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China digital generations 3.0

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Este informe publicado por Boston Consulting Group, afirma que China se ha convertido en un mercado de Internet importante con unos consumidores cada vez más sofisticados, que están online una media ...

Este informe publicado por Boston Consulting Group, afirma que China se ha convertido en un mercado de Internet importante con unos consumidores cada vez más sofisticados, que están online una media de 3,6 horas al día. Y pronostica que en pocos años se convertirá probablemente en el mayor mercado de retail online del mundo. Las empresas que quieran ganar en China deberán entender los estilos de vida y consumo digitales de rápida evolución de estos consumidores.

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    China digital generations 3.0 China digital generations 3.0 Document Transcript

    • Report China’s DigitalGenerations 3.0 The Online Empire
    • The Boston Consulting Group (BCG) is a global managementconsulting firm and the world’s leading advisor on business strategy.We partner with clients from the private, public, and not-for-profitsectors in all regions to identify their highest-value opportunities,address their most critical challenges, and transform their enterprises.Our customized approach combines deep insight into the dynamics ofcompanies and markets with close collaboration at all levels of theclient organization. This ensures that our clients achieve sustainablecompetitive advantage, build more capable organizations, and securelasting results. Founded in 1963, BCG is a private company with 75offices in 42 countries. For more information, please visit bcg.com.
    • CHINA’S DIGITALGENERATIONS 3.0The Online Empire DAVID C. MICHAEL CHRISTOPH NETTESHEIM YVONNE ZHOUApril 2012 | The Boston Consulting Group
    • Contents 3 EXECUTIVE SUMMARY 5 IN CHINA, THE INTERNET IS EVERYWHERE A Massive Mass Medium Not Just Fun and Games 11 THE CHANGING FACE OF THE INTERNET All the Segments Matter Online Goes Mainstream 17 THE POWER OF DIGITAL DIALOGUE 19 E-COMMERCE IN CHINA Big Players Big Trends 4 2 THE ONLINE ADVERTISING OPPORTUNITY 6 2 A CALL TO ACTION 8 2 FOR FURTHER READING 9 2 NOTE TO THE READER2 | China’s Digital Generations 3.0
    • EXECUTIVE SUMMARYC hina has become a major Internet market with increasingly sophisticated consumers.•• In 2011, Chinese consumers spent 1.9 billion hours a day online— an increase of 60 percent from two years earlier.•• By 2015, China will add nearly 200 million users, reaching an Internet population of more than 700 million users—double the combined number of Japan and the U.S.•• Between 2011 and 2015, online retail sales will triple to more than $360 billion.Companies that want to win in China’s consumer market mustunderstand both these new consumers and their rapidly evolvingdigital lifestyles.•• Half of Internet users say that the Internet is their most trusted source of information, followed by television at 30 percent and newspapers at 15 percent.•• Between 2008 and 2011, the online share of consumer spending increased from 11.8 percent to 14.3 percent. Between 2011 and 2015, per capita online spending will likely rise by 15 percent annually.To understand China’s digital generations, companies need to un-derstand how they experience the Internet in their daily lives.•• The market can be broken into eight segments, defined by age, income, and location.•• The rural market, for example, has 26 percent of Internet users and 22 percent of Internet hours—big numbers for a segment that The Boston Consulting Group | 3
    • has not received the same attention as the urban and youth segments. Online buying and selling, including group purchasing, is the sec- ond-fastest-growing activity after microblogging. •• Companies cannot have a major presence in China without having an online presence, not only to generate sales but also to engage with customers where they spend so much time. •• In 2010, more products were purchased on Taobao, a major online marketplace, than at China’s top five brick-and-mortar retailers combined. •• Even when they are not actually shopping online, many consumers research products online that they eventually buy in physical stores. Twenty-five percent of consumers research online before buying offline. Companies with ambitions in China should have a strong Inter- net presence and strategy. They need to meet their customers in the places where they spend time, and increasingly that is online. •• Channel management and digital marketing should be two primary focus areas. •• More fundamentally, many companies will need to transform their operations and organization to take advantage of the opportunity to sell to and engage with China’s digital generations.4 | China’s Digital Generations 3.0
    • IN CHINA, THE INTERNET IS EVERYWHEREC hina may still be classified as an emerging market, but on the Internet ithas arrived. By 2015, China will add nearly these new consumers and their rapidly evolv- ing digital lifestyles. They also need to learn how to reach, sell to, and retain these con-200 million users, reaching an Internet sumers as they create the world’s most im-population of more than 700 million—almost portant consumer market of the future.1double the combined number of Japan andthe U.S. (See Exhibit 1.) A Massive Mass MediumIf not by 2015, then shortly thereafter, China Just a few years ago, the digital life in Chinawill likely become the largest online retail was dominated by young urban residents.market in the world, with close to 10 percent Not any longer. The nation’s overall penetra-of retail sales occurring online. It already has tion rate will exceed 50 percent by 2015, com-more online shoppers than any other market, pared with 38 percent in 2011. The Internetincluding the U.S. will soon replace newspapers as the medium with the second-highest daily reach, afterWhile China is a huge online market, it is not television, in urban areas. Among individualsan easy one. Although consumers are rapidly under the age of 30, the Internet’s penetra-gaining sophistication, they have their own tion is almost as high as television’s.patterns of online consumption and behaviorthat are different from those of consumers inthe West. The big three Internet companies—Alibaba, Baidu, and Tencent—have a firm China already has morehold on their corners of the market (e-com- online shoppers than anymerce, search, and messaging, respectively)and are working hard to consolidate their po- other market, includingsitions and move into new fields. the U.S.The Boston Consulting Group has regularlytracked the evolution of China’s digital con- Increasingly, the Internet is becoming a sta-sumers since 1998, and this report is the lat- ple in the everyday life of Chinese consumersest in our series chronicling the epic transfor- across a wide spectrum of lifestyles and in-mation of China’s consumer landscape. comes. In fact, the Internet has spread soCompanies that want to succeed in China’s widely and so quickly that we have addedconsumer market must understand both two groups to our Internet market segmenta- The Boston Consulting Group | 5
