Tmall and New gTLDs: Tools for Brands Engaging in E-commerce in China

A number of Western brands, most recently American bulk retailer Costco, have forayed into China’s e-commerce market via Alibaba’s B2C platform Tmall. As the parent company of both Tmall and C2C platform Taobao, Alibaba has become the dominant player in China’s e-commerce landscape, having captured some 80% of that market and, as of 2013, commanding an annual revenue of $240 billion (greater than those of eBay and Amazon combined).

To perhaps state the obvious, Tmall is now a very appealing way for a foreign company to engage in e-commerce in China, at least initially. It is cheap—cutting out the costs associated with a brick-and-mortar store—and relatively safe, since Western brands can use Tmall’s trusted, “localized”[i] website to foster brand recognition among Chinese consumers, while simultaneously learning the ins and outs of this notoriously challenging market.

Handling the Challenges of Online Sales

Generally still new to online shopping (with the Internet having only reached 50% penetration rate in the country), Chinese consumers are, nonetheless, very aware of the prevalence of counterfeit goods online. As explained in the Economist, they “worried (quite rationally) that online firms were fraudsters, or that their credit cards would be abused, or that purchases would get swapped for counterfeits during shipment.”

Part of the appeal for Western brands, such as Costco, in using Alibaba’s Tmall platform and associated applications, is that these have been designed to directly assuage such fears. Notable examples of this strategy include:

• Alipay — The company’s escrow payment service, according to one its chief architects, “is really about trust.” Alipay’s escrow model enables money to be passed from consumer to Alibaba and only released to the seller upon satisfaction of customer;
• Etao — This Alibaba-owned vertical price comparison website yields search results across Alibaba’s TaoBao and Tmall sites and, in a move that enhances transparency, also includes listings on competitor e-commerce sites, such as JD.com;
• Returns policy — In a country where products are normally sold as final sale only, Alibaba guarantees customer satisfaction by requiring merchants using Tmall to comply with its trust-inspiring 7-day return policy, a guarantee that existed prior to it being required by China’s recently amended consumer protection law;
• Customer service — Tmall customers have come to expect highly responsive customer service around the clock, especially via live chat;
• Social media integration – China’s online shoppers are, according to Nielsen and BCG, “the most social in the world,” with consumers both seeking out personal recommendations, as well as writing and reading online product reviews en masse. In recognition of this, Tmall is now smartly integrated with Sina Weibo and Alipay, enabling customers to make purchases directly from the social media app.

The Government’s Impact on E-Commerce in China

Alibaba, while not a state-owned company, has risen in tandem with the Chinese government’s efforts to rebalance the country’s economy from a manufacturing economy to a consumption-based one.[ii] Aside from the local cultural and business savvy of Alibaba, Western companies’ partnerships with Tmall ought also be understood in the context of Beijing’s push of e-commerce in China through state economic planning, national Internet access goals, and linguistic localization stipulations for domain names.

In recent years, the Chinese government has announced its intention to double the value of national e-commerce sales to nearly $3 trillion by the close of 2015 and to achieve full nationwide broadband coverage by 2020. Meanwhile, the Chinese government has espoused substantive support for ICANN’s new gTLD program, having registered some 10,000 Internationalized Domain Names (IDNs) and is now requiring that all Chinese government websites use fully Chinese web addresses.

Looking Ahead to the Future of e-Commerce in China

While Chinese government support for expanding the country’s domestic e-consumer base—from macroeconomic to technological planning to digital literacy efforts—is evident, it remains to be seen how Chinese consumer habits will evolve and companies, foreign and domestic, will respond to these initiatives.

Costco and others have recently embraced Tmall as the foundation of their China market entry strategy, but, in time, these brands will presumably move to a stand-alone storefront, whether virtual only or, less likely, a traditional brick-and-mortar outpost, if only to gain greater oversight of their online business and consumer relationship management. It will be interesting to see when and how they take advantage of the opportunity the new IDNs represent as dedicated, branded, “localized” spaces to sell independently to Chinese consumers.

[i] Localization, as used by marketers to highlight the idiosyncrasies of Chinese e-commerce, is an interesting topic that merits another blog post—forthcoming.

[ii] According to Bloomberg BusinessWeek, “Alibaba has almost single-handedly turned China into the world’s second-largest e-commerce market.”