China is the largest retail market in the world. The fast growth in digitization and increase in spending power has brought forth a rise in consumers looking for quality products, which in turn has resulted in a booming cross border ecommerce market.
The average online consumer in China, especially the younger users, are increasingly more inclined to try out new products/brands. Authenticity and quality drives them to purchase overseas brands.
Despite the stricter rules on cross border ecommerce before, the Chinese government has been consistently working towards making the environment more favorable for cross border ecommerce in the last few years.
At the 2018 China International Import Expo, president Xi Jinping stated that the country will import more than US$30 trillion worth of goods and US$10 trillion worth of services in the next 5 years.
The pledge, announced by Alibaba’s CEO Daniel Zhang, stated that the e-commerce giant will import goods from more countries and expand its product range significantly, doubling the number of its current categories.
From 2019 to 2023, the company will import goods from 120 different countries, up from current 75, via its cross-border platform, Tmall Global, and the number of product categories is expected to increase from 3,900 to 8,000 including clothing, baby products, to beverages such as wine and spirits.
The easing of regulation across import taxes, and increasing the per order purchase limit/ total purchase limit per year is an effort from the Chinese government to support imports and drive internal consumption. This is great news for all firms looking to work on the cross-border ecommerce model.
Given below are the key differences between Cross Border Vs General Trade business:
Tmall Global is the largest B2C cross-border eCommerce platform in China. It provides a channel for international brands to test the China market, and offers different business solutions for merchants entering the market.
• Cosmetics• Personal Care • Health Supplements • Baby Formula
• Men's skincare• Pet products • Technology & Beauty Tool • Maternity Products • Sleep aid products • Health and well being • Immunity and personal hygiene • Environmental protection for kids
Tmall Global remains committed to bringing authentic products across a variety of categories from all over the world to Chinese consumers.
Four logistics solutions are available to help overseas sellers import their products into China, all of which are provided through Cainiao, Alibaba’s data powered logistics service:
Brands pre-ship goods to Cainiao warehouses in China in anticipation of customer’s order. This is the fastest and most cost effective delivery option (max. 7 days).
Brands ship goods to Cainiao’s overseas warehouses before order is placed. This is a consignment model where Cainiao picks, packs, labels, and ships the goods once consumers place an order.
Brands pack, label, and ship goods to Cainiao’s warehouses outside of China after a customer places an order. Cainiao consolidates orders from different brands. The consolidated order is air-shipped to China and then delivered to end consumers (max. 14 days).
Brands ship goods directly from country of origin to the consumer. Brands could also use non-Cainiao services such as DHL, FedEx, etc. This method is not usually recommended because delivery times cannot be guaranteed and cost is high.
Chinese consumers will make all payment in RMB via Alipay, Alibaba’s payment solutions platform. Alipay will then transfer the amount to the seller’s bank account overseas when sales reach an agreed amount for transferring (account is created with Alipay when the seller onboarded with Tmall Global). A certain percentage will be levied as service charges for the transfer. Click here to learn more about How to Register a Global Alipay Account.
Tmall Partners (TP) are Professional Service Company with operations in China which provides merchants with high quality cross border e-commerce services.
Tmall Global's business development consultants will work with the TP team to introduce a selection of suitable TPs to merchants, from a network of Tmall Global's certified third-party service providers. Final terms and agreement should be settled between the merchant and the TP.
1.\tSelection – Decide which TP to co-operate with, based on industry experience, region, and support services provided 2.\tCo-operation Model – Contact TP to discuss and decide on Co-operation model (distribution or service), discuss fees. 3.\tSign Contract – Review key points of contract and obtain all required documents 4.\tTP Execution – Prepare operation plan, e-store design, promotion and marketing execution plan, logistics and warehouse, and other related details. 5.\tMerchant & Customer Review and TP Reporting – TP will be assessed based on TMG TP assessment rules and overall feedback from customers on a quarterly basis.