    • Exhibit 1 | By 2015, China Will Have Nearly Twice the Number of Internet Users as the U.S. and Japan Millions 800 701 600 513 400 384 240 245 269 201 200 92 116 90 87 88 91 62 67 82 41 61 20 31 50 0 China India Brazil Russia Indonesia United States Japan 2011 penetration 38% 10% 47% 51% 13% 80% 70% 2015 estimated 51% 15% 58% 65% 20% 83% 72% penetration Annual growth, 2009–2011 16% 41% 17% 31% 25% 2% 1% Annual projected growth, 2011–2015 8% 13% 6% 6% 13% 2% 1% 2009 2011 2015 estimate Sources: Business Monitor International; China Internet Network Information Center; Economist Intelligence Unit; International Telecommunication Union; BCG analysis. Note: Internet users are defined as individuals aged 6 and older who went online in the past six months. tion: seniors (defined as individuals aged 51 sumer demand for more and faster Internet, and over) and rural residents. the government launched an antitrust probe of China Telecom and China Unicom that has Rural residents will contribute more than prompted the two dominant carriers to agree one-third of the Internet’s growth between to accelerate their broadband rollouts, lower 2011 and 2015—a rate faster than between prices by 35 percent, and increase speeds. 2008 and 2011. The urban senior segment will likely grow by 22 percent annually be- tween 2011 and 2015, making it the fastest- growing segment. (See Exhibit 2.) In 2011, Chinese consumers spent 1.9 billion hours a day In 2011, Chinese consumers spent 1.9 billion hours a day online—an increase of 60 percent online. from two years earlier. This surge was pow- ered by both an expanding Internet user base and a greater online presence. The average As the quality of infrastructure improves, the time online per person increased from 2.8 to Chinese will be surfing the Web more often at 3.6 hours per day between 2008 and 2011. home and at work and less often at Internet Chinese users average about an hour a day cafés. They will also be relying on their mobile more online than U.S. Internet users. Televi- phones. In 2011, 69 percent of users said they sion viewing, meanwhile, declined from 1.7 used their phones to access the Web—up 30 to 1.4 hours during those years. percentage points in just three years. The share of hours spent accessing the Internet on Far from crimping the expansion of the Inter- mobile devices is rising rapidly among all age net, the government is encouraging its growth. groups. In fact, seniors spent 30 percent of During the current five-year plan, which runs their Internet hours on mobile devices in 2011, through the end of 2015, the government has compared with just 9 percent in 2008. Mobile committed to spending $250 billion on broad- access will rise as 3G penetration increases band infrastructure. Indeed, in response to con- from 9 percent in 2011 to 31 percent in 2015.6 | China’s Digital Generations 3.0
    • Exhibit 2 | Older and Rural Residents Will Drive Future Growth Urban by segment Urban and rural Millions 497 200 500 377 122 108 100 77 81 250 213 204 58 58 62 136 45 46 44 34 34 41 31 39 37 36 85 26 14 17 15 0 0 Teenagers Young Active Seniors (age Urban Rural professionals middle-agers 51 and over) residents residents University Young Moderate students seekers middle-agers Total 2011 penetration 87% 99% 99% 92% 72% 44% 20% 55% 21% 38% 2011–2015 anticipated 1 7 8 15 33 5 45 120 67 188 growth (millions) 2011–2015 anticipated 1% 5% 6% 3% 15% 2% 22% 7% 11% 8% annual growth 2008 2011 2015 estimate Sources: China Internet Network Information Center; National Bureau of Statistics of China; Economist Intelligence Unit; BCG analysis. Note: The total number of urban residents is greater than the sum of urban residents by segment because it includes children between the ages of 6 and 11. Some numbers have been rounded.As the Internet becomes ubiquitous, it will lar to Hulu, where traditional programming isplay an even larger role in China. Half of In- offered, such as iQiyi and LeTV.ternet users say that the Internet is their mosttrusted source of information, followed by As their comfort level and sophistication havetelevision at 30 percent and newspapers at 15 grown, users have branched out frompercent, according to our research. Trust and entertaining themselves to a more diversefamiliarity go hand in hand. The more time mix of activities including those they oncethat consumers spend on the Internet, the avoided, notably e-commerce. Between 2008more they trust it. and 2011, the online share of consumer spending increased from 11.8 percent to 14.3Young professionals and university students percent. Between 2011 and 2015, per capitalead the pack in putting their faith in the In- online spending will likely rise by 15 percentternet, with 70 percent and 63 percent, re- annually, more than doubling the expectedspectively, citing it as their most trustworthy overall increase in consumer spending andinformation source. Only 27 percent of users reflecting both the rising level of trust byaged 51 and over, on the other hand, said that consumers and the greater protections put inthe Internet is their most trustworthy infor- place by merchants.mation source. (See Exhibit 3.) Along with e-commerce, users are spending much more time on community-oriented andNot Just Fun and Games information activities. Community-orientedIn the early days of the Internet in China, us- activities include e-mail, instant messagingers gravitated to leisure pursuits such as (IM), and forms of social media. (See Exhibitwatching videos and listening to music. Those 4.) Sina Weibo, a Chinese version of Twitter,activities are still highly popular, especially has attracted more than 300 million users inamong younger users. China has local sites less than three years of operation. Sina Weibosimilar to YouTube, such as Tudou and once handled 32,312 posts per second, sur-Youku, which have agreed to merge, and simi- passing Twitter’s peak traffic record. Weibo The Boston Consulting Group | 7
    • Exhibit 3 | The Heaviest Users Trust the Internet the Most Hours per week 60 51 48 45 42 42 40 40 47% Internet 31 55% 72% 27 65% 71% 76% 20 68% 67% 35% TV 30% Newspapers 21% 17% 21% Magazines 21% 24% 14% Radio 0 Teenagers Rural University Active Moderate Young Young Seniors residents students middle-agers middle-agers seekers professionals Share of users choosing the Internet as their most trusted source (%) 80 70 63 61 60 46 48 49 40 32 27 20 0 Teenagers Rural University Active Moderate Young Young Seniors residents students middle-agers middle-agers seekers professionals Sources: BCG survey of 2,000 consumers from first- to fourth-tier cities and rural areas; BCG consumer focus groups; BCG analysis. Exhibit 4 | Community and E-Commerce Activities Are Rising Swiftly Weekly online hours Diff erence f rom 2008 Videos 3.3 50% Games 2.1 39% Entertainment Music 1.6 36% E-reading 1.3 60% Soware/game download 1.0 31% News 2.1 50% Search 1.3 45% Information E-learning 0.9 49% Navigation 0.5 108% Mapping 0.3 108% Instant messaging 3.0 20% E-mail 1.1 40% Social networking 0.9 86% Community Bulletin boards 0.9 80% Blogging 0.9 128% Weibo 0.8 376% Shopping 1.9 152% Stock trading 0.9 43% Banking 0.8 119% E-commerce Bill payment 0.7 105% Group purchasing 0.6 Travel booking 0.3 29% 0 1 2 3 4 Large increases Small increases New activity Sources: BCG survey of 2,000 consumers from first- to fourth-tier cities and rural areas; BCG analysis.8 | China’s Digital Generations 3.0
    • (pronounced WAY-bo) means “microblog,” and The government has an uneasy relation-there are several competing services, but ship with this new-found passion for publicSina’s is the most influential. discourse. In late March, Sina Weibo and Tencent Weibo, the two largest microblog-Weibos are generating both national and lo- ging sites, temporarily suspended the abilitycal conversations on important social issues of users to comment on posts. This restric-that have historically been kept under wraps. tion was part of a temporary crackdown onIn July 2011, one of China’s bullet trains social networking brought on by politicalcrashed in Wenzhou, in the southeast of the unrest.country, killing 40 passengers. Sina Weiboquickly became, in the words of a Wall Street As the Internet in China becomes a home forJournal columnist, “a conduit for inconven- digital shopkeepers and an instrument forient truths and cynical speculations about public discourse and social change, it will alsothe accident.” start to look and feel similar to the Internet of more developed nations. In fact, in someEnvironmental activists have begun to post cases, Chinese consumers are more avid usersdaily or even hourly readings of air quality in of online services than U.S. consumers are.China’s pollution-draped cities. The publicitygenerated by these readings has forced the For instance, 79 percent of Chinese Internetgovernment to revise its policies on collecting users send instant messages, compared withand publicizing air quality data in a nation just 21 percent of U.S. users. They are alsowhere hundreds of thousands of premature bigger consumers of online music (79 percentdeaths are attributable annually to air versus 61 percent) and e-reading (40 percentpollution. versus 7 percent). (See Exhibit 5.) Exhibit 5 | Search, Blogging, and E-Commerce Are the Fastest-Growing Activities Percentage of Internet users engaged in various activities in 2011 China Japan United States Music 79 7 11 61 Games 64 0 14 46 Entertainment Videos 62 4 33 68 E-reading 40 2 3 7 News 75 4 78 96 Information Search 80 10 53 90 Instant messaging 79 7 4 21 Blogging 66 12 36 63 Community Social networking 47 2 28 93 E-mail 52 4 70 74 Weibo¹ 40 13 13 E-commerce² 36 10 74 85 Banking 31 6 38 41 E-commerce Stock trading 12 1 12 5 Travel booking 8 4 48 2 Group purchasing 9 Not available Not available 0 50 100 0 50 100 0 50 100 Fast growing New activity Difference from 2009, in percentage points Sources: China Internet Network Information Center (CNNIC) reports from July 2009 and July 2011; U.S. data from ComScore 2011 ; Japan data from Mobile Content Forum 2010–2011; BCG analysis. 1 CNNIC did not track microblogging until after 2009. 2 E-commerce includes online shopping and online bill payment. The Boston Consulting Group | 9
    • When Chinese consumers access the Internet nually between 2011 and 2015—one-half the from mobile devices, they are frequently annual rate of the previous two years. more adventurous than their counterparts in Japan and the U.S., listening to music, reading However, opportunities will continue to ex- books online, or engaging in social network- pand, even as user growth flattens. Online re- ing. (See Exhibit 6.) tail sales, for example, are projected to grow more than 30 percent annually between 2011 Chinese Internet users are also maturing. Be- and 2015. Companies that acquire scale and tween 2008 and 2011, the average age of an In- customer loyalty in China’s online market ternet user rose from 24.7 to 28.9 and ap- will have achieved a solid foothold, ensuring proached the average age of users in the U.S. future growth. (30.0) and Japan (30.4). The aging of the Inter- net reflects both new users and the general ag- ing of the population. In 2011, the 51-and-older segment made up 24 percent of the Chinese population; by 2015, it will make up 28 percent. note 1. See China’s Digital Generations 2.0: Digital Media and Commerce Go Mainstream, BCG report, May 2010; and Maturity means that future growth of the China’s Digital Generations: The 570-Million-Hour user base will slow. China’s Internet popula- Opportunity, BCG report, July 2008. tion is expected to increase by 8 percent an- Exhibit 6 | Mobile Internet Activities Are Growing Swiftly Percentage of mobile users engaged in various activities in 2011 China Japan United States Music 45 19 12 21 Games 27 13 5 29 Entertainment Videos 21 13 15 8 E-reading 43 0 5 6 News 63 20 58 24 Information Search 60 33 26 27 Instant messaging 72 0 3 20 Social networking/ 41 32 21 32 Community blogging E-mail 24 15 57 36 Weibo¹ 34 16 6 E-commerce² 13 2 50 9 E-commerce Banking 7 9 14 Group purchasing 2 Not available Not available 0 50 100 0 50 100 0 50 100 Fast growing New activity Difference from 2009, in percentage points Sources: China Internet Network Information Center (CNNIC) reports from July 2009 and July 2011; U.S. data from ComScore 2011; Japan data from Mobile Content Forum 2010–2011; BCG analysis. 1 CNNIC did not track microblogging until after 2009. 2 E-commerce includes online shopping and online bill payment.10 | China’s Digital Generations 3.0
    • THE CHANGING FACE OF THE INTERNETT o understand the Internet in China, it is necessary to look at it through thelenses of users and learn how they experi- come and age, to provide that perspective. Those six segments are still valid but do not accommodate rapid recent growth amongence it in their daily lives. The Internet is not older generations and rural residents. Accord-monolithic in China or anywhere else but ingly, we have added a rural and a senior seg-rather a broad canvas across which users can ment. (See Exhibit 7.)move among interests and activities. It iscrucially important for companies that want The segmentation helps identify both top-to reach consumers in China to understand down and bottom-up views of the Internetthem on their terms and not impose mental market in China. The view from the top hasmaps drawn from other markets. some surprises. The rural market has 26 per- cent of Internet users and 22 percent of Inter-In previous reports on China’s digital genera- net hours—big numbers for a segment thattions, we relied on six segments, based on in- has not received the attention that the urban Exhibit 7 | Eight Ways to Segment the Internet University Young Young Active Moderate Rural Teenagers students professionals seekers middle-agers middle-agers Seniors residents Age 12–18 19–25 26–35 26–35 36–50 36–50 51+ 12+ Grew up with Grew up Educated and Lower Middle class Lower Grew up Lower the Internet with the middle class education and and familiar education and without the education and Basics Internet income with the income Internet income Internet Fun and study Maintain Make work, Excitement Support in Relaxation Stay in touch Entertain- Motives social connec- life, and play and achieve- daily activities and fun with family ment and tions easier ment diversion ••Light ••Light ••Heavy ••Heavy ••Moderate ••Light ••Light to ••Light ••Videos and ••Videos, IM, ••Wide usage ••Videos, ••Videos, ••Videos, moderate ••Videos, IM and weibo across the games, news, and news, and ••Videos, games, and Usage ••Willing to board IM, and e-commerce IM news, and IM try new e-commerce IM activities Sources: BCG survey of 2,000 consumers from first- to fourth-tier cities and rural areas; BCG analysis. Note: IM = instant messaging. The Boston Consulting Group | 11
    • and youth segments have. In fact, the rural to experiment online rises with education. Al- market has more users than the young-seeker though seniors and rural residents have been segment—individuals aged 26 to 35 who have largely overlooked and are newer to the on- not been to college—which historically has line world, they are rapidly making the Inter- led the pack. The senior segment may be the net a part of their lives. latest to use the Internet, but it is catching up quickly. The average senior user is on the In- ternet 3.5 hours a day—almost as much time as active middle-aged users. (See Exhibit 8.) The senior segment may be the latest to use the Our segmentation is broad and basic, filtering the market through the screens of age, income, Internet, but it is catching up and location. And while it is battle tested, quickly. there is no substitute for companies doing their own consumer research, developing their own insights, and targeting discrete groups of Teenagers. Teenagers are big fans of IM and consumers through multiple channels. all forms of online entertainment. Like their older peers in college, they are also starting to use such services as Sina Weibo to commu- All the Segments Matter nicate with friends. They spend 2.6 hours a The Internet in China continues to be domi- day online—the lowest among all the seg- nated by entertainment, especially video. But ments. there is growing usage in e-commerce, commu- nity-oriented, and information activities. The University Students. More than any other eight segments, however, do not participate in segment, university students use the Internet these activities equally. (See Exhibit 9.) to communicate with friends and family and to build online communities. They are the Younger users tend to spend more time on- heaviest users of IM and, along with young line but, other than young professionals, are professionals, the most active users of weibo, not yet spending large sums of money online. devoting 1.4 hours a week to this service. Middle-aged users spend less time online Despite limited disposable income, they than their younger peers, who grew up with spend 2.1 hours a week shopping online—the the Internet. The willingness of middle-agers third-highest total among the segments. Exhibit 8 | Young Seekers and Rural Residents Are the Biggest Segments University Young Young Active Moderate Rural Teenagers students professionals seekers middle-agers middle-agers Seniors residents Urban Rural Population 52 34 32 117 61 131 184 550 (millions) Internet penetration 1 87% 99% 99% 92% 72% 44% 20% 23% Average daily 2.6 4.4 4.9 4.6 3.9 3.3 3.5 3.0 usage (hours) Share of total 9% 7% 6% 22% 9% 12% 7% 26% Internet users Share of total Internet hours 6% 8% 9% 28% 10% 11% 7% 22% Sources: BCG survey of 2,000 consumers from first- to fourth-tier cities and rural areas; BCG analysis. 1 Penetration is defined as the share of individuals who use the Internet at least monthly.12 | China’s Digital Generations 3.0
    • Exhibit 9 | Online Hours Vary Across Segments Weekly usage (hours) University Young Young Active Moderate Rural Teenagers students professionals seekers middle-agers middle-agers Seniors residents 18 31 34 32 27 23 24 21 Videos 2.0 4.4 3.9 5.4 2.9 2.1 2.9 2.7 Games 2.3 1.8 2.4 3.4 2.4 2.0 2.0 2.8 Entertain- ment Music 1.4 2.2 1.7 1.6 1.2 1.5 1.2 1.4 E-reading 1.5 1.6 1.7 2.4 1.5 1.3 1.4 1.4 Soware/game 46% 36% 32% 44% 33% 34% 35% 44% download 1.0 1.3 1.1 1.3 1.0 0.7 1.0 0.9 News 1.3 1.5 2.5 2.8 2.5 2.2 4.0 1.6 Search 1.3 1.9 1.3 2.0 1.2 1.3 1.4 1.1 Infor- E-learning 0.6 1.2 1.1 0.9 1.1 0.9 0.8 0.8 mation Navigation 0.4 0.5 0.6 1.0 0.4 0.4 0.6 0.4 25% 18% 17% 22% 20% 22% 29% 20% Mapping 0.2 1.0 0.4 0.3 0.3 0.2 0.3 0.2 Instant 2.6 5.4 3.2 3.5 2.2 2.1 2.6 2.4 messaging E-mail 0.7 1.0 1.3 1.3 1.4 1.2 1.4 1.0 Social 1.0 1.4 1.4 0.9 1.3 1.0 1.3 1.1 Commu- networking nity Bulletin boards 1.1 1.1 1.1 0.9 0.8 0.6 0.7 0.6 Blogging 0.6 1.2 1.2 1.3 1.2 0.9 1.1 1.1 42% 37% 29% 28% 30% 29% 32% 34% Weibo 1.1 1.4 1.4 0.8 1.1 0.7 0.8 0.9 Shopping 0.9 2.1 2.6 2.4 1.8 1.6 1.8 1.7 Stock trading 0.4 0.6 1.2 0.5 1.5 0.9 1.9 0.8 E-com- Banking 0.6 0.8 1.1 0.8 0.9 0.7 0.8 0.8 merce Bill payment 0.6 0.8 1.2 0.9 0.8 0.7 0.8 0.7 Group 0.5 0.9 1.2 1.2 0.7 0.5 1.0 0.9 purchasing 19% 19% 24% 21% 24% 22% 28% 25% Travel booking 0.5 0.8 0.8 0.8 0.7 0.5 0.6 0.5 Most popular activities Share of total hours by type of activity Sources: BCG survey of 2,000 consumers from first- to fourth-tier cities and rural areas; BCG analysis. Note: Since activities may overlap, total hours may be less than the sum of hours for each activity.Nearly all university students are online at less educated and have lower incomes. Theyleast monthly. are the heaviest users of online entertain- ment services, especially videos and games,Young Professionals. Members of this seg- but their online lives are much richer thanment are online the most and are the most just movies and fun. Young seekers spendadventurous. The average user spends 3.9 more time reading news online and conduct-hours a week watching online videos, 3.2 ing online searches than any other segment.hours on IM, and 2.6 hours shopping online. They are also the second-most-active onlineYoung professionals spend the greatest shoppers. Responsible for 28 percent of allamount of time on e-commerce, leading or Internet hours, they are a group to be reck-tying other segments in every individual oned with.activity except for stock trading, where theyare beaten by the active-middle-aged segment Active Middle-Agers. While these users spendand seniors. Like university students, nearly less time online than young professionals,all young professionals log on to the Internet they have similar usage patterns, with enter-at least monthly. (See the sidebar “A Day in tainment and community their two largestthe Life of a Young Professional.”) categories of online activity. They like to shop, trade stocks, and conduct banking online butYoung Seekers. Members of this segment are are not yet big users of online search, com-the same age as young professionals but are pared with other segments. Along with the The Boston Consulting Group | 13
    • A DAY IN THE LIFE OF A YOUNG PROFESSIONAL Jing, 28, is single. She lives in Beijing but seemingly spends all her time on the Internet. As she says, “All of my needs can be met in the digital world—both products and knowledge.” Jing spends about five hours a day online, and about 60 percent of her purchasing is directed through online channels. A young professional with a monthly take-home income of $1,200, Jing is not alone in her fascination with the Internet. Many of her peers are equally drawn to the Internet’s convenience and conviviality and commercial venues. On the way to work, she catches up on weibo posts. When she gets to her office, she reads and replies to e-mail and conducts online searches. During lunch, she looks for the latest bargains at Taobao. If she is unsure about the quality, she buys from the brand’s official website instead. After lunch, Jing relies on the Baidu search engine and Yahoo! Finance to collect data for a client report. At the end of the workday, Jing logs on to Tuan800 to find movie and dinner deals. But her online day is not yet done. In the evening, she chats online with friends and watches the latest episode of The Big Bang Theory and Desperate Housewives on Sohu HDTV, an online site. Before retiring, she spends a few minutes on her iPad. Jing sometimes complains about information overload. “It is overwhelming and time consuming surfing the Internet,” she says. But she—and many other young professionals—wouldn’t have it any other way. senior segment, they spend the most time per children and grandchildren through IM and e- week on e-mail. mail. (See the sidebar “Gray and Getting Used to the Internet.”) Moderate Middle-Agers. This segment is demographically analogous to the young- Rural Residents. Although rural residents are seeker segment. These users have less income relatively light users, their three hours a day and education than active middle-agers, online are not put to waste. The Internet but—unlike their younger peers—the enables them to access goods and services gravitational pull of the Internet is much that otherwise would be out of reach. They weaker for them. Their daily average usage of like to shop online and they spend more time 3.3 hours is lower than all segments except than any other segment, except young teenagers and rural residents. As a share of seekers, playing online games—about 2.8 total time online, they are relatively active hours a week. They are also big users of IM. online shoppers and readers of online news. (See the sidebar “Basic Necessities.”) Seniors. You can call them senior, but don’t call them unsophisticated. Of the eight Online Goes Mainstream segments, they spend the most time reading Over the four years that we have tracked the news online—four hours a week. They also digital generations in China, many Internet spend more time trading stocks online than users have moved from one segment to an- active middle-agers. (In interviews and focus other or migrated to more sophisticated activ- groups, they say that their children frequently ities within a segment. The Internet is becom- help them with this activity.) The Internet ing entwined with routine activities at work allows them to stay in touch with their and at home.14 | China’s Digital Generations 3.0
    • GRAY AND GETTING USED TO THE INTERNET Defen is 59 years old and has been online for only the past three years. She is emblematic of many other older residents who are new to the Internet and just starting to find their balance in the online world. Defen is retired, and she and her husband have a monthly take-home income of $650. Defen likes the connections the Internet provides her daughter and the entertainment value of playing games on the Kaixin social-networking site. But she is also intimidated by the online world. It is, she said, “too complicated for me to learn new things, like online shopping.” Despite her misgivings, Defen is trying to become comfortable with this new medium. Besides playing games, she chats with her granddaughter and reads news online and her daughter’s weibo posts. Her daughter has helped her buy wine from 360buy.com, and she bought a laptop online with the help of her son and daughter-in-law. She has no interest in buying clothes online. She estimates that she does 15 percent of her spending online. Defen also has an offline life, listening to music and watching China Central Television and Beijing Television.Young Professionals and Young Seekers. This The online paths of the two segmentsshift is especially apparent among teenagers diverged when the individuals entered thewho went on to become young professionals workforce. While both groups spent less timeand young seekers. As recently as six or seven on QQ chat, the young seekers gravitatedyears ago, these individuals were high school toward online games and the youngstudents watching traditional television, professionals started posting on Sina Weibochatting with friends through QQ in Internet and other microblogging sites. Today, thecafés, and experimenting with Baidu search. young professionals spend more time on community-oriented services in order to make work and career connections, whereasYoung professionals bank the young seekers are more inclined toward information services, especially online news,and trade stocks online with while continuing their focus on entertain- ment. A recent graduate working in Beijinggreater frequency. said, “Work requires me to learn faster and more,” while a 26-year-old young seeker living in Zhongshan, in Guangdong Province,Upon graduation, the future young profes- said he was looking to “connect to the society,sionals went to university, while the future learn new things, and relax.” Members ofyoung seekers entered vocational school. But both segments are active online shoppers, buttheir online experiences were remarkably young professionals bank and trade stockssimilar. They stopped watching broadcast online with greater frequency.television, gained access to computers, andplunged into online videos, social networking, Active and Moderate Middle-Agers. Theseand information gathering. They started using two segments also began their Internete-mail and relied on search to answer aca- journey from similar spots a few years ago.demic questions. As a college student in Bei- They started by experimenting with chatjing said, “It’s more about relationships and applications and online games and surfinginformation.” They also started to buy online. the Web. Neither segment would qualify as The Boston Consulting Group | 15
    • BASIC NECESSITIES Tao is a 25-year-old high school graduate who lives in a rural town called Wenxin outside Chengdu in western China. He owns a PC and a 2G phone and views the Internet largely as an enter- tainment portal. It is “convenient and fun,” he says. “I surf the Internet when I am bored.” Most of his time online is spent playing games and watching movies and videos. But he does check the news, on both his com- puter and his phone. He bought both a bag and a phone from Taobao. Although he was disappointed in the quality of the bag, he was pleased with the price and performance of the phone. He buys minutes for his phone online and also spends about $10 a month playing online games. About 10 percent of his buying is conducted online. Tao is frustrated with the Internet’s speed. He is intrigued by smartphones with their potential for offering a better mobile Internet experience. heavy users. As one active middle-ager said, ping, watch video, and play games.” A moder- “It was more about entertainment.” ate middle-ager, on the other hand, said he was “not that addicted to the Internet, but it In the last two years, active middle-agers is convenient and helpful.” have become adventurous in their online ac- tivities. Of the 22 online activities we tracked, the active segment spent more time than the moderate segment on all of them except for music, search, and navigation. Active middle- W hile the eight segments help to illumi- nate the differences within China, the Internet has the power to draw the sprawling agers are starting to view the Internet as a nation together, by both serving as a soapbox part of their everyday life, while moderate for a national conversation and extending middle-agers still view it as an adjunct. companies’ commercial footprint. Two quotes sum up the contrast. An active middle-ager told us that the Internet was “part of my life. I get information, go shop-16 | China’s Digital Generations 3.0
    • THE POWER OF DIGITAL DIALOGUET he weibo posts about the train crash in Wenzhou and smog-shrouded cities areemblematic of the awakening of a national with former classmates, and comment on re- cent purchases.conversation about issues of public concern This wellspring of opinions is forcing compa-and private interest. Blogging and microblog- nies and the government to respond. Whileging have higher penetration rates among the role of weibos in the overall marketingInternet users in China than among those in landscape is still evolving, companies at leastthe U.S. or Japan. The growth curve of Sina need to be able to respond swiftly and deci-Weibo to generate 300 million users in less sively when their products and services arethan three years looks more like a straight called into question on microblogging sitesvertical line. and elsewhere online.Sina Weibo was launched in June 2009, afterthe government blocked Twitter and Fanfou, aTwitter clone. Since then, the service has grown Weibos have become a fast-both virally and through clever marketing. Sina moving stream of collectiveWeibo has encouraged celebrities in business,show business, and the media to join, and some consciousness.of them have attracted tens of millions of fol-lowers. In 2010, a large dairy was the victim of an on-Although weibos follow the 140-character line smear campaign orchestrated by a rivallimit of Twitter, the Chinese characters them- that could have severely damaged its brandselves contain far more information, allowing without a rapid response. The rival spread falseposters to convey much longer and more rumors that the dairy’s brand of powder babycomplex thoughts. If tweets are phrases, wei- formula caused premature sexual maturity inbos are paragraphs. baby girls.Weibos have become a fast-moving stream of Besides crisis control, companies ought to becollective consciousness. While controversy examining how and when they can harnessand complaints may receive the most atten- the power of online conversations to burnishtion, especially in the Western media, celebri- their brands. Vancl, an online clothing retail-ty gossip is a more common form of currency. er, has been especially successful at this ap-Users also post news stories, exchange photos proach, which is explored in the next section. The Boston Consulting Group | 17
    • Positive commentary about products and ser- form of government-supervised self-censor- vices, in other words, can go viral just as eas- ship in order to stay in business. Sina has a ily as gossip and news about catastrophes. team that monitors content 24 hours a day on Sina Weibo. During the Arab Spring, for ex- Even the government is getting into the act. ample, many posts about Egypt were As of October 2011, government agencies scrubbed from the site. The more recent across all 34 provinces had created nearly crackdown on commenting on Sina Weibo 20,000 weibo accounts. Police agencies have and Tencent Weibo is further evidence of the cracked cases with the help of clues provided government’s involvement. through weibos. Nanjing, a city of 5 million in eastern China, has started to post air quality When it comes to conversation, it is hard to readings on Sina Weibo. put the genie back into the bottle. In late 2011, the government announced that people There is also a more controversial side to the must start using their real names to open government’s involvement with weibos. With weibo accounts. The jury is out on whether 300 million users, Sina Weibo is probably too the new rule will slow, change, or deflect the big to shut down—but not too big to monitor. conversation. All Internet companies in China practice a18 | China’s Digital Generations 3.0
    • E-COMMERCE IN CHINAI n the past two years, Chinese consumers have opened their wallets and pocketbooksonline. Online buying and selling, including Except for teenagers, all segments of Internet users in China spend at least 1.6 hours a week shopping online. University students,group purchasing (through the Chinese young professionals, and young seekers areequivalents of Groupon), is the second-fast- devoting at least two hours a week to it. Uni-est-growing activity, after microblogging. versity students and young professionals are devoting about 12 percent of their spendingThese rapid rises in usage reflect more than to online purchases.just expansion from a small base. Onlineshopping is now the fourth-most-popular on- One of the key challenges for companies is toline activity in China, and two of the more encourage their customers to shop online, be-popular activities—IM and online games— cause, our research shows, once they make theare declining in usage. leap, they quickly become avid Internet shop- pers. In focus groups, consumers who had de-Online shopping is here to stay. Companies voted only 5 percent of their spending to thecannot have a major presence in China with- online channel in 2008 said they had increasedout having an online presence, not only to the share to more than 50 percent by 2011.generate sales but also to engage with cus-tomers where they spend so much time. TheInternet today in China is similar to televisionin the 1960s and 1970s in the West—the The Internet today in Chinaplace where consumers congregate and com- is the place where consum-panies need to locate. ers congregate and compa-China has 193 million online shoppers—more nies need to locate.than even the U.S. with 170 million, more thandouble the number in Japan, and five timesthat of the U.K. By 2015, China’s e-commerce Even when they are not actually shopping on-market will rival that of the U.S. Between 2009 line, many consumers research products on-and 2011, the share of Internet users who shop line that they eventually buy in physicalonline rose from 28 percent to 36 percent and stores. Twenty-five percent of consumers re-is likely to reach 47 percent by 2015. E-com- search online before buying offline—almostmerce’s share of total retailing could reach 8 as many as the 29 percent who both researchpercent by 2015. (See Exhibit 10.) and buy online.1 The Boston Consulting Group | 19
    • Exhibit 10 | E-Commerce in China Is Likely to Reach 8 Percent of Retail Sales by 2015 Annual Annual $billions growth, growth, 2007–2010 2010–2015 400 (%) (%) 364 92 32 300 148 200 119 52 119 100 28 216 72 41 10 9 1 19 2 3 92 38 62 88 24 0 7 17 2007 2008 2009 2010 2011 2015 (estimate) Internet users Number of as share of 16 22 29 34 38 51 Internet 24 8 population¹ (%) users Online shoppers Number of as share of 26 27 28 32 36 47 online 37 16 Internet users (%) shoppers E-commerce as Total share of total 0.7 1 2 3 5 8 retailing 18 13 retailing Business to consumer Marketplace Sources: iResearch; Economist Intelligence Unit; Euromonitor; analyst reports; literature search; BCG analysis. Note: Some numbers have been rounded. 1 Internet users are defined as individuals aged 6 and older who went online in the past six months. While the market for the sale of physical that are frequently compared to eBay and goods is expanding rapidly, the sale of digital Amazon Marketplace but have their own content is in a slower growth mode. Sales of local flavor. online videos, music, games, e-books, and oth- er digital content are expected to rise by 14 •• Business-to-consumer vertical sites such percent annually between 2011 and as 360buy.com, which started selling 2013—about one-third the rate of online electronics but now sells a wide variety of sales. E-books make up slightly less than a goods. These are similar to Amazon.com third of the digital-content market and are ex- and Buy.com. pected to grow slightly faster than the mar- ket. Online video, the smallest slice of the •• Business-to-consumer brand sites, such as market, is the fastest growing, expected to Vancl, that sell merchandise directly to expand 64 percent annually between 2011 consumers and are analogous to the and 2013. online stores of consumer brand compa- nies in the West. Big Players Marketplaces. Alibaba Group currently E-commerce in China has developed its own dominates consumer e-commerce in personality. While there are analogues to China through its Taobao consumer-to-con- Amazon and eBay in China, the nation is not sumer and Tmall business-to-consumer sites. on a parallel track to the U.S. or anyplace In 2010, 81 percent of transaction value else. There are three main types of com- flowed through these portals. More products mercial activity: were purchased on Taobao in 2010 than at China’s top five brick-and-mortar retailers •• A galaxy of both consumer-to-consumer combined, with 48,000 products sold per and business-to-consumer marketplaces minute.20 | China’s Digital Generations 3.0
    • Taobao has worked hard to achieve this scale. Business-to-Consumer Vertical Sites. ForIt has developed extensive data-analytics ca- higher-quality goods and after-sales support,pability in order to understand buying and consumers have begun to visit more tradi-usage patterns, created an in-house university tional business-to-consumer sites such asto allow merchants to share best practices, 360buy.com and Dangdang. Business-to-con-and developed an instant-messaging system sumer revenues are expected to grow twice asthat allows buyers and sellers to share prod- fast as consumer-to-consumer revenuesuct information. between 2011 and 2015.Alibaba’s Alipay escrow-payment system has 360buy.com is the second-largest business-to-become the most common payment method consumer site in the country, after Tmall, andfor e-commerce in China. More than 60 per- the largest that sells inventory directly to con-cent of consumers use it on Taobao and sumers. In 2011, it generated about $4.9 bil-Tmall, and approximately 20 percent use it lion in sales by discounting prices and provid-on business-to-consumer sites. ing speedy delivery.Tmall has created a showroom in Beijingwhere customers can visit 270 rooms stockedwith furniture and other household products About 44 percent of Chinesethat they can purchase at a kiosk or online Internet users post at leastfrom home. The showroom satisfies consum-ers’ desire to see and touch products—an ex- one product review every sixperience that cannot be replicated online. months.“I always want to buy furniture online. Theprice is so much cheaper than at offline stores, The company received a $1.5 billion cash infu-but for the expensive, durable stuff, I just can- sion in 2011 from private investors, includingnot decide if I cannot touch it. Tmall solved Russia’s Digital Sky Technologies—one of thethis problem,” one consumer told us. largest institutional investors in Facebook. It is putting the investments to work in buildingTaobao and Tmall’s customer-rating system customer-service and logistics operations. Itenables shoppers to judge the quality and au- can process 300,000 orders a day, and in 25thenticity of goods they receive from mer- cities it offers same-day delivery for items or-chants. About 44 percent of Chinese Internet dered before 11 a.m. and next-day delivery forusers post at least one product review every those ordered before 11 p.m. Within threesix months, compared with 20 percent of U.S. years, 360buy.com’s logistics network will cov-Internet users. er 95 percent of China’s cities. The company is also focused on making the customer experi-The Taobao site is referred to as a consumer- ence easy and satisfying. It offers cash-on-de-to-consumer portal, but it more accurately is livery payment, a simple Web interface, and aa marketplace where the overwhelming ma- guarantee of product quality. The companyjority of products sold are new, not second- pledges that if a customer complains about ahand. Sellers are frequently suppliers that product, a delivery person will return withinhave not found success with other retail chan- 100 minutes to take it back. Analysts expectnels or distributors selling excess inventory. 360buy.com to go public in the next year.Many brand companies are still unaware ofthe extent to which their merchandise is sold Business-to-Consumer Brand Sites. Vancl isby others on Taobao. the largest business-to-consumer brand site in China through several innovative onlineAlibaba created Tmall, which features profes- approaches to generate sales and engage withsional merchants, to draw brand companies customers. The company has been an activeonline and to generate fee income. Taobao is advertiser. In 2008, the year it was founded,supported by advertising. (See the sidebar Vancl’s advertising budget was nearly as large“The Sky’s the Limit.”) as its revenues. By 2010, Vancl was the largest The Boston Consulting Group | 21
    • advertiser on online video sites and the To encourage customer engagement, Vancl fourth-largest online business-to-consumer created its Star program. Customers post pho- retailer in China. tos of themselves modeling Vancl clothing, and other users get to vote. The heavy online push has been paying divi- dends. Vancl generated more than $500 mil- Vancl complements these online approaches lion in sales in 2011—up sharply from about with traditional billboard advertising aimed $300 million the previous year. The company at its youth clientele that features well-known has been willing to sacrifice margins in order blogger Han Han and actress Wang Luodan. to build scale. But it is not just trying to be a low-cost provider. It experiments with ways to improve customer satisfaction, such as offer- Big Trends ing free trials when products are delivered Online shopping in China is quickly becom- and free delivery. ing a social experience. Consumers—and venture capital—are flocking to sites on The company also has an active presence on which conversations about and comparisons Sina Weibo. The chief executive, designers, of products are the centerpieces. and regular employees all write posts, and the company encourages fan clubs to form and While general group-buying sites, akin to discuss clothing on Sina Weibo. As part of its Groupon, have been experiencing a shakeout weibo strategy, Vancl has offered free mer- in China, where it is estimated that thousands chandise to celebrate Chinese Valentine’s Day. closed last year, more focused outlets are THE SKY’S THE LIMIT Tmall is Alibaba’s answer to the freewheel- Tmall benefits from its ties with the main ing experience of Taobao. It is more like a Taobao site. Searches on Taobao automati- traditional mall, with product categories cally return Tmall shops, and the majority housed on virtual “floors,” storewide sales, of Tmall users say they know about and and a loyalty program. Tmall, which means trust the site because of Taobao. Although “sky cat” in Chinese, authenticates all consumer perceptions of Tmall’s delivery merchants and requires them to pay trans- and fulfillment are still not as favorable as action fees, both to generate revenue and those of other business-to-consumer sites, to ensure a better shopping experience. they are quickly catching up and vastly better than the perceptions of Taobao. Alibaba wants shoppers to be able to visit a wide variety of stores, not only those of big Tmall’s success is not unblemished. When brands such as adidas, Ray-Ban, and Gap the site announced higher fees in October but also smaller merchants that have 2011, smaller merchants mounted online outgrown their Taobao storefront. The protests. The smaller merchants were formula seems to be working. Tmall is worried that the fee hike would jeopardize home to about 50,000 merchants and their business and favor larger companies. 200,000 brands. About 10 million people They protested by buying goods from larger visit the site daily. On Singles Day, a big vendors on Tmall and then demanding shopping day in China, Tmall stores refunds, hurting those vendors’ ratings, and recorded more than $500 million in sales, communicated their displeasure on thanks to heavy discounts and promotions. microblogs like Sina Weibo. After hearing Transaction volume was estimated to reach this feedback, Tmall adjusted its policies about $16 billion last year and should and began helping qualified Taobao exceed $30 billion in 2012. Tmall is already merchants migrate to Tmall. more than twice the size of 360buy.com, the number two business-to-consumer site.22 | China’s Digital Generations 3.0
    • finding footholds in the market. In particular, Dianping is a local lifestyle and consumer re-there has been a proliferation of three types view site that has been a pioneer in mobileof sites: group-purchasing-based business-to- services. It provides location-based businessconsumer sites such as Jumei, a cosmetics information, consumer reviews, and dis-group-buying site; social-networking-based counts, and allows users to “check in” tobusiness-to-consumer sites such as Meilishuo, stores and locations. At the end of 2011, itwhich targets female online shoppers; and re- had more than 42 million active monthly us-view and mobile commerce sites such as ers and 1.5 million merchant members, and itDianping. These sites help consumers navi- covered 2,300 cities. It receives more than 600gate the often-confusing and cluttered online million monthly visits, about 80 percent ofmarketplaces. them from mobile users.When consumers buy products on Jumei, theyare encouraged to write reports on their expe-riences and share pictures. They receive cou-pons for their reviews. note 1. The research also found that 31 percent of consumers did both their research and buying offline and that 15Meilishuo, meaning “beauty talk,” is just that: percent researched offline but purchased online.a place where women—and only women—can gather online to converse about clothingand cosmetics. By following other users, wom-en can view their purchases and recommen-dations, and find links to buy products fromvarious online merchants. According to thecompany, Meilishuo has more than 9.6 mil-lion registered users and generates $100 mil-lion in monthly sales for Taobao. The Boston Consulting Group | 23
    • THE ONLINE ADVERTISINGOPPORTUNITY A disconnect currently exists be- tween how Chinese consumers spