For many western brands, China’s retail market — and especially, China’s online retail market — is still the Wild West (or East, rather). All of the knowledge retailers have so painstakingly acquired about selling goods online in North America and Europe is rendered somewhat useless when it comes to selling online in China.
Take, for example, e-mail, one of the most important sales and communications channels for western retailers online. In China, e-mail is not the de facto method of online communication, and furthermore, it’s not a channel through which consumers prefer to engage with brands. How then do you inform your customers about new products and offers? In addition, the vast majority of Chinese consumers don’t buy goods from brand sites; rather, they buy from a giant, eBay-like site called Taobao and its sister brand-to-consumer sales site, Tmall, which together were responsible for 81% of online transactions (in dollars) in China in 2010, according to Boston Consulting Group.
Valerie Hoecke, senior vice president of digital experience and commerce at San Francisco-based beauty company Benefit Cosmetics, knows all of this firsthand. Hoecke joined Benefit Cosmetics in 2009, two years after the company began offerings its products in China and one year before it opened its first boutique in Shanghai. (It now has five: in Bejing, Guangzhou, Shenzhen and two in Shanghai.)
Since Hoecke came on board, she’s overseen the launch of a new global e-commerce platform, and entered three new regional markets online, including China. We asked Hoecke what she’s learned about e-retailing in China since the company launched its first website there in spring 2011. An edited transcript of our conversation can be found below.
Tell us about Benefit’s foray into China.
Before we launched our site in China in spring 2011, we had already been in business in China [since 2007]. We sell through a variety of department stores there, as well as Sephora and our own flagship boutique. So by the time we launched our site, we had a market presence in China, but no digital presence.
When I came on board at Benefit, we were looking at where to focus our digital activities. At the time, we were only selling online in the U.S. and UK and through Amazon’s seller platform. Our [bricks-and-mortar] business in China was picking up some good steam, and consumers for luxury and prestige goods were starting to come online in China. We also really wanted to grow our communications efforts in Asia, where digital consumption is very strong. So we decided to build a site for China as the first of a number of new international sites on a new platform.
We launched our China website on the new platform in spring 2011, and launched our U.S. on the new platform in the fall of 2011 and then the UK in the beginning of 2012. France and Germany came in late 2012.
We chose China first because we didn’t feel like we had a strong communications presence there — an online flagship, if you will. We didn’t expect huge sales.
The site isn’t designed for sales?
We’re not a retailer first and foremost, we’re first and foremost a brand that creates product. We primarily sell through our retailer partners. Our own direct channels for distribution are limited to our flagship stores and e-commerce site. The number one way consumers experience us is through third-party stores.
So while e-commerce is an important sales channel for us, our number one priority for us is really communication and education in those markets. If you ask any brand out there with an e-commerce site about why people come to their site, it’s to get information and research for offline sales.
That’s not to say we’re not interested in retail opportunities online. E-commerce sales support our digital marketing communications efforts and pay for having some staff members in e-commerce. But it’s not a primary source of revenue. That’s quite common for brands rather than retailers.
What technological hurdles did you have to overcome?
Our China launch was a joint effort between our U.S. team and a team we established in China. We had to rely on local resources to understand technology challenges. There weren’t a lot of order management solutions out there that handled Chinese character sets, for example. Network speeds are also much slower in China. The site itself is hosted out of New York, so getting the right cacheing systems was also a challenge. For payment, we integrated Alipay [a PayPal-like payment service]. In China, cash on delivery is a popular payment method, as there’s poor credit card adoption. Customers order, inspect and decide what to send back. Arvato does our fulfillment from Shanghai. They do all of our fulfillment for U.S., Europe out of Germany as well as China.
Recruiting for talent in China was tough. It remains tough. We’ve found talent mostly from [advertising] agencies in China. We now have three people and lightweight support from agencies, plus a team [in the U.S.] that does global website updates and English-language graphics. The team in China takes the assets we create here and localizes them.
Do you create bespoke content for your Chinese website?
It’s mostly the same, mostly content about our product. Our global branding campaigns tend not to be that different, we’re specifically a very American brand. In China, people are hungry for international culture, and they’re pretty receptive to our playful, irreverent ways. There are markets where we do have to tone our voice now, particularly the Middle East, based on government and societal standards for what’s appropriate. We do have a different launch schedule [in China], as products are often delayed, it’s a big challenge getting products approved there. We also have local content around local events, such as store openings, which we might promote heavily via the website or social media programs.
What products are most popular in China?