Please note: As the Merchant and TP will be entering into a contractual agreement with each other, TP Management team and Tmall Global BD consultants do not take part in these discussions between Merchant and TP.
a)\tThere are two Co-operation models to partner with a TP:
1.\tCommission Based Model (Operating agent on behalf of brand): The TP becomes the store operating agency on behalf of the brand. The brand retains ownership of the flagship store and is responsible for paying all platform fees and marketing expenses. The brand also pays the TP to run the store operation. The TP fee normally consists of a fixed monthly cost and a sales-based commission that is agreed in advance between the merchant and TP. Considerations: •\tMore control of the supply chain and inventory and how the brand is marketed in China •\tLeverage the TP’s knowledge for channel distribution and logistics into China •\tMore flexibility in changing the TP after initial contract since the TP is only acting as an operating agent
2.\tBuy-Sell model (Distributor): An authorized distributor of the brand will buy / own the inventory and then open a brand flagship store on Tmall Global. The distributor can either choose to run the store themselves thus also acting as a TP or the distributor can choose to work with a TP who will run the store operations on their behalf. In both cases the store entity ownership will belong to the distributor. The distributor will also have to bear the marketing and store operations related expenses. Considerations: •\tInventory is sold to the distributor immediately when the agreement is signed Brands no longer have to bear any risks related to inventory loss •\tDistributor /TP will decide how the product is sold in the market •\tSwitching distributor will require a longer process (than Commission Model) due to inventory rights
b)\tFees:
TP service fees largely depends on what the Merchant is looking for.Please discuss this part in detail with the TPs directly.
For your convenience, here is an example of a TP that is providing a Commission Model Approach for the Merchant. (This is for the purpose of reference only.)
c)\tMetrics on Evaluating TPs
For Commission Based Model (Operating agent on behalf of brand) Considerations: •\tStore traffic and volumn of purchases and transactions are metrics that should be just as important as sales targets •\tStrategies that TPs intend to employ in order to build a healthy line of SKUs or how to attract customers to the store•\tHow to increase repurchase rates and conversion rates of sales
It is important to note that each category and industry has different metrics, the following is a listing of some general considerations: •\tGMV •\tInventory Turnover Rate •\tSell-Out Rate •\tReturn of Investment for Paid Traffic•\tConsistent increase in unpaid traffic and daily salesc•\tDevelop SKUs to become Hero SKUs•\tIncrease the long tail product sales (to be x% of total GMV)•\tSuggest new product lines that can be introduced on the store•\tUV – Brand awareness – User Viewership•\tCustomer Relationship Membership Loyalty Program / Returning Customers.
For Distributor Model Considerations:•\tMinimum purchases that must be met per shipment or per month•\tGuidelines of various regulatory and compliance standards that need to be met by the distributor in order for the brand to choose the distributor as their authorized reseller•\tMarketing Investment (who bears the expense)– ROI
Even though the consumption power in China is on the rise, the average Chinese consumer would need the products to be introduced in a manner where all the value propositions are well communicated, to be able to make the purchase decision.
These customers will look at peer reviews and overall ratings of the product and will also compare prices of similar products before deciding to make a purchase.
Therefore, it becomes important for brands to test products in the market, pay close attention to customer reviews, and curate the product assortment accordingly.
Before opening a store, some aspects to consider when planning the product assortment should include:
· Is my brand already well known in China (are people searching for these products on Taobao /Tmall)? If not, how are brands in a similar category perceived by customers / performing on the platform?
· What is the pricing strategy of competitor brands?
· How much does competitor brands sell on a monthly basis for their top SKUs?
· Can my brand’s SKU beat the competition in prices / value proposition?
Building a competitive product portfolio will require you to identify the products within your store that will fall under these four categories (see figure).
It becomes important to:
1. Identify the potential products suitable for China Market through
· Market research on recent trends
· Brand’s products that are well known in China
2. Identify and develop products to become hero products, which are top performing products contributing to the GMV based on the 80- 20 rule (80% of the GMV is produced by 20% of the SKUs in the store).
3. Identify products that are non-seasonal and can contribute to daily sales throughout the year.
4. Maintain a product pipeline aligned to the latest trends on the platform and introduce new products to ensure we can reengage existing customer and increase basket price.
Once product strategy is finalized it is important to set an appropriate pricing strategy. Click here to learn more.
Setting the sales targets for your store is the first step in deciding the pricing of your products. While every brand may have different objectives with their store, the key to selling in China in high volume is all about competitive pricing. A brand with high aspirations for China market should develop a pricing strategy that accounts for the various promotions that are hosted on the Tmall Global platform during the year.
The pricing strategy below is recommended to offer some clarity on planning the pricing within your store.
Do consider the costs associated with pricing at the SKU level. The pricing for each product should be competitive after factoring in all the related costs such as tmall commission, Alipay commission, cross border taxes and logistics cost.
While it may not seem like there is any chance for breakeven in year one, setting up a store on Tmall Global should be viewed with a long-term strategy in mind.
Here is sharing a direction on how pricing strategy can be captured.
A store on Tmall Global is a first step towards entering the many sales channels in the Alibaba ecosystem such as TDI, Tmall, and TOF. A good pricing strategy coupled with a well-executed Inventory planning are essential to a successful cross-border ecommerce venture in China.
It is key for any new store on Tmall Global to build a minimum monthly GMV as quickly as possible. Having a minimum monthly GMV allows the store to establish its organic traffic. The most ideal scenario is for a store to build enough organic traffic such that it can sustain its own business. However, that is usually not entirely feasible. In order to establish a strong organic traffic, you would first need to leverage existing channels to direct traffic to the Tmall Global store. More traffic increases sales and more sales increases a brand’s search results ranking, which in turns improves traffic. This creates a positive spiral. Marketing plays a crucial role in helping brands grow traffic and establish their baseline sales quickly in the store’s initial phase.
Before moving on to explaining more about the marketing resources, here is sharing a key formula on how GMV is calculated. And as one can see, for any brand to grow sales in their TMG store, they need to be able to increase store traffic, conversion rate, and the average order value.
Sales = Traffic X Conversion Rate X Average Order Value
There are three types of traffic:
• Organic traffic – existing brand awareness resulting in customers actively seeking your store / products e.g. through search
• Paid traffic – paid search placement ads, banners etc. directing customers to your store / products
• Campaign traffic – activities within the Tmall/ Taobao app that direct customers to your store / products
The ideal scenario is for a brand to build enough organic traffic such that it can sustain its own business and reduce investment in paid traffic.
In order to establish strong organic traffic, you will need to develop good brand awareness through online and offline marketing activities. China has a variety of social channels that are very powerful for amplifying your brand message and showcasing your products.
Experiment and invest in a series of ads for a set period, then review the results. If necessary, reallocate your marketing budget to activities that generate the most traffic.
Examples of paid traffic activities within the Tmall / Taobao app:
Juhuasuan (Group Deals) is a tool brands can use for accelerating growth once they are established on the Tmall platform. You must meet certain criteria in order to participate but it brings new traffic with strong conversion rate, sometimes as high as 2x your regular conversion. Typically, the frequency of participation is once a month.
In the image below please find some of the various marketing tools inside and outside Alibaba platform that will help you build your brand. There are many content marketing tools and KOL/influencers that can generate awareness and interest through their followers. This process of cultivating interest is key for broadcasting your brand & products to a wider audience and attracting new consumers.
Sync your marketing investments with Tmall’s event calendar to maximize the dollar spent. This is especially true during mega promotions on the platform. Our top 3 mega sales are 1) Double 11 2) 618 carnival 3) Chinese New Year.
Ask your TP to share upcoming campaigns with you 1 to 2 months in advance. You will need to have a good overview of the upcoming events to set the target for each mega sale and make the necessary store preparations beforehand to ensure that these targets can be realized.
In order to ensure you are well-positioned to meet the ever-increasing demands of Chinese consumers, rigorous advance planning is necessary to understand what your TOP requested SKUs will be, how much stock you can allocate, and the expected GMV target for major promotions etc.
Stock levels should be planned 2 months in advance of an S level promotion such as Single’s Day (Double 11). Work with your TP to analyze the insights from your daily and monthly sales as well as during other promotional activities. Use this to plan stock/inventory/pricing for the next promotional cycle.
• Annual Sales Targets
• Shipping Models
• Annual Sales by SKUs
• Pricing Strategy for Hero SKUs
• Single’s Day Sales Planning
• Single’s Day TMG Store Planning
• Marketing Inside Alibaba
• Marketing Outside Alibaba
• Strategy for Membership Program
• Continuous Communication Between TP / Category and Brand
There are key months where top promotions will bring maximum sales. The planning should involve allocating more inventory and resources to suiting the marketing cycle on Tmall Global.
The optimal logistics solution is to store top-selling products in bonded warehouses within one of China’s free trade zones. This option offers the fastest delivery times and thus higher customer satisfaction. For long tail, non-hero items, you may consider holding them in consolidated warehouses in various locations outside China. It is also recommended there is a sales target set up for fast moving SKUs.
