stand out from the crowd, retailers need to find new ways of creating brand awareness and loyalty. Through the holy trinity of consumer, product and context, they are shifting the focus onto customer experience through O2O integration. This reconstruction of the retail industry is referred to by Alibaba as ’New Retail’, where online and offline are integrated through retail digitalisation, blurring the boundaries between both spheres of commerce.

So, let’s literally talk shop. Brick and mortar stores are being transformed into experiential hubs that are more about employee-customer interaction than financial transactions. The reason for this being that consumers are basing their purchases less on brand loyalty and more on personal values and preferences. And while online shopping takes care of our inherent ’path of least resistance’ nature, it lacks the ability to make us feel seen and understood. Enter the renaissance of offline. I can hear you thinking “but Biren, ol’ chap, this trend is visible in our corner of the globe, too”. Sure, but not at the lightning-speed pace at which these retail evolutions are taking place in China. And the implemented changes did not come about by wetting one's finger and holding it up in the air. It’s a well thought out strategy by duopoly giants Alibaba and Tencent to turn the omni into a uni-channel: one platform, one data stream and one customer experience. How? Well, hello there, crazy-ass level of digitalisation and big data accumulation.

Delve deeper into New Retail:

http://www.bjreview.com/Business/201711/t20171103_800108991.html

China’s digital ecosystem is unlike anything we know. And the way it affects supply chains through its big data and A.I. technologies should not be underestimated.

#3 Digital is Everything

When you add up ‘China’ and ‘digital’, what's the first thing that springs to mind? If you said ‘Alibaba’, you’re halfway there. During our week long stay, we sneaked a peek behind the Tencent curtains, the second head of a two-headed giant. Or beast, depending on how you look at it. Both giants/beasts have created an all-around and highly personalised digital platform on which all the slightly terrifying magic happens. All their retailers are on there, and all their customers’ personal data too (where they shop, what they buy, who they are, etc.), creating a uniquely accurate ‘uni-identity’ on which they can base all their back-of-house ánd front-of-house decisions. We’re talking about a data bank of 600+ million consumers for Alibaba and 1+ billion consumers for Tencent.

One thing’s for sure: China’s digital ecosystem is unlike anything we know. And the way it affects supply chains through its big data and A.I. technologies should not be underestimated. Demand-oriented flexible manufacturing, 0 inventory realisation, unified SKUs, omni-channel order fulfilment: you name it, they’re in the midst of achieving it. In the words of Jack Ma, co-founder and executive chairman of the Alibaba Group: "New Retail will bring about a restructuring of the global supply chain and change the complexion of globalization from the domain of big companies to small businesses." Global. That means we’re part of that change. Right now, we’re not even on the same game board. While we’re busy focusing on in-store experience, promoting in-store pickup and ‘saving’ costs by making customers pay for collection costs, China’s retailers are riding high and mighty on a digital wave that has brought about next-level operational efficiency and has reimagined the heights of customer experience. How, you ask once more? Through collaboration on one single system and platform, be it Alibaba or Tencent. If our supply chains do not jump on that digitally aggregated data train fast, we will miss the boat. Whatever the means of transportation: We. Need. To. Up. Our. Supply. Chain. Game.

Delve deeper into inbound optimisation and why it matters:

https://landingpages.proalliance.io/inbound-optimization-mini-guide

SHENZHEN, CHINA: Business district where the headquarters of China’s internet giants Baidu, Alibaba, and Tencent are located.

#4 And Everyone is Digital

From omni to uni everything. This new terminology, coined by Alibaba and echoed by Tencent, emphasises a difference in strategy, tools and - most importantly - the rules of the game. They now have a front-row seat to all their customers' daily behaviours. And when I say all, I do mean all. Social media, entertainment, online shopping, online payment, mobility and technology. Whatever the Chinese netizen is up to, it is almost certainly bound to go through perhaps just one but most likely both of these behemoths. And they do not let the data go to waste, as tends to be the case for many Western companies (after all, how do you mine for data gold if you don’t know where to look). Using proprietary and third party data analytics, they can paint a pretty accurate customer portrait as well as provide customisation on an unimaginably grand scale.

So, their digital data machine and a slew of technologies like AI have not only made it possible for Chinese retailers to upgrade their supply chain game (big time), but also unify everything and everyone. A uni-channel from back to front-of-house, a uni-identity for their customers and a uni-marketing strategy. They keep all that precious mined gold in a Brand Data Bank, ready to be measured and optimised.

Delve deeper into how Chinese retailers succeeded in strong customer bonds through data:

https://www.bearingpoint.com/en/our-success/thought-leadership/what-western-retailers-can-learn-from-china/

By leaving out all the socio-political aspects that have made this digital evolution on steroids possible, we do not address the fact that a large part of the success story ties into China’s authoritarian and corporatist regime.

#5 Precision Marketing?

No disrespect, but anyone who thinks we come even within throwing distance of such a ready-to-use, unified data bank in our retail hemisphere is missing the mark. Sure, we have customer data based on their interactions with our brands, but 1. This is mostly limited to a GDPR-controlled, multiple sourced online analysis and 2. Barely has any effect on how retailers run their still heavily siloed supply chain. In China, there are no GDPR-like rules and what we would consider invasive, they package as precision marketing. For example, all retailers try to obtain a maximum amount of data on offline shopping behaviour by using visual recognition, in store-tracking and electronic payment through Alipay and WeChat. Digital messages and coupons are sent to the shopper during their shopping trip. The Chinese shopper feels truly pampered. Do you think the American or European consumer would react the same way?

This is where things could turn real dark and ugly, real fast. And many looking in from the outside argue it already has. Up to this point, I’ve focused on all the ways in which the Chinese retail industry is catering to the modern consumer’s lifestyle demands, using its powers for commercial good. But I would be painting only the pretty half of the picture if this is where the story ends. By leaving out all the socio-political aspects that have made this digital evolution on steroids possible, we do not address the fact that a large part of the success story ties into China’s authoritarian and corporatist regime.

Do we as a democracy, with strict privacy laws in place, have a fighting chance against a giant that lives by the motto ‘All is Fair in Love and War... and Commerce’? Even cutesy pink pop productions like the one I am posing with in the cover photo can be seen as an innocently sweet means to a sinisterly dark end. Keep an eye out for part II, where I'll take a closer look at what happens when East and West meet on this new digital battlefield and how we can weaponise ourselves. I’ve said it before and I’ll say it again until you start saying it in your sleep: customer-driven, digital supply chain networks.

Delve deeper into China’s social credit system:

https://www.forbes.com/sites/bernardmarr/2019/01/21/chinese-social-credit-score-utopian-big-data-bliss-or-black-mirror-on-steroids/#5ca9ca048b83

A special thanks to:
Ben Xu, Director at Monitor Deloitte for sharing his two cents on 'New Retail’ in China.
Martin Suter, Head of China Digital Commerce at AB InBev for his vision of brand building in this brave, new digital world.
Nils Van Dam, Global Head Food & Beverage Retail at Duval Union Consulting for his thoughts on China’s retail strategy.
And, of course, Retail Detail’s Jorg Snoeck, Peter Somers, Celine Cassimon and Carole Lamarque for inviting me along for the ride!
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