china ecommerce market analysis: final report 2013

China eCommerce Market

Analysis Final Report 2013

Jan 2014Industry Review | User Characteristics | Solutions

1. Industry review and forecast

1.1 Growth trend of the eCommerce market in China

1.2 Growth trend of online shoppers in China

1.3 New trend of the eCommerce market in China

2. Characteristics and evolution of Chinese

eCommerce users 3. Strategies and solutions for Chinese

eCommerce enterprises

Table of Contents




Table of Contents

1.1.1 Key Note – China eCommerce Market

- Market scale in 2012: RMB 1.2 trillion

- CAGR in 2003-2011: >100%

- Share of total retail volume: >6%

- 3G/4G coverage increases opportunities for consumers to use mobile shopping via handset

- Spending from the affluent class increases and is shifting to online channels

- Increases in credit card usage together with more developed logistic facilities, both helping to lift the online shopper base

- The growth rate of online shopping market in China is faster than any other country in the world.

- Retail e-channels in China outweigh any other country in the world

- New market entrants can expect at least 3 times growth according to the recent forecast about the market volume in 2020

Largest online shopping market in the world

Growing number of online shoppers and more comprehensive peripheral services

China – Emerging retail online development for global brands

－1－

1.1.2 Growth Trend of the eCommerce Market in China

The size of online shopping transactions in China continues to grow rapidly, with 10 times the increase over 5 years.

In 2012, the online shopping transactions hit RMB 1,259.4 billion, with an annual growth rate of 66.5%.

2006-2012 Online shopping transaction amount and growth in China

258 5421208

2500

5231

7566

12594

64.0%

110.1%

122.9%

107.0%

109.2%

44.6%

66.5%

2006 2007 2008 2009 2010 2011 2012

Online shopping amount (hundred million dollars)

Annual growth rate

Data Source: CNNIC,“2012 Online Shopping Market in China Research Report”, March 2013－2－

1.1.3 Size Forecast of eCommerce Transactions in China

Putting aside inflation into consideration, the size of eCommerce transactions in China will reach a conservative guess of RMB 2.5 trillion to 4 trillion by 2020, which is 3.5 times of the size in 2011.

Size of online shopping transactions in China, 2003-2020

397

258

61

75

60

23

159

242

74

4527

136.131.91.20.6

2003 2004 2005 2006 2007 2008 2009 2010 2011 20151 20201

RMB 10 billion

High Case

Base Case

Low Case

Data Source: McKinsey Global Institute, China’s e-tail revolution: Online shopping as a catalyst for growth, March 2013－3－

1.1.4 Online Shopping in China vs International Markets

China will become the largest online shopping market in the world; its online shopping scale:

- Exceeded Japan’s to rank world’s No.2 in 2011

- Is even higher than the sum of UK, Germany and Korea combined

- Is predicted to exceed the United States’by 2015 and become the world’s largest online shopping market

Scale of online retail market in 2011

Data Source: McKinsey Global Institute, China’s e-tail revolution: Online shopping as a catalyst for growth, March 2013

119

74

66

34

20

13

12

7

6

United States

China

Japan

United Kingdom

Germany

Korea

France

Brazil

Russia

－4－

1.1.5 Growth Rate of Online Shopping Scale in China vs International Markets

The compound growth rate of online shopping in China in 2003-2011 exceeded 100%, with an expansion speed that was faster than any other country in the world.


RMB 10 billion

2003 2004 2005 2006 2007 2008 2009 2010 2011

United States

China

Japan

United Kingdom

Germany

Korea

France

Brazil

Russia

Canada

17％

120％

27％

18％

22％

19％

35％

34％

39％

14％

CAGR03－11％

Online retail market in 2003-2011200

150

100

50

0

－5－

1.1.6 Share of eCommerce in Total Retail Sales

China’s eCommerce penetration has already surpassed the US:

- In 2012, China’s eCommerce trade sales was 6.3% of total retail amount, while US’s was only 5%.

- It is estimated that by 2020, China’s eCommerce trade sales will be 10-16% of the total retail amount.

Share of China’s eCommerce in total retail amount in 2008-2013

Data Source: CNNIC,“China Online Retail Market Data Analysis Report 2012”, February 2013

7.4%

6.3%

4.4%

3.5%

2.1%

1.3%

2008 2009 2010 2011 2012 2013e

－6－

1.1.7 Major Factors Pushing the Growth of eCommerce

Factor 1: By 2020, the online spending per capita will reach RMB 1,500 – 2,400 per year, which is 3 to 5 times the current size.

Factor 2: Expanded 3G and 4G penetration helps boost the no. of online shopping users, while broadband penetration drives the growth of PC-based online shoppers.

Factor 3: The use of credit cards is increasingly common, which further facilitates online shopping.

Factor 4: By 2020, the affluent class in China (with a minimum annual average household disposable income of RMB 120,000) will reach 280 million, i.e. 20% of China’s total population. Spending will surpass Japan to be world’s no. 2. 60% will choose online as their major spending channel as they shift to online shopping from other spending channels.

2011-2020 Online spending per capita

Data Source: McKinsey Global Institute, China’s e-tail revolution: Online shopping as a catalyst for growth, March 2013BCG,“The Affluent Will Be a Major Driver of Consumption Growth in China”, November 2012

Online spending per capitaRMB / person

High case Base case Low case

5.3x

441

2360 1839 1533

441 441

4.3x 3.5x

Year 2011

Year 2020

－7－




Table of Contents

1.2.1 Key Note – Growth Trend of Online Shoppers in China

- No. of eCommerce users in 2012: 240 million

- The vast territory and high prices of real estate are beneficial to online shops’development

- Consumers from third or fourth tier cities or from rural areas tend to choose e-tailing as the coverage of actual shops is inadequate

- Online shop guarantees that brands achieve maximum penetration to target consumers

- High prices of real estate and increasing salaries eat up a large proportion of profits of traditional retail business

Largest eCommerce population in the world

Vast territory impacts online shops’development

Online shop: the best channel to enter the China Market

－8－

1.2.2 Population and Growth Trend of eCommerce Consumers

Despite the fact that the growth rate of internet users has slowed down, the online shopping population is rapidly growing. China’s online shoppers have reached 242 million people, raising the proportion to 42.9%.

China’s online shopping population and penetration in 2006-2012

Data Source: CNNIC, “2012 Online Shopping Market in China Research Report”, March 2013

33574641

7400

10800

16051

19395

24202

24.5%22.1%

24.8%

28.1%

35.1%

37.8%

42.9%

2006.12 2007.12 2008.12 2009.12 2010.12 2011.12 2012.12

Online shopping population (ten thousand people)

Online shopping penetration

－9－

1.2.3 China’s Online Shopping Population Penetration vs Other Countries

In China’s retail market, the internet coverage already surpassed the coverage of real retail shops. Due to the vast territory and high prices of real estate, the coverage of real retail shops is limited. For the consumers from third and fourth tier cities or rural areas who cannot access real retails shops, they will choose online shopping.

A unique factor in China is that internet coverage far exceeds coverage for top retail shops

Data Source: BCG,“The World’s Next E-Commerce Superpower: Navigating China’s Unique Online-Shopping Ecosystem”, November 2011

UK

France

Germany

Korea

USA

Japan

Brazil

China (Cities)

Indiat

The internet coverage within cities in China almost reaches a country’s level…

⋯ while retail consolidation almost reaches

a developing country’s level.

China’s e-commerce benefits consumers with its ability to offer more products.

52

51

49

44

30

27

26

13

3

Retail Consolidation (Proportion of top 20

retailers in total retail sales, %)

81

76

80

78

87

81

33

51

7

Internet Coverage(Population Proportion, %)

－10－

1.2.4 Key Driving Factor for Online Shopping Population Growth

The penetration of broadband network helps to increase China’s internet users, as well as the popularity of online shopping. China had 129 million broadband accounts but broadband penetration only accounted for 30%. As broadband’s popularity and speed increases, we can expect a better online shopper base which will drive the expansion of eCommerce in rural areas.


