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China’s retail sector has entered a new era: instead of chasing growth, players are laser-focused on profitability and attracting loyal customers, a new report found.

A “fight for loyalty” is underway, said consultants at Bain & Co, and the battleground is the world’s biggest shopping event, China’s 11.11 that kicked off this week.

China is the second-biggest retail market globally, with online penetration levels among the highest in the world. Strong brand awareness and an omnichannel footprint in China can mean the difference between a profitable year or a dud for retailers globally.

Bain & Co surveyed the customer base of five Chinese companies with loyal consumer followings. It found their shoppers valued this elite group for their product quality, product range and membership programs over their pricing.

“Clearly, when it comes to building a strong, long-term relationship with shoppers, there is more to success than just offering deep discounts,” said Bain & Co in its report.

Crowded Retail Calendar

Retailers are reviewing their strategies against a turbulent macroeconomic backdrop.  

The coronavirus pandemic and rising U.S. interest rates have bruised consumer confidence globally. The rising cost of customer acquisition means retailers should place their bets more carefully now more than ever, said Bain & Co.

There are also structural considerations. Eschewing discounting to build a loyal fan base is a particularly smart strategy given the host of other promotions crowding China’s retail calendar in recent years.

Apart from 11.11, which was created by Alibaba Group in 2009, the 6.18 festival takes place in June, not to mention Chinese New Year and six different versions of Valentine’s Day. To boot, many consumers see retailers’ promotional offers as interchangeable, according to the report.

The bottom line is retailers can’t afford to ignore 11.11, also known as Double 11 or Singles’ Day in China, which racked up a gross merchandise value (GMV) just short of RMB1 trillion ($137.8 billion) last year, said Bain & Co.  

So, Bain & Co suggests retailers pick their battles in terms of promotions and target a select group of shoppers during shopping festivals that make the cut. Also, retailers should review their partnerships with platforms and switch up their metrics for success.

Benchmarking loyalty programs instead of using GMV, a revenue metric that has historically gauged growth during Chinese online shopping festivals, would set retailers up for year-round success.

“The emphasis of retailers and the market as a whole is really shifting to the competition for loyalty rather than just GMV,” said Kelly Liu, a partner at Bain & Co based in Shanghai.

Loyal Fan Base

Alibaba is one e-commerce platform that has made strong progress in shifting focus from GMV to customer loyalty, said Bain & Co. In the 12 months ending June 30, 2022, it managed to retain 98% of customers who spent more than RMB10,000 over the previous year.

Alibaba also had 25 million members of its 88VIP loyalty program as of June 30, who, on average, spend more than RMB57,000 each year with the Hangzhou-based firm.

“Many retailers have shifted their focus and goals to quality development. Taking Tmall as an example, more attention has been paid to some high-quality users in the Tmall and Alibaba ecosystem,” said Bain’s Liu.

Similarly, the average Alibaba customer shops more widely with the retailer over time, broadening their purchases from seven categories to 19 over five years.

Alibaba’s Singles’ Day event, known officially as the 11.11 Global Shopping Festival, also showcases its work with brands to identify and serve new consumer trends through solutions such as the Tmall Innovation Center for new product development.

Meanwhile, Alibaba’s combined physical store presence, local services, and e-commerce have positioned it well to deepen customer loyalty through a more seamless omnichannel experience.

“Alibaba is relatively ahead of the curve by serving these high-quality consumers,” said Bain’s Ralph Wu. “If the platform helps its merchants…increase members’ loyalty, the platform and merchants can ultimately benefit because [it] will eventually reflect in GMV growth.”