As it celebrates a successful first year, Alibaba’s Taobao Deals app unveiled plans last week to rev up the bargains it offers to price- and quality-conscious Chinese consumers in less-developed parts of the country.
With an eye toward ensuring even more affordable consumption upgrades to online shoppers outside major metropolitan areas, the Taobao Deals platform will expand its product offerings, supply chain and logistics over the next year. The goal is to meet three direct-to-consumers expectations; fresh produce direct from farms, daily essentials and household items direct from factories as well as trendy apparel direct from brands.
“Taobao Deals was created last March to improve quality of life in China’s less-developed areas. We enable people with the same access and quality goods as those living in major cities,” said Wang Hai, vice president of Alibaba Group and general manager of its C2M business unit. Since the app’s launch one year ago – in the midst of the global pandemic – more than 100 million users, largely from China’s lower-tier cities, have flocked to the app.
Lower-Tier Cities Become New Growth Engines
Consumption growth is happening outside of major cities like Beijing and Shanghai. Despite having a lower income, rural residents enjoy more leisure time and fewer spending constraints. According to platform statistics, Taobao Deals users tend to shop for quality-for-price items and place small, but frequent, orders up to four times a day.
With lower costs of living and lower mortgage payments, the per capita disposable income of those living in lower-tier cities grew nearly twice as fast compared to urban residents year-on-year in 2020, according to China’s National Bureau of Statistics. Those with significant level of disposable income and a keen appetite for online deals turn to platforms like Taobao Deals to upgrade their consumption and lifestyle, explained Wang.
Consumers in less-developed areas, especially Millennials and younger shoppers, are also quick to embrace global trends, thanks to social media. Their purchases are, however, selective and tend to have direct impacts on their day-to-day life. For example, products such as dishwashers, percussive massage guns and protein powders saw some of the fastest sales growth on Taobao Deals in 2020. All of those products have also been “hot” among the world’s more-affluent and educated shoppers over the same time period.
“We have seen a massive appetite for fitness and healthcare products among consumers in developing regions, which is a reflection of aspirations for healthier lifestyles. We are eager to meet their demands with quality products offered directly from manufacturers for a lower cost,” said Wang.
Capturing New Entrants Post-Pandemic
The pandemic unlocked new pockets of user growth and shopping behaviors in areas previously untouched by e-commerce. Online grocery shopping, in particular, gained immense popularity among rural residents who previously relied on in-person purchases.
According to a March survey conducted by McKinsey, as many as 79% of surveyed respondents between 18 to 65 who reside in third and fourth-tier cities said they shopped online for groceries because of Covid-related offline disruptions. Even as things returned to normal, factors of convenience, quality and affordability kept these users loyal and reliant on e-commerce.
The pandemic also reinforced the importance of quality and safety, such as the origins of food products, sanitized packaging and shipping. Those are all part of the path to purchase for Chinese consumers, said Huang Aizhu, general manager of C2M operations at Alibaba. To this end, the platform will source from over 10,000 direct-from-farm destinations in China over the next year to expand its fresh produce offerings.
To help rural farmers overcome infrastructural limitations, Taobao Deals set up more than 1,000 county warehouses and 30,000 village dispatching centers together with Alibaba’s agricultural products-focused unit and its logistics arm, Cainiao. This means seasonal and time-sensitive fruits like mangoes can be picked when ripe and delivered to consumers within three days. The platform is also livestreamed-focused to boost buyer-seller interactions and transparency, which is now a common and easy channel for rural sellers to tap into when showcasing their produces online.
The Perfect Time for C2M Transformations
Though China’s massive market potential in lower-tier cities is far from being fully exploited, there have been longstanding challenges that have made brands and manufacturers wary of tapping it head-on. To bypass traditional sales channels, manufacturers need to gain market insights to forecast real-time demand, a powerful network of supply chain, logistics and e-commerce operations, said Taobao Deals.
These pain points were particularly pronounced for a family-run paper company based in Hebei, a province in northern China. Toilet paper rolls are bulk products that require costly storage and transportation, a process typically handled by additional layers of middlemen, retailers or distributors.
But new insights gained by working directly from Taobao Deals took the company forward. After joining last March, the company began making virgin paper rolls that consumers recently began to favor because of their natural, unprocessed look and feel. When combined with the right flash discounts and promotions, the company quickly recorded 200,000 orders in monthly sales online.
“Taobao Deals was able to provide precise insight that tells me what the market needs, everything from sizes to features. When dealing with clients and middlemen purely offline, we are always guessing what’s next, this means end-consumers had to pay for the costs of trial and error,” said Zhang Bo, company founder and CEO.
The company’s C2M transformation also shielded it from unpredictable obstacles. When Hebei experienced bouts of new Covid cases two months ago, Taobao Deals reacted swiftly to supplier concerns and transferred a portion of Zhang’s stocks to a Cainiao bonded warehouse in a nearby province before travel restrictions set in.
By working with the platform and all of its digital offerings, the company is now selling across the country with enough orders to absorb local competition. Zhang said the company saved RMB 2.3 million in production and operation costs and converted those profits into online incentives for consumers, creating a sustainable model for fostering repeat purchases and long-term user loyalty. The company also doubled its number of production lines to meet increasing online demands this past year, Zhang said this speed of growth would have taken him another 10 years to achieve if it wasn’t for C2M.
Similar advantages have drawn 1.2 million production-capable factories, farms and brands to join the platform. Alibaba said it is also working to integrate suppliers from its wholesale e-commerce platform 1688.com to boost platform offerings.
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