Broadband users and penetration in 2011

China

USA

Japan

Germany

France

UK

Russia

Korea

Brazil

Canada

Mexico

India

129

81

27

22

21

18

18

15

14

11

9

8

30

68

55

59

77

67

35

81

26

78

33

3

Residential broadband usersMillion

Broadband penetrationPercentage

－11－




Table of Contents

1.3.1 Key Note – New Trend of eCommerce Market in China

- The independent merchants proportion in eCommerce is 70% in US, while China’s is only 10-20%

- More than 50% users are influenced by social media when deciding to make a purchase

- The popularity of smartphones is only 1/4 of those in developed countries, but mobile shopping penetration rate is 1/2

- The advantages of independent merchants include high quality products and brands, integrated after-sales service and standardized logistic management

- Potential of shopping power driven from social media, as well as increase in number of traffic and users driven from smartphones.

Huge growth potential for independent merchants

The use of smartphones increase the online shopper base

Independent merchants have an advantage for future development

－12－

1.3.2 Structure of China eCommerce Market vs Other Countries

Compared with the independent merchant proportion of 76% in US, there is a huge potential for independent merchants in China. According to the statistics by McKinsey, independent merchants in China numbered 10% in 2011, while there was 76% in USA at the same period. As there is an increasing need, in addition to maturity of new brands in the marketplaces, we foresee a great potential for independent merchants.


Comparison of eCommerce Platform and Independent Merchants

50%

80%88% 89% 93% 93% 92% 93% 90%

24%

50%

20%12% 11% 7% 7% 8% 7% 10%

2003 2004 2005 2006 2007 2008 2009 2010 2011

76%

2011

RMB billion

2 5 16 27 56 128 263 461 774

China United States

eCommerce Platforms

Independent Merchants

－13－

1.3.3 The Growth Trend of Users Driven by SoLoMo

Sharing on social media drives users’passion in online shopping. Half of its users were stimulated by social media to shop or choose a brand. The development of social media drives some behaviors such as conformed purchasing, conspicuous purchasing and advance purchasing – but mostly to help users have better choices in products and brands.

Data Source: CNNIC,“2012 Online Shopping Market in China Research Report”, March 2013

Social media platforms mainly used by online shoppers

Weibo

Mogujie

Meilishuo

iGuang

Leho

Duitang

62.2%

33.1%

25.9%

10.1%

7.1%

5.7%

No. of purchases influenced by social media on users over the past 6 months

Over 10 times

6 - 10 times

4 - 5 times

1 - 3 times

7%

15%

23%

55%

－14－

1.3.4 The Growth Trend of Users Driven by SoLoMo

The popularity of smartphones helps the 3rd and 4th tier cities and rural areas to overcome the limitation of fixed broadband to directly enter the mobile shopping era. Mobile shopping in China was less than 2% in 2011 but grown to 4% in 2012, expecting an even higher jump in the future.

PC-based online shopping vs mobile shopping in 2010-2016

Data Source: iResearch,“China Online Shopping Research Report 2012”

99.5% 98.5% 95.8% 91.9% 88.3% 84.9% 82.2%

0.5% 1.5%4.2% 8.1% 11.7% 15.1% 17.8%

2010 2011 2012e 2013e 2014e 2015e 2016e

PC-based Online Shopping percentage (%)

Mobile Shopping percentage (%)

－15－

1.3.5 The Proportion of Users Driven by SoLoMo vs Other Countries

As of 2011, mobile commerce accounted for only 2% of the eCommerce market, while China’s smartphone penetration rate was only 10%. Just a year later, China’s mobile eCommerce represented about 4% of the total eCommerce market. Research also showed that the smartphone penetration is likely to increase to 23% in 2015, because of the higher tendency of average Chinese smartphone users to shop online, which brings much potential to future development.

2011 mobile commerce and smartphone penetration in major eCommerce markets


Share of mobile commerce% of eCommerce

Smartphone penetration% of population

USA

UK

Germany

France

China

Korea

42

49

35

37

10

42

5.4

4.8

3.6

3.4

1.9

0.6

－16－

－17－

Summary

- eCommerce development in China is yet saturated given the growing number of internet users, broadband coverage, smartphone coverage, and the rising of average disposable income.

- The affluent consumers in China, especially for those from small cities, are looking for high quality products and brands. The expansion rate of offline shops is far behind the expectations of these consumers.

- For brands and retail merchants who want to enter China market, the best way to maximize contact with target consumers is to set up online shops. This way they can also standardize service levels and maintain the brand image.

- Compared with the United States’market structure, and in addition to the users’increased need and maturity of new brands in the marketplaces, independent merchants will play an important role in the future of China’s market.

－18－

Appendix – Definition of terms

- Internet users : Chinese citizens who have used the internet in the past 6 months

- eCommerce: The trade of products or service via internet, mainly referring to the B2C and C2C trading. Users search for the product information on the internet, send a purchase request via the e-order service, and then complete the purchase via online payment or COD. Online travel booking and B2B trading are not included.

- eCommerce consumer: Internet users who have purchased products or services online in the past 6 months.

- Independent merchants: A sub-industry or mini-market which operates an e-trading platform, and provides a complete e-commerce solution to the consumers. Independent merchants comprise of a full range of services tailored to its consumers, providing a strong channel for sales and marketing and branding promotions. Example: VANCL and Lefeng

- eCommerce Platform: A platform for corporations to provide online trading to individuals. Corporations and merchants can make use of the shared resources such as basic infrastructure, payment platform, security platform and management platform to operate their business activities in a more efficient and low cost manner.

- Exchange rate: Based on USD and RMB rate of 6.13 in July 2013

1. Industry review and forecast 2. Characteristics and evolution of Chinese eCommerce users

2.1 Characteristics and evolution of Chinese eCommerce users

2.2 New demand of Chinese eCommerce users

2.3 Chinese online users’preference for eCommerce sites

3. Strategies and solutions for Chinese

eCommerce enterprises

Table of Contents




Table of Contents

2.1.1 Key Note – Demographics and Evolution of Chinese eCommerce users

Online shopping increases both in frequency and amount every year

Strong demand for luxury brands leading to great opportunities for international brands

Users’ shopping frequency increases

- Unprecedented growth of online shopping among Chinese consumers

- Online shoppers’ average spending reaches RMB 5,023, narrowing the gap with the U.S.

- Age group and income level of the users rise continuously

- Proportion of affluent consumers from the third and fourth tier cities increases

- Online shoppers demand for luxury brands are steadily increasing

- Popularity of smartphone and social media drives the penetration rate of online shoppers and trigger their purchasing desire

－19－

2.1.2 General Overview and Uptrend of China eCommerce Market

The growth of internet user population slows down, but online shoppers still maintain its strong momentum:

- Total number of Chinese online shoppers reached 242 million, with the proportion of online shoppers increased to 42.9%.

33574641

7400

10800

16051

19395

24202

24.5%22.1%

24.8%28.1%

35.1%37.8%

42.9%

2006 2007 2008 2009 2010 2011 2012

Number of online shopper (in ten thousand)

% of Online Shoppers

Online Shopper Population and Penetration Rate in 2006 - 2012

Data Source: CNNIC,“2012 Online Shopping Market in China Research Report”, March 2013－20－

2.1.3 New Online Shopper Population in China vs International Markets

The number of new Chinese online shoppers surpasses the total population of other countries. With the increment of per capita consumption, the market sees huge potential:

- In line with the data from CNNIC, Boston Consultancy Group remarked that the number of China’s new online shoppers hit 3.8 million, which exceeded Canada’s total population.

Internet user population propels the rapid development of China’s eCommerce market

100

80

60

40

20

02005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Population in million

France’s population

Korea’s population

Canada’s population

…brought about the era of rapid growth in eCommerce

The era of rapid growth of network connection…

New internet users

New online shoppers

1711

26

10

73

12

88

25

86

29

73

36

61

4348

38

50

38

47

3440

31

Data Source: BCG,“The World’s Next E-Commerce Superpower: Navigating China’s Unique Online-Shopping Ecosystem”, November 2011

－21－

2.1.4 Growth of Chinese Online Shoppers’ Per Capita Consumption (1)

In 2012, Chinese online shoppers’ per capita consumption reached RMB 5,023, YoY growth 25%.