A foolproof strategy coupled with a well thought out online marketing plan will ensure great success for the store on Tmall Global.
There are several different models for running your Tmall Global business:
1. Brand owned, TP operated
2. Distributor owned, TP operated
3. Distributor owned, distributor operated
4. Brand owned, brand operated (not common)
Whether you work with a service TP or a distributor, we strongly encourage the brand to be closely involved in the strategic planning of the Tmall Global business. Tmall Global will also provide feedback on your product assortment, pricing, logistics plans, marketing plans, and proposed sales targets.
While TPs and distributors will take the lead on operational planning and execution, brands should have some input and review & sign off the operations plan. Clear objectives such as sales/traffic acquisition should be communicated and agreed upon by both parties. The KPIs for these objectives could be tracked weekly, monthly, and quarterly.
It is the brand’s responsibility to manage their partner (TP or distributor), which includes ongoing monitoring of that partner’s performance. Here are some suggestions on the KPIs to be tracked.
Please refer to the detailed posts on Product and Pricing, Inventory Planning, and Marketing Strategy to learn more about detailed operations.
• Increase sales
• Increase brand awareness
• New product introduction
• Become profitable
a. As a Branding and Customer Education Tool
If you want your store to be a one stop hub for customer education and branding, you should showcase your entire product portfolio. There are a variety of marketing tools available for brand-building within the Tmall/ Taobao app. For more details, please refer to the Marketing section. Brand-building outside of the Tmall/ Taobao app is also crucial and should constitute a large proportion of your TP’s activity.
b. As a Sales Channel
If your store is primarily focused on sales, set monthly and promotion-specific targets – both for the store and for individual products.
If you are selling on other sales channels, your Tmall Global Store pricing must be competitive. You could also consider introducing SKUs that are exclusive to the TMG flagship store
We suggest a week by week evaluation of the GMV target completion rate. The Chinese consumer is becoming increasingly better at finding the best prices within various platforms, hence pricing and channel control is very important in order for any brand to be successful in China.
Once objectives are set, it is time to allocate funds accordingly. Here are three different approaches:
Below is an example of marketing budget allocation as a percentage of target sales. We encourage brands to work with their TPs to figure out the most effective approach.
How do I find a Third Party Service Provider?
Third Party service providers (TP) are professional trade partners that have an in-depth understanding of the China ecommerce landscape. TPs will act on the brand's behalf to run the brand store operations on Tmall Global.The TP services include IT infrastructure, customer service, warehousing and storage. digital marketing and design. logistics services, online store maintenance and consumer and store analytics. Finding a good TP who understands the brand's needs is key in launching a brand successgully, in China. Please refer to the Tmall Partner Page for more comprehensive information onhow to choose a Tmall Partner and work with them.
Click here to learn more about Third Party Service Providers.
What are the supply chain related solutions that are available?
In co operation with Cainiao ALibaba's logistics wing, Tmall Global offers a variety of logistics solutions through bonded warehouses as well as overseas warehouses. Your Third Party service provide will analyze the situation and business needs and work with our internal team to recommend the best possible logistics solutions.
Click here to learn more about Logistics Solutions.
What will make my brand successful in China?
There are many factors that will determine a brand's success in China. At Tmall GLobal we provide a unique opportunity for brands from all over the world to test their products in the CHina market through a variety of channels that we offer. We have online business solutions for brands that are at different stages of brand awareness and investment readiness for China.
A few improtant factors that will determine a brand's success are:
1. What is unique about your brand / product offering to Chinese consumers?
2. How well the consumers rate / accept the product
3. Choice of a Third Party service provider who has a good understanfing of your business needs and the deamnds in the CHina marekt and has a good operational capability on the cross border eCommerce platform.
Are there any Trademark / Intellectual property related issues that I will need to be aware of?
It is very important for brands to make sure their trademark is registered in China. When it comes to trademark protection, China follows the 'first to file' system rather than the 'first to use'; consequently, the Chinese system does not recognize trademarks registered in other jurisdictions and will grant protection only to those who file first in China. Therefore even if the brand is already registered in the home country, it is still important to register in China for the brand to officially own the trademark and selling rights.
Check out our Intellectual Property (IP)platform to learn more