Reaching a new consumer base in China’s lower-tier cities will be the key for retailers and brands as they prepare for the world’s largest annual sales event.
The global pandemic hit retail sales hard, thanks to a 20-percent drop in foot traffic from the previous year.
Winning retailers must develop different strategies for shoppers in higher-tier and lower-tier cities while also investing in critical omnichannel capabilities.
“The year 2020 will be a pivotal one for China’s annual shopping festival,” says a recent Bain & Company report, titled “Will COVID-19 Change Singles’ Day?” With retailers and brands gearing up for the world’s largest annual sales event, one thing is for sure: This year’s Singles’ Day in China should be a unique one due to the global pandemic.
Over the past five years, the Double 11 sales event has grown by an average of 35 percent annually. For an idea of how big it is, sales from 2019’s 24-hour event doubled what Amazon generates in an average month, according to data from Bain. However, this year’s Double 11 could generate something else besides record sales: namely, growing pains that might cause retailers and brands to have to adapt to post–COVID-19 realities as they prepare for future uncertainties.
Below, Jing Daily summarizes what brands and retailers should do to take full advantage of China retail’s most important 24 hours.
New user growth from lower-tier markets will remain strong
Bain’s brief points out that brand owners are expected to invest in and sell more at Double 11 this year, and consumers are showing interest in spending more. In fact, Bain’s survey determined that 40 percent of consumers will spend more, while only 20 percent of consumers will reduce their spending. The statistics also indicate that male consumers will likely increase their spending more than female consumers.
The survey conducted by Bain further suggests that new user growth in lower-tier markets will remain strong and should account for the majority of total DAU (daily active user) growth. However, these new users will spend about approximately 60 percent less than the average existing user and 50 percent less than the lower-tier market average.
Online channels & local brands
COVID-19 helped increase online penetration, but it decreased foot traffic in physical stores. Bain predicts that the winners in higher-tier markets with almost full penetration will be retail platforms that can cultivate loyal customers and increase stickiness. In lower-tier markets, the winners will be the platforms that can attract more new users with competitive pricing and high-value product offerings.
Consumers will also continue to show a preference for local brands, as foreign brands suffered at the hands of local brands during the COVID-19 period. One of the reasons for this movement to local brands is the renewed consumer interest in high value and low prices, which comes from economic uncertainty. Another factor is China’s rising national pride amid global tensions.
This year, consumers will be spending more across both essential and nonessential categories. The two categories that will likely see the highest spending increases on Double 11 are consumer electronics products and health & wellness products.
Lessons for retailers and brands
In the festival’s fifth year, the cost of acquiring and serving new users will continue to rise. For online platforms, different approaches are needed for both mature buyers and new buyers. The goal for mature consumers is to cultivate maximum value. Platforms can achieve this by offering enriched engagement experiences, like creating content specific to best-selling “hero” products, for example. For new users in lower-tier cities, the most successful platforms should focus on creating a more tailored customer proposition.
Brand owners need to differentiate between these distinct growth drivers for higher-tier and lower-tier city consumers — and then pick the right battle. For most brands, the aim will be to increase earning shares in higher-tier markets and gain penetration in lower-tier markets while they manage brand and product portfolios accordingly. The best brands will establish direct relationships with the most valuable consumers and track success not just in terms of Double 11 sales but also through engagement, loyalty, and value offered. After all, the game doesn’t just take place only on November 11 but also the other 364 days.