Complexion is super important in Asia in general, so complexion products, skincare, also perfecters of various sorts. Mascara is a bit stronger in western countries. Asian women have shorter, straighter eyelashes, so they rely more on eyeliner. Humidity is a huge driver of makeup dilemmas in Asia, so we launched eight specific products in that region [to address that].
There are sites that are designed for brand-to-consumer sales in China, namely Tmall. Were you selling there before you launched your site?
When we launched, virtually no one was [on Tmall]. We launched our site, then we launched on Tmall as well to test the sales opportunity there. Tmall has ready consumers, built-in CRM capabilities and upselling occurs through its instant messenger platform all the time. We saw that as a stronger e-commerce sales opportunity than our own. Our site in China is really our online home, our flagship store, whose primary goal is to educate, then to sell.
How has the site evolved since 2011?
We’ve seen nice traffic growth — about 50% growth year-over-year in visits — but China remains an ongoing challenge. In most markets, we rely heavily on e-mail and paid search [for traffic and sales]. The lion’s share of revenue at e-commerce sites is still being driven by e-mail. In China, consumers, especially younger consumers, simply do not subscribe to e-mail from international brands; e-mail is not a trusted communication vehicle for them at all. It’s completely out of line from the rest of the world.
There’s a thriving paid search opportunity, we’ve gotten some fairly decent results from Baidu [China's bigger search engine] and some new search engines, but there’s so much competition for paid search ad placements, that ROI is extremely poor. In North America, for every $1 spent in paid search we might see $5 worth of revenue; in China it’s a 1:1 ratio, we’re lucky just to break even on our paid search investment. I don’t know if that’s true for every brand out there, but it’s true for us.
So the tools we have historically used to drive revenue just aren’t performing well for us in [China]. We’re left with the challenge of finding the right kind of qualified traffic for the site. We think Wechat [a Snapchat-like messaging service] might provide opportunities. It has a fairly large mobile base and a lot of people are browsing our site, which isn’t yet optimized for mobile. It will be interesting to see if conversions are higher on mobile [than desktop] once we optimize. Everything is different in China.
Where can you ship in China? What do you charge for shipping?
It’s difficult to get deep distribution — we use carriers for parts of China where FedEx can’t go. [The good thing is] prestige consumers in China travel a great deal. We have a lot of consumers in smaller cities who shop when they get out of China or when they go to big cities like Hong Kong, and they come shop [on our website] after that because we don’t have a store in their location. [A good amount of our] e-commerce sales are where we don’t have a store presence. A small percentage of our e-commerce sales are in Shanghai or Bejing [where we have stores]. It’s the opposite in the U.S. — there’s a strong overlap between e-commerce sales and a strong geographic presence.
Shipping is affordable, only a couple of dollars. We have a lot of free shipping offers that perform very well, even though the value of free shipping is very low. Chinese consumers are more value conscious and more promotionally driven than any other area where we do business. As for returns, we definitely allow returns for defective product, and for a limited time — seven days I think — buyers can return product because they didn’t like it. A more generous returns policy might be on our horizon to create a better sense of trust.
How do you approach social media in China?
It’s a completely different ecosystem. There’s no Facebook, no Twitter. Instead there’s Twitter-like platforms like Sina Weibo, RenRen, Wechat, plus Youku, which is like YouTube. We’re pretty active in all those spaces where consumers are spending time and where engagement is best. Most of our social media assets are developed [here] for Facebook, so in China we need unique assets for many more channels. Social media is not as important for direct sales conversion, but it is important for the customer journey, to get the brand in front of new consumers and provide responsive customer service around the world.
[To keep the voice consistent] we have a really clear brand book internally, which everyone in company is inducted with. Each market has to figure out how to do it there. What it means to be bold and girly in China might be different [than in the U.S.]. Humor is a big part of the brand, and direct translations are not always funny.
So much is different about selling online in China. What is the same?
We still think search is super important, as well as ratings and reviews. Consumers don’t trust [ratings and reviews] on brand websites, but they search on Taobao for reviews and think those are trustworthy. They are already [on Taobao] to research, and there’s a legitimate place to buy, so it’s a natural place for them to convert.
We did find that design and navigation don’t require that much customization [in China]. Chinese consumers scan [websites] in a Z shape, upper right down to lower left and down to lower right, so we didn’t know if, having designed a site for western users, it would work in China, but in general it performs very well. We do have unique checkout features for cash on delivery payments and that sort of thing. It’s more that technology standards are different and driving traffic is different.