- The purchasing power of Chinese online shoppers was strong, with more than half of the users spending over RMB 1,000 annually online.

- Most users spent about RMB 2,001 - 5,000 on online shopping, which is 22.6% of the total share.


Online Shoppers’ Annual Per Capita Consumption in 2012 (RMB)

1.1%

1.8%

3.9%

7.3%

4.8%

22.6%

14.5%

22.3%

10.8%

7.0%

3.9%

RMB 2,001－5,000

RMB 1,001－2,000

RMB 501－1000

RMB 301－500

RMB 101－300

Over RMB 50,000

RMB 20,001－50,000

RMB 10,001－20,000

RMB 8,001－10,000

RMB 5,001－80,00

Under RMB 100

－22－

2.1.4 Growth of Chinese Online Shoppers’ Per Capita Consumption (2)

- Mega spenders (annual spending over RMB 10,000) occupied 7% of the total number of online shoppers and 40% of the total spending of online shopping.

- Experienced online shoppers of the affluent class should be the main target consumers of eCommerce enterprises.

Data Source: BCG, “The World’s Next E-Commerce Superpower: Navigating China’s Unique Online-Shopping Ecosystem”, November 2011

Online Shoppers Classification

－23－

Type Annual online shopping spending (RMB) Distribution in 2010

Proportion of online shoppers (%)

Proportion of consumer spending (%)

Small spender

Moderate spender

Big spender

Mega spender

<2,000

2,000-5,000

5,000-10,000

>10,000

14

21

24

40

57

24

12

7

2.1.5 Growth of Chinese Online Shoppers’ Per Capita Shopping Frequency

In 2012, Chinese online shoppers’ shopping frequency recorded a substantial growth:

- Users’ bi-annual average shopping frequency reached 18 times, which is 3.5 times of the size in 2011.

- The proportion of online shopping with over 10 times bi-annually took up more than 50% and increased substantially by 23.8%.

- As time passes by, online shopping beginners became experienced online shoppers on a steady pace. According to the research conducted by PwC, the online shopping frequency of Chinese consumers surpassed the average level of the world. In China, nearly 50% of online shoppers browsed online at least once a week, while the average of around the world was 29%.

2011 - 2012 Online Shopping Frequency within 6 Months


1－2 times 3－4 times 5－10 times Over 10 times

10.5%

18.5%14.1%

18.9%21.0%

21.9%

54.5%

30.7%

Year 2011

Year 2012

－24－

2.1.6 Types of Goods Purchased by Chinese Online Shoppers

Clothing, footwear and accessories, daily necessities and 3C products are the goods that are mostly purchased by

the users:

- In 2012, 81.8% of users had bought clothing, footwear or accessories via internet, mainly due to their strong desire for personalization and the limited diversity and insufficient coverage of offline actual stores’ merchandise.

- Standardized products such as 3C products also have a higher purchase rate, mainly due to the price advantage of online shopping.


Percentage of Online Shoppers Purchasing Various Commodities in 2012

81.8%

31.6%

29.6%

22.9%

18.4%

16.6%

15.2%

14.5%

12.8%

8.5%

8.5%

6.9%

6.8%

6.7%

Virtual cards, e.g. prepaid cards, game cards

Cosmetics & beauty products

Food & health products

Handbags & luggage

Food & beverage service

Clothing, footwear & accessories

Daily necessities

Computers, digital communications products & accessories

Home electrical appliances

Books & audio-visual publications

Movie & show tickets

Maternity & baby products

Stationery

Jewelery & accessories

－25－

2.1.7 Factors Affecting Chinese Online Shoppers’ Consumption Behaviour

When more and more users are elevated to affluent consumers, they demand more upmarket goods to enhance the quality of life:

- Categories related to personal care and lifestyle will develop rapidly along with the upgrade of the user class.

- Categories related to health care, 3C products and baby products will continue to grow as income level rises.

Consumption Pattern of Different Commodities and Income Groups

Data Source: BCG, “The Affluent Will Be a Major Driver of Consumption Growth in China”, November 2012

Low income groupQuasi-middle classEmerging middle classMiddle classAffluent consumers

Skincare, clothing, footwear & accessories Vitamins, handsets, baby products

Family Income

Per capita consumption (index)

Family Income

Per capita consumption (index)

Turning point Continuous growth

－26－

2.1.8 Overview of Chinese Online Shoppers’ Consumption by Region

Consumers from the third and fourth tier cities have a higher demand for online shopping, which offers them a greater variety of goods to choose from:

- The number of affluent consumers from the third and fourth tier cities had been gradually increasing. They preferred online shopping because the coverage of offline actual stores in their cities was limited, particularly that of the middle to luxury brands.

- The spending amount of the online shoppers in the fourth tier cities is similar to that in the second and third tier cities, yet accounting for a larger share of disposable income.


Average Spending and Share of the Total Retail Spending in the Third and Fourth Tier Cities

Online spending per online shopper (RMB) Percentage of online shopper’s retail spending (share of disposable income)

Top tier

Second tier

Third tier

Fourth tier

6,819

4,922

4,624

4,467

18

17

21

27

－27－

2.1.9 Analysis of Demographics and Purchasing Behaviour of Chinese Online Shoppers (1)

- Chinese online shoppers had a tendency moving towards middle-age group, with 35.7% of users aged 31 or above and increased by 9% as compared with 2011.

- Purchasing power of users from the middle age group is even stronger. They are interested in luxury fashion brands, and maternity and baby products which are related to their next generation.

Age Group of Online Shoppers in 2006 - 2012


Under 18 years old 18 -24 years old 25 - 30 years old 36 - 40 years old31 - 35 years old

1.0%1.5%

30.3%

37.5%

33.1%34.4%

18.4%

14.9%

7.1%6.2%

Over 40 years old

10.2%

5.6%

Year 2011

Year 2012

－28－


With ongoing age growth of online shoppers and economic development in China, the income level of online shoppers has been improved:

- The proportion of online shoppers with personal monthly income of RMB 8,000 or above has increased, indicating that the number of users from the middle class or above has increased.

- The decline in the proportion of the low income group indicated that the economy of China’s third and fourth tier cities boomed and the income level of the local citizens improved.


Income Groups of Online Shoppers in 2011 - 2012

9.5%

10.5%

26.3%

22.0%

17.7%

7.7%

6.3%

RMB 501 - 1,000

Under RMB 500

Over RMB 8,000

RMB 5,001 - 8,000

RMB 3,001 - 5,000

RMB 2,001 - 3,000

RMB 1,001 - 2,000

12.9%

12.6%

29.7%

19.2%

12.6%

7.0%

6.2%

Year 2011 Year 2012

－29－


Users’ purchasing behaviours may vary from different demographics, in particular their preference on product categories:

- Take gender as an example, men are generally more preferred with 3C products while women pay more attention to cosmetics / personal care / baby products.


Clothing, footwear, luggage, outdoor products

Mobile phone prepaid package


Home decor

IT products

Online lottery


Communications products

Cosmetics & personal care

Digital products

30.9％

21.2％

7.6％

5.8％

4.7％

4.6％

3.9％

3.5％

3.3％

2.8％

Top 10 Commodities Purchased by Chinese Male Online Shoppers in 2012 Top 10 Commodities Purchased by Chinese Female Online Shoppers in 2012

Clothing, footwear, luggage, outdoor products

Cosmetics & personal care

Mobile phone prepaid package

Home decor



Fresh fruits & other food

Small electrical appliances

Digital products

Online lottery

47.3％

11.7％

11.4％

7.0％

5.4％

3.9％

2.9％

1.8％

1.5％

1.3％

Percentage (%) Percentage (%)

－30－




Table of Contents

2.2.1 Key Note – New Demand of Chinese eCommerce users

Growing desire in international brands

Stronger demand for choosing more brands with lower prices

Logistics and after-sales service are key to success

- In the second half of 2012, online shoppers purchased overseas goods from local eCommerce sites 4 times on average

- User spent over RMB 400 for each purchase

- Purchasing overseas’ goods reveals the behaviour of the affluent class - concern about brand and quality

- The major advantage of purchasing goods from overseas is that users can choose from a wide variety of brands with relatively lower prices

- The major problems in purchasing overseas’ goods are long delivery time and lack of after-sales service

- Set up online store to reduce the cost of expanding actual store. Provide worldwide after-sales service and acknowledge the users by lowering the prices

－31－

2.2.2 Market Scale of Chinese Online Shoppers Buying Overseas Goods

Chinese online shoppers buying overseas goods are growing rapidly:

- In 2012, the amount spent on buying overseas goods hit RMB 48.3 billion, with an increase of 82.3% yearly.

- According to the estimation by China E-Business Research Center, the growth of buying overseas goods this year will remain steady and the amount is expected to exceed RMB 70 billion.

Data Source: China E-Business Research Center, China B2C E-Commerce Report 2013 Mid - year Report, February 2013

Amount in purchasing overseas goods in China in 2008 - 2013

Transaction amount (in RMB 100 million)

2008 2009 2010 20122011

24.150

120

265

483

2013e

744

－32－

2.2.3 Overview of Chinese Online Shoppers’ Buying Overseas Goods

The product categories of overseas goods reflect the needs from the affluent consumers:

- Clothing, cosmetics, baby products, 3C products and health care products are the major product categories.

- As the income level of online shoppers increases, there is a stronger demand for luxury brands which have not yet entered the Chinese market. For foreign brands, they must seize the opportunity to enter the Chinese market.


Common Overseas Goods Purchased by Chinese Online Shoppers

50.0％

26.8％

15.2％

10.7％

5.4％

5.4％

3.6％

1.8％

8.0％

Clothing (including clothes & bags)

Cosmetics & beauty products

Milk powder, infant products

Computers, digital communications products & accessories

Household products

Health products

Jewellery & watch

Books, audio and visual publications

Others

－33－

2.2.4 Analysis of Chinese Online Shoppers’ Motives and Demand for Overseas Goods (1)

Users choose to buy foreign products because of a wide range of different brands, low prices and better quality:

- Despite the tax, the domestic pricing of foreign products are cheaper than that when imported to China due to markup of prices.

- 1/3 of Chinese online shoppers purchase overseas goods via local eCommerce sites because they are unable to reach the foreign brands. To the foreign brands which have not yet entered the Chinese market, they should be aware of this phenomenon and set up their own online store to expand their business in China.

- The food safety and product quality issues in China have caused the affluent consumers to look for foreign goods online from the developed countries. The quality assurance of goods is the major considering factor when the middle class or the upper class tends to purchase.


Reasons of Users’ Purchasing Overseas via Purchasing Agent

39.3％

33.9％

30.4％

8.9％

10.7％

Cheaper than local pricing

Favourite brands do not exist in China

Guaranteed quality

Trendy and fun

Others

－34－

2.2.4 Analysis of Chinese Online Shoppers’ Motives and Demand for Overseas Goods (2)

The major problems of buying overseas goods are long delivery time and lack of after-sales service:

- Most of the couriers of the overseas eCommerce operators fail to deliver the goods on the next day, not to mention the delivery time of the aircraft cargo and the time for custom check. Therefore, the average delivery time of the goods purchased oveseas is usually more than two weeks.

- To foreign brands which aim for success in China, they should opt for setting up their own online store to take the advantage of the low cost of China’s speedy courier service to meet customers’ needs.

- To tackle the after-sales service issue, brand owners should consider providing worldwide after-sales service. Opening an online store in China is also a strategy to meet users’ demand for sales service.


Major Problems Encountered when Buying Overseas Goods

92.6％

22.2％

7.4％

3.7％

3.7％

Long delivery time

Fail to return or exchange goods

Unauthorized use of credit card overseas

Quality issue of the purchased goods

Damage or lost during delivery

－35－




Table of Contents

2.3.1 Key Note – Chinese Online Shoppers’ Preference for eCommerce

Consistent growth rate of eCommerce operators and network users

Consistent low conversion rate induces business difficulties

Different eCommerce operators need different solutions to cope with fierce competition

- New users are quickly taken up by top eCommerce operators

- The number of online shopping channels increases, driving the loyalty towards a specific site decreases

- The churn rate of top eCommerce enterprises is around 10%, mainly because users are unable to locate the goods they want

- The conversion rate of eCommerce website is generally low. Audience targeting is required to push product information which match the characteristics of users’ behaviour

- In view of the significant cost increment for acquiring new users in recent years, optimization and development are required for customer relationship management

- For eCommerce platform operators, they need to improve online sales conversion rate, tackle the churn issue of existing clients and enhance the conversion rate of proprietary products

- For independent merchants, they have to face the challenge of acquiring new users

- For newly established eCommerce operators, they have to enhance brand awareness to rapidly expand the new user group in order to strive for market share during a short period of time

－36－

2.3.2 Increasing number of eCommerce Websites in China

In 2012, the number of eCommerce websites in China increased by 20% as compared with 2011, reflecting the severe competition of this industry:

- The number of eCommerce websites increased by nearly 20%, yet that of online shoppers increased by 24% only.

- New users were mostly attracted to top eCommerce websites, implying a bigger pressure for the newly established eCommerce players.

- The emergence of new eCommerce players gave rise to a more scattered user base due to the increasing number of choices. User loyalty to a specific website drops.

Data Source: China E-Business Research Center, China B2C e-Commerce Report 2013 Mid-year Report, February 2013

Growth of Chinese B2C and C2C eCommerce Enterprises in 2008 - 2013

Amount (in unit)

2008 2009 2010 20122011

5460

9962

15800

20750

24875

2013e

25529

－37－

2.3.3 Loyalty Change of Chinese eCommerce Users

The increasing number of eCommerce websites has led to a greater diversity of options, causing the users to be less loyal to a specific website:

- During 2009 to 2012, the proportion of online shoppers using only one shopping website has dropped significantly.

- Users will compare the types of goods, brands and discounts from different eCommerce websites prior to their purchase.

- Since the payment methods are relatively the same, the cost of users switching among eCommerce operators is relatively low as well. To the eCommerce enterprises, brand differentiation of their products and price war become the core strategies to retain customers.


Proportion of Using One Shopping Website Only in 2009-2012

Proportion of Loyal Users of Major Shopping Websites in 2012

Taobao

PaiPai.com

Tmall

JD.com

Dongdong.com

Amazon China

VANCL

Suning.com

1 The Store

49.2％

15.2％

10.8％

8.9％

8.6％

6.3％

6.2％

4.8％

2.7％

50.8％

84.8％

89.2％

91.1％

91.4％

93.7％

93.8％

95.2％

97.3％

2009 2010 2011 2012

80.0%72.7%

61.1%

51.1%

Users using one website only Users using more than one website

－38－

2.3.4 Change of Chinese Online Shoppers’ Browsing Time of eCommerce Websites

Online shoppers’ average browsing time decreased, yet the conversation rate of each eCommerce operator did not increase significantly:

- Average age of users rose. Average time for browsing the shops decreased significantly from 20 minutes to 17 minutes.

- The drop of users’ browsing time was not caused by the optimization of users’ experience of each eCommerce website, which might help users save time for decision making. Data showed that the conversion rate of each eCommerce enterprise did not show significant improvement.

Data Source: China E-Business Research Center, Data Analysis Enhances E-Commerce Conversion Rate, September 2012

Online Shopping Daily Coverage and Average Browsing Time per User

Daily coverage (in million persons) Daily Effective browsing time per user

8000

7000

6000

5000

4000

3000

2000

1000

0

June 2010

June 2011

-16％

68％

－39－

2.3.5 Analysis of Chinese eCommerce Websites Conversion Rate

In an extremely competitive business environment, the conversion rate of top eCommerce websites, from the page displaying the products to the payment confirmation page, was merely 1%:

- The conversion rate of top eCommerce enterprises remained low at around 1%.

- For the long-tailed independent merchants, they should broaden their client base by expanding the traffic and reinforcing users’ purchasing power so as to improve the business. If eCommerce operators are able to attract or direct users which match the characteristics of potential customers of products on their website, the client base can be expanded and the website conversion rate will be enhanced simultaneously.

Data Source: China E-Business Research Center, Data Analysis Enhances E-Commerce Conversion Rate. September 2012; Hitwise, Visit Conversion Rate Data of E-Commerce Websites, August 2012

Visit Conversion Rate Data of Selected eCommerce Websites during 8-14 July 2012

Conversion

Product description page

Shopping cart

Order confirmation

Payment

51buy.comJD.comDongdong.com

27.1％

17.0％

43.5％

50.0％

4.6％

2.0％

1.0％

20.3％

23.6％

97.9％

29.8％

4.8％

4.7％

1.4％

14.9％

30.2％

55.6％

52.0％

4.5％

2.5％

1.3％

Method of calculating conversion rate: Hitwise monitored the network visiting behaviours of over 10 million online devices. Based on users’ visiting behaviours on the transaction milestone page, the purchase conversion rate was restored. Such data only included browser data via PC, excluding data of mobile phones and APP. Statistics indicator is defined as Visits.

－40－

2.3.6 Overview of New Users of Chinese eCommerce Websites

Most of the new Chinese online shoppers are absorbed by top eCommerce enterprises. Independent merchants face the challenge of acquiring new users:

- Most of the new users choose top eCommerce platforms such as Taobao, Tmall and JD.com, etc.

- To tackle this challenge, on one hand the independent merchants can implement product differentiation, on the other hand, they can fill the niche by catering to the users when the top eCommerce enterprise loses.


Percentage of New Users Using Various Shopping Websites in 2012

Growth Rate of User Volume of Major Shopping Websites in 2012

51buy

.com

Vipshop.co

m

Sunin

g

Pai P

ai

VANCL

1 The

Store

JD.co

m

Dongdong

Tmall

9.9％

Amazon

27.6％

22.2％

14.3％ 13.9％12.4％ 12.3％

11.1％ 11.0％ 10.6％

Taoba

o

JD.co

mTm

all

Dongdong

Pai P

ai

Amazon

VANCL

1 The

Store

Sunin

g

44.2％

22.1％

15.3％

7.1％ 6.4％4.6％ 3.7％ 2.8％ 2.8％

－41－

2.3.7 Cost Change of Chinese Independent Merchants in Acquiring New Users

The costs for Chinese B2C eCommerce enterprises to acquire new users increase year by year, with a rise of several times in 5 years:

- The costs for independent merchants to acquire new users increase due to intense competition and increment of advertising rates. The costs of acquiring a new user rose from around RMB 20 in 2009 to over RMB 100 in 2012.

- To tackle this problem, independent merchants should be based on existing information to redefine users’ characteristics by means of CRM. With such data, they can explore the source of new users by audience targeting or marketing.

Data source: Interviews with industry professionals, March 2013－42－

2.3.8 Change of Repurchase Rate of Chinese Online Shoppers

Except for some of the top eCommerce enterprises, the repurchase rates of most eCommerce websites in China exhibit a downward trend:

- Chinese online shoppers’ monthly repurchase rates at most of the eCommerce websites show a downward trend.

- Main reasons are the increasing number of eCommerce enterprises which lead to intense competition with more options for users and their frequent switch from one website to another, resulting in the rise of churn rate. In addition, some of the eCommerce operators are incapable of sustaining their business and expose their weakness regarding product quality and integrity after running their business for a while.

Data source: iResearch,“China Online Shopping Report in Q2 2012”. July 2012

China’s Top 10 B2C eCommerce Websites with Highest Monthly Repurchase Rate in 1H 2012

Rank Website Monthly Repurchase Rate (%) Monthly Repurchase Rate Relative Trend (Jan - Jun 2012) Website category

1

2

3

4

5

6

7

8

9

10

Vipshop.com

OkBuy

1 The Store

Fclub.cn

JD.com

Dongdong.com

Mbaobao.com

YouGou

COFCO womai.com

LAFASO

82.41％

68.60%

59.52%

57.89%

54.98%

53.48%

51.49%

51.46%

50.91%

47.65%

Fashion, clothing

Footwear, bags & accessories

General merchandise

Fashion, clothing

General merchandise

General merchandise



Food

Cosmetics

－43－

2.3.9 Change of Churn Rate of Chinese Online Shopping Website

The churn rate of China’ top eCommerce websites was around 10%, the long-tailed independent merchants were facing more user loss:

- In 2012, 6.5% of users stopped using the shopping website which they used 6 months ago. The differences among different websites’ user loss varied, even the top independent merchants had a churn rate as much as 10%.


Proportion of Major Shopping Websites’ User Loss vs. Total User Loss in 2012

Churn Rate of Major Shopping Website in 2012

Taoba

o

JD.co

m

Amazon

Pai P

aiTm

all

VANCL

Dongdong

.com

1 The

Store

Vipshop.co

m

1.9％

Mecox

Lane

22.9％

17.8％

14.0％

10.2％

7.0％ 7.0％ 6.4％

3.2％1.9％

Neweg

g.com

Amazon

Vipshop.co

m

VANCL

Pai P

ai

51buy

.com

1 The

Store

37.5％

14.8％12.5％ 11.5％ 11.0％

8.7％7.2％

－44－

2.3.10 Analysis of Reasons Causing User Loss of Chinese Online Shopping Websites

User loss of Chinese online shopping website is mainly due to incomplete product range, lack of quality assurance and after-sales service:

- For eCommerce website, the way to enhance conversion rate and sustain users’ loyalty is to implement targeting strategy which target potential users and push appropriate SKU of the products and enhance the conversion rate of SKU of the proprietary products, so as to minimize users’ frustration in locating the products they want.

- Meanwhile, eCommerce enterprises should concentrate on developing sustainable business, ensuring product quality and after-sales services even during promotional period / price war. Otherwise, users will have the feeling of being deceived.


Reasons for Users to Stop Using Specific Website

47.1％

24.2％

17.8％

8.3％

4.5％

4.5％

2.5％

Unable to locate goods they want

Poor quality of goods

Expensive pricing of goods

Deceive consumers

Dissatisfactory after-sales service

Poor delivery service

Unable to open the website

－45－

Summary

－46－

- There is an unprecedented growth of online shopping among Chinese consumers. Online shopping frequency and spending amount increase year by year. Online shoppers’ average spending is around RMB 5,203, narrowing the gap with the U.S. each year.

- As the age group and income level of the users as well as the proportion of affluent consumers from the third and fourth tier cities increase, Chinese online shoppers desire luxury brands which enhance the quality of life, resulting in a trend of overseas online shopping through purchasing agent. International brands should seize this opportunity.

- The increasing number of Chinese eCommerce enterprises gives rise to fierce competition in the market and a war to fight for users and traffic. eCommerce enterprises are facing common challenges such as increasing costs of acquiring new users and churn rate of existing users.

- To solve the fundamental management problems, different types of eCommerce enterprises need to establish the right direction of running the business and implement appropriate strategic solutions.


－47－

- Internet users : Chinese residents who have used the internet in the past 6 months

- E-commerce: The trade of products or service via internet, mainly referring to the B2C and C2C trading. Users search for the product information on the internet, send a purchase request via the e-order service, and then complete the purchase via online payment or COD. Online travel booking and B2B trading are not included.


- Independent merchants: A sub-industry or mini-market which operates an e-trading platform, and provides a complete e-commerce solution to the industry. Independent merchants comprise of a full range of services tailored to its consumers, providing a strong channel for sales and marketing and branding promotions, for example, VANCL and LAFASO.

- eCommerce platform: A platform for corporations to provide online trading to individuals. Corporations and merchants can make use of the shared resources such as basic infrastructure, payment platform, security platform and management platform to operate their business activities in a more efficient and low cost manner.

- Shopping website user loss: Refer to users stop using a specific website, that they used 6 months ago, in the past 6 months

- Shopping website churn rate = user loss in the past 6 months / total user volume 6 months ago

1. Industry review and forecast 2. Characteristics and evolution of Chinese eCommerce users 3. Strategies and solutions for Chinese eCommerce enterprises

3.1 Operational difficulties for eCommerce enterprises

3.2 eCommerce strategies and solutions

3.3 About iClick

Table of Contents



3.3 About iClick

Table of Contents

3.1.1 Key Note – Operational Difficulties for eCommerce Enterprises

Severe loss of eCommerce users

Generally low conversion rate

New users conversion cost increases year by year

- The user churn rate of top eCommerce enterprises is around 10%, mainly because users are unable to locate the goods they desire.

- With the increasing number of websites, the number of online shopping channels increases, which means the loyalty towards a single site decreases.

－ The conversion rate of top eCommerce enterprises remains relatively low at around 1%.

－ New users are quickly taken up by top eCommerce enterprises.

－ The cost for acquiring new users has risen several times in 5 years’ time.

－48－

3.1.2 Trend of User Churn Rate of China’s eCommerce websites

The churn rate of China’s top eCommerce websites was nearly 10%, while some eCommerce websites have even reached to 37.5%.

Data Source: CNNIC, “2012 Online Shopping Market in China Research Report”, March 2013 －49－

User Churn Rate of Major Shopping Websites in 2012

Newegg.com Amazon Vipshop.com VANCL PaiPai.com 51buy.com 1 The Store

37.5％

14.8％12.5％

11.5％ 11.0％8.7％

7.2％

3.1.3 Loyalty Change of Chinese eCommerce Users

The increasing number of eCommerce websites has led to a greater diversity of options, causing the users to be less loyal to a specific website:

- From 2009 to 2012, the proportion of online shoppers using only one shopping website dropped significantly- Users will compare the types of goods, brands and discounts from different eCommerce websites prior to

their purchase- Since the payment methods are relatively the same, the cost for users switching among eCommerce enterprises

is relatively low as well. For eCommerce enterprises, the brand differentiation of their products and price war has become their core strategies to retain customers


Proportion of Using One Shopping Website Only in 2009-2012 Loyal Users Proportion of Major Shopping Websites in 2012

Taobao

PaiPai.com

Tmall

JD.com

Dongdong.com

Amazon China

VANCL

Suning.com

1 The Store

49.2％

15.2％

10.8％

8.9％

8.6％

6.3％

6.2％

4.8％

2.7％

50.8％

84.8％

89.2％

91.1％

91.4％

93.7％

93.8％

95.2％

97.3％

2009 2010 2011 2012

80.0%72.7%

61.1%

51.1%

Single Users Non-single users

－50－

3.1.4 Analysis of Chinese eCommerce Websites Conversion RateIn a fierce competitive business environment, the conversion rate of top eCommerce websites, from the page displaying the products to the payment confirmation page, was merely 1%:

－ The conversion rate of top eCommerce enterprises remained relatively low at around 1% - For the long-tailed independent merchants, they should broaden their client base by expanding the traffic and reinforcing users’ purchasing power so as to improve their business. If eCommerce enterprises are able to attract or direct users which match the characteristics of their potential customers in terms of their products on their website, the client base can be expanded and the website conversion rate will be enhanced simultaneously

Data Source: China E-Business Research Center, Data Analysis Enhances eCommerce Conversion Rate, September 2012; Hitwise, Visit Conversion Rate Data of eCommerce Websites, August 2012

Conversion

Product description page

Shopping cart

Order confirmation

Payment

51buy.comJD.comDongdong.com

27.1％

17.0％

43.5％

50.0％

4.6％

2.0％

1.0％

20.3％

23.6％

97.9％

29.8％

4.8％

4.7％

1.4％

14.9％

30.2％

55.6％

52.0％

4.5％

2.5％

1.3％

Method of calculating conversion rate: Hitwise monitored the network visiting behaviours of over 10 million online devices. Based on users’ visiting behaviours on the transaction milestone page, the purchase conversion rate was restored. Such data only included browser data via PC, excluding data of mobile phones and APP. The statistics indicator is defined as Visits.

Visit Conversion Rate Data of Selected eCommerce Websites during 8 - 14 July 2012

－51－

3.1.5 An overview of new users on Chinese eCommerce websites

Most of the new Chinese online shoppers are absorbed by top eCommerce enterprises. Independent merchants face the challenge of acquiring new users:

－ Most of the new users choose top eCommerce platforms such as Taobao, Tmall and JD.com, etc.－ To tackle this challenge, the independent merchants can implement product differentiation on one hand. Conversely, they can fill the niche by catering to the users when the top eCommerce enterprise loses.


Percentage of New Users Using Various Shopping Websites in 2012

User Volume Growth Rate of Major Shopping Websites in 2012

51buy

.com

Vipshop.co

m

Sunin

g

Pai P

ai

VANCL

1 The

Store

JD.co

m

Dongdong

Tmall

9.9％

Amazon

27.6％

22.2％

14.3％ 13.9％12.4％ 12.3％

11.1％ 11.0％ 10.6％

Taoba

o

JD.co

mTm

all

Dongdong

Pai P

ai

Amazon

VANCL

1 The

Store

Sunin

g

44.2％

22.1％

15.3％

7.1％ 6.4％4.6％ 3.7％ 2.8％ 2.8％

－52－

3.1.6 Cost Change of Chinese Independent Merchants in Acquiring New Users

The costs for Chinese B2C eCommerce enterprises to acquire new users has largely increased year by year, with a rise of several times in 5 years:

－ The costs for independent merchants to acquire new users has largely increased due to intense competition and increment of advertising rates. The costs of acquiring a new user rose from around RMB20 in 2009 to over RMB100 in 2012.

－ To tackle this problem, independent merchants should refer to existing information to redefine users’ characteristics by means of CRM. With such data available, they can further drive the source of new users by audience targeting or marketing strategies.

Data source: Interviews with industry professionals, March 2013 －53－



3.3 About iClick

Table of Contents

3.2.1 Key Note – eCommerce Strategies and Solutions

New entrant

Independent merchant

eCommerce platform

－ Challenge: Less popular

－ Strategy 1: Search engine marketing

Strategy 2: On-target advertising – audience buy

－ Challenge: Increasing cost of acquiring new users

－ Strategy 1: Use search retargeting to search for potential customers

Strategy 2: Use machine learning and CRM data mining

－ Challenge: Low customer loyalty and conversion rate

－ Strategy: Use targeting to reach potential customers

－54－

3.2.2 Challenge for New Entrant – Low Popularity

－ Challenge: Low popularity at an early stage and relatively low visitors volume

－ Marketing advice: To establish an online store

Firstly: Improve the brand image to create a unique shopping experience

－ To improve the brand image, brand owners can have complete control over the designing process of the shopping experience to create a unique service experience for the brand.

Secondly: To enhance the conversion rate effectively

－ By establishing an online store, brand owners can get an in-depth understanding about their target users so as to increase their loyalty towards the brand and minimize the chance that users are unable to locate their favourite products.

Thirdly: To collaborate with professional service providers

－ More and more professional service providers (such as logistics, payment, etc.) enter the market and provide cost-effective solution for proprietary online stores

－55－

3.2.3 Marketing Strategies for New Entrant (1)

Marketing strategies for new entrant

Search Marketing + Brand Zone Display advertising with highly accurate audience characterization

Product Strengths:

－ Search Marketing can direct users who are interested in eCommerce products into the website with exceptionally good results.

－ Brand Zone effectively enhances the brand image, hence increase brand awareness rapidly.

Product Strengths:

－ As the advertising technology becomes more mature, display advertising allows advertisers to achieve on-target results with accurate audience targeting.

－ Audience buy relies on the Big Data which categorizes a number of demographic models according to internet users’ characteristics. Advertisers can choose the model which matches with their target audience and expose their customized ad to that particular group of users to attain on-target customized advertising.

－ Resolve new entrants’ problem in developing new customer base and increasing the user growth rate despite a lack of cumulative CRM data.

－56－

3.2.3 Marketing Strategies for New Entrant (2)

iClick’s targeted audience buying solution:

－ iClick connects to premium media with hundreds of millions of advertising audience, which is categorized into 22+ audience segments and further classified into 4-6 levels under each group according to their population attributes. Based on these classified data, iClick can help advertisers perform audience buy in which customized advertising can form an audience base that is most relevant and valuable to your business.

Enrich and expand mass audience

Audience buying seamlessly integrate into accuracy optimization

Insightful and practical data analysis

－ Unique audience database will break the established rules of the current market and cover more than 400 million Internet users in Asia.

－ Reinforce the exclusive optimization platform and unleash the power of audience data, allowing marketers to reach the mass audience and predict their future purchases accurately.

－ A collection of clear KPI reports offer remarkable insights about advertising campaigns to help brand owners to make wiser decisions

－57－

3.2.4 Successful Case of iClick’s New Brand Promotion (1)

International brand: a world-renowned lifestyle brandPerformance indicators: branding message, enhance brand awarenessTarget users:

Aged 10~19

Aged 20~29

Aged 30~39

Aged 40~49

Aged 50~59

16.73%83.27%

Junior schoolHigh SchoolTertiary institutionUndergraduate

Primary school

Education / student

IT Finance /

property development

Media / entertainment

Architecture

Civil / public service

Telecommunication / internet

Service Retail Energy / mining

Sex Ratio Education Level Distribution

Age Distribution

Vocation Distribution

－ Women is the dominating gender for luxury fashion brands

- Mainly well-educated working ladies aged 20-39

－58－


Holistic marketing strategy

Phase 1: 1st month1 Activate all channels of search engine advertising to exhibit the brand’s online image

2 Direct Unique Visitors (UV) and traffic to website and stress the quality of traffic – Page Views (PV)

3 Control Cost per Click (CPC)

Phase 2: 2nd – 3rd month1 Activate all channels of display advertising to expand customer base, develop regions with potential in consumption and strengthen brand spectrum.

2 Gradually increase the number of online user registrations

3 Control registration costs – Cost per Click (CPC) and

Cost per Action (CPA)

Search engine:

－ Brand Zone

- Search Engine Advertising

Search engine:

－ Brand Zone

- Search Engine Advertising

Display Advertising:

－ Targeted Audience Buy01

02

－59－


Through diversified media placement, specific keyword search optimization and extensive coverage of comprehensive audience, clients see significant improvement in brand exposure, brand engagement and sales conversion, leading to a breakthrough in clients’ internet development in Mainland China.

Result evaluation – popularity of website increases

Increased by 244%Click rate

Before optimization

After optimization

Page Views (times)

450,000

360,000

270,000

180,000

90,000

02012/01/01 2012/01/31 2012/02/28 2012/03/30

P h a s e 1P h a s e 2

－60－

3.2.5 Challenge for Independent Merchant – Increasing Cost of Acquiring New Users

Challenge: Increasing cost for independent merchant to acquire new users

Marketing advice:

－ Most new users choose to visit top eCommerce platforms. To solve this problem, client can implement product differentiation, on the other hand, exploit opportunities from those top eCommerce platforms which lose its customers

- Use CRM to derive and develop user characteristics from existing user information and implement search retargeting to expand the source of new users

Promotion recommendations:

－ Search retargeting

- Machine Learning

－61－

3.2.6 Marketing Strategies for Independent Merchant (1)

Marketing strategies for independent merchant

Search retargeting Machine learning algorithm – recruit potential target users from CRM data

Product strengths:

－ Leverage the target users referred by search advertising and “re-capture” them via display advertising.

- For users who have already performed search related to eCommerce products, advertisement will be displayed to them once again, maximizing the chance of conversion.

Product strengths:

－ Identify customer characteristics from the loyal customers through machine learning and search for Internet users who share the same buying preference, then perform display advertising.

- Surpass the traditional search method which focuses on website attributes and understand customer characteristics more in depth so as to expand the target customer base.

Consumer behaviours have already changed

Pay attention

Show interest Search Purchase Share

Pay attention

Show interest Desire Memorize Purchase

－62－


Strengths of iClick’s search retargeting technology are as follows:

- Vast user data resources covering users who are interested in different types of products and services.

- iClick’s propriety buy-side platform, XMO, covers more than 400 million Internet users in Asia and is able to efficiently locate target customers among a large pool of Internet users.

Search retargeting technology – search for users with consumption needs:

- Search retargeting technology enables display advertising to be based on users’ previous search history, i.e. based on users’ previous searched content to place targeting advertising, allowing independent merchants to locate potential consumers.

- Solve independent merchants’ difficulty in acquiring new users and the respective costs incurred.

-

－63－

User performs keyword search (Travel)

System will automatically record that particular users’ searching activities and data.

When the user revisits the page, system will match his/her search history with cookies and display the most relevant advertisements.


- Strengths of iClick’s machine learning algorithm are as follows:

- XMO Direct Technology: locate potential consumers for independent merchants through "XMO Direct", which integrate our own CRM data and tens of thousands of third-party audience data.

- Sample-based mining prediction feature: XMO algorithm can compare independent merchants’ CRM consumer - data with third-party audience data to estimate which network users have a particular buying preference.

- iClick’s machine learning algorithm - based on the existing CRM data to expand the potential target user base and deliver on-target advertising:

- Locate new users whose behaviours are similar with those of the existing customers by using independent merchant’s own CRM data and then implement targeting advertising.

- Solve independent merchant’s budget issue resulted from the mass advertising placement in acquiring new users.

Population characteristics:

Male aged 30-39 high income Beijing

Browsing habits and preferences:Online devicesBrowserResolutionOnline durationBrowsed websites by keyword searchPage views…(More than 600 characteristics)

Sample of business class travelers

－64－

3.2.7 Successful Case of iClick’s Promotion for Independent Merchant (1)

Independent merchant: a well-known local food online franchise store

Performance indicators: 1. To reinforce and enhance audience reach and brand awareness2. To ensure ROI is able to decrease the cost of new users and orders in the

most effective way

Target users:

Aged 10 ~ 19

Aged 20 ~ 29

Aged 30 ~ 39

Aged 40 ~ 49

Aged 50 ~ 59

61.33%

38.67%

Junior school

High SchoolTertiary institutionUndergraduate

Primary school

IT

Education / studentFinance / property development

Telecommunication / internet

Civil / public service

Architecture

Media / entertainmentService

Energy / mining Forestry / chemical industry

Sex Ratio Education Level Distribution

Age Distribution

Vocation Distribution

- Male users are slightly more than female users. The target user is mainly youth aged 20-39.

- Mainly well-educated professionals and students.

－65－


Holistic marketing strategy:

The whole process of advertising placement is mainly driven by result-oriented. We leverage machine learning algorithm to develop target user group based on client’s own CRM data; and at the same time utilize targeting advertising such as search retargeting to explore potential consumers. Placement strategy and budget can be adjusted and reallocated flexibly to act against any situation according to the result and client’s needs.

Phase 1: Reinforce and enhance brand awareness

1 Capture brand’s loyal users to convey brand image

2 Diversified creative placement to enhance the brand promotions

3 Use search retargeting technology to explore potential consumer group

Phase 2: Optimize ROI to reduce the cost of new customers

1 Use machine learning algorithm to expand target user group

2 Promotion refinement improves conversion rate, thereby increasing sales

3 Continuous marketing based on CRM data analysis to increase sales

01

02

－66－


Result evaluation – Cost of new users decreases

Decrease by an average of 244%

Cost of new users

Beforeoptimization

Afteroptimization

Increase by an average of 52%

ROI

Beforeoptimization

Afteroptimization

－67－

3.2.8 Challenge for eCommerce Platform - Drop in User Conversion Rate

Marketing advice: If eCommerce platforms are able to identify the characteristics of the potential consumers of their eCommerce products and push the right products to their potential consumers through targeting, the conversion rate can be enhanced.

Promotion recommendations: Marketing retargeting

Challenge: eCommerce platform user loyalty decline and conversion rate remains low over the years

- With the fierce market competition from 2009 to 2012, online shopper loyalty declined continuously, especially the repeating price wars had caused the users to compare the discount rates prior to their purchase.

Data Source: China E-Business Research Center, Data Analysis Enhances E-Commerce Conversion Rate, September 2012

Proportion of Using One Shopping Website Only in 2009 - 2012

2009 2010 2011 2012

80.0%72.7%

61.1%

51.1%

－68－

3.2.8 Marketing Strategies for eCommerce Platform (1)

Marketing strategies for eCommerce platform

Implement diversified placement of retargeting

Product strengths:

- Retargeting technology is based on various data to track potential consumers who have left the website.

- Through technical measures, customers are able to see the ad of the eCommerce platform on other channels, amplifying their impression on the brand and enhance their purchasing desire.

- It is proven that retargeting can improve the conversion rate by 125%.

A customer visits your B2C online store to select handbag

he hasn’t found the right one after browsing for a while. On the next day when she is browsing through a news website, she suddenly see the ad of your handbags

Purchasing desire is triggered. She clicks the ad and enter your website to see if there are other products

Suddenly she discovers a bag which looks quite nice, so she buys it.“Strange to say, yesterday I think it’s so-so, but today the more I see it, the more I like it!”

－69－

3.2.8 Marketing Strategies for eCommerce Platform (2)

Common types of retargeting:

- Behavioral retargeting: If a user has clicked and visited a certain brand’s ad, this user can be traced and this brand’s ad will be displayed again on other sites that this user will visit.

- Past customer retargeting: Don’t overlook the values brought by the past customers. You can combine CRM users’ consumption data and third-party dataset to target the past customers to upsell and cross-sell them.

- Look-alike targeting: The latest data analysis technology can help advertisers identify potential customers which are imilar to their existing customers on the network.

Strengths of iClick’s retargeting technology are as follows:

- Accurate targeting with various formats: A wide variety of targeting formats including geographic, time, content, websites, devices and operating systems, etc.

- Cover quality media resources: Connect to Asia’s major quality online media and advertising platform with hundreds of millions of advertising audience, for instance, coverage in China reaches up to 90%.

－70－

3.2.9 Successful Case of iClick’s Promotion for eCommerce Platform (1)

eCommerce platform: an eCommerce platform of an international top department store

Performance indicators: 1 Through optimizing the exposure on the search engine, reinforce the image of eCommerce department store.

2 Through search retargeting, expand consumer group to improve conversion rate

Target users:Aged 10 ~ 19

Aged 20 ~ 29

Aged 30 ~ 39

Aged 40 ~ 49

Aged 50 ~ 59

62%

38%

Junior school

High SchoolTertiary institutionUndergraduate

Primary school

Sex Ratio

Education Level Distribution

Age Distribution

- Male users are slightly more than female users. The target user is mainly people aged 20-39.

- Mainly well-educated professionals and students.

－71－


Holistic marketing strategy:

With accurate placement of display advertising, eCommerce platforms can match up with their target users by targeting to maximize brand exposure and improve sales record. At the same time, they should optimize their marketing resources on their website to attract the past customers to revisit their site in order to create sales opportunities.

Phase 1: accurate placement of targeting outside the website

1 Behavioral retargeting can trace and explore interested users

2 Identify potential consumers’ characteristics using its own data

Phase 2: organize activities to attract past customers to revisit

1 Based on the characteristics of products which have been purchased by the past customers to re-market the product

2 analyze user data and continue re-marketing to increase sales

01

02

－72－


Result evaluation - conversion rate increases

After implementing optimization for 4 months, brand search volume increases by 183%; average monthly orders increases by 2949%; effective order rate increases by 50%; order conversion rate increases by 629%.

Conclusion

Communication result4 months of Optimization cycle

Brand search volume

Average monthly orders

Effective order rate

Order conversion rate

Prominentincrement

Prominentincrement

0.07% 0.51%56% 84%

Increase by 183% Increase by 2949% Increase by 50% Increase by 629%

－73－



3.3 About iClick

Table of Contents

3.3.1 About iClick

Who We Are…?Asia’s first online buy-sideplatform that enables real-time,programmatic media buying anddynamic optimization throughadvanced algorithms anddata technology.

iClick helps marketers to unlockthe value from the complex onlineecosystem by simplifying andautomating the entire onlinemarketing process.

－74－

3.3.2 Key Clients Portfolio

－75－

E-commerce(5 out of China’s TOP 10e-commerce players are using iClickto make better decisions)

Travel & Hospitality

Banking & Finance

Consumer Products

Others

3.3.3 Buy-side Platform - XMO

iClick ProprietyBuy-side Platform

1st Party Data

3st Party Data

SearchEngines

AdExchanges

Publishers

Advertisers Online Users

A one-stop shop for aggregating, bidding and optimizing inventory across different online channels in the most efficient way.

－76－

3.3.3 Buy-side Platform - XMO

－77－

Media Aggregator

Access to a variety of digital channels, biddable inventories and

RTB exchangesto reach the maximum audience.

Audience Builder

Pre-packaged audience segment and tailor made audience development

tools at your choice to identify the highest value customers.

Programmatic buy

Suite of targeting options and advanced attribution model to support single and cross-channel optimization

according to your own marketing objectives.

Data Analytics

Sophisticated data-based empirical analysis yields accurate

insights via a comprehensive set of performance reports.

3.3.4 Media Resources

Media Aggregator

Access to a variety of digital channels, biddable inventories and RTB-enabled exchanges

Connect to a wide supply sources across search, display, social and mobile.

Reach the most number of relevant audience in your target markets:

95% reach in Hong Kong

90%* reach in China

80%* reach in Southeast Asia

－78－

3.3.5 Audience Builder

－79－

Understand your current customers deeper and expand to a even larger audience base:

XMO distinct audience segments:

22+ audience segments classified by industries, interests and lifestyles

XMO audience data covers over 400 million Internet users in Asia, with 200 million audience profiles and over 200 million online transaction cookies.

Custom segment building tools

“XMO Direct” - Combine 1st party CRM data with tens of thousands of 3rd party segments to form an audience base that is the most relevant and valuable to your business.

Machine learning to identify online users who exhibit similar behavioral to your converting users

Audience Builder

3.3.6 Programmatic Buy

－80－

One-stop access and manage online inventories across channels in a data-driven approach

Leading RTB technology that is built on our own cloud-based infrastructure and featuring the highest queries per second (QPS).

Comprehensive targeting suite base on a broad set of parameters:

Geo-location, Day-parting, Placement, Contextual, Site, Device, Operating Systems

Advanced attribution model with multiple attribution settings available right from the platform:

First Event, Weight First More, Evenly Distributed, Weight Last More and Last Event

Easy, intuitive goal setting to allow marketers to enter their goals (e.g. lower CPA, maximize conversions or increasing ROI).

Programmatic Buy

3.3.7 Data Analytics

－81－

Robust, intuitive, easy-to-use reporting system

XMO unique data analytics solution is designed around the purchase funnel – mapping to user behavior and interaction with a brand.

Sophisticated data-based empirical analysis yields accurate insights that enable marketers to learn how customer behavior is affected at the key points along the converting funnel.

Specialized in visualizing performance through a combination of canned and custom reports:

Cross-channel DashboardPost-campaign Cookie Analysis Top Conversion PathsChannel Assist ReportAnd more….

Multi-advertiser interface makes it easy to manage multiple accounts with clear role-based access control for users and organizations

Data Analytics


－82－

- Internet users : Chinese residents who have used the internet in the past 6 months

- E-commerce: The trade of products or service via internet, mainly referring to the B2C and C2C trading. Users search for the product information on the internet, send a purchase request via the e-order service, and then complete the purchase via online payment or COD. Online travel booking and B2B trading are not included.


- Independent merchants: A sub-industry or mini-market which operates an e-trading platform, and provides a complete e-commerce solution to the industry. Independent merchants comprise of a full range of services tailored to its consumers, providing a strong channel for sales and marketing and branding promotions, for example, VANCL and LAFASO.

- eCommerce platform: A platform for corporations to provide online trading to individuals. Corporations and merchants can make use of the shared resources such as basic infrastructure, payment platform, security platform and management platform to operate their business activities in a more efficient and low cost manner.

- Shopping website user loss: Refer to users stop using a specific website, that they used 6 months ago, in the past 6 months

- Shopping website churn rate = user loss in the past 6 months / total user volume 6 months ago

China eCommerce Market Analysis Report

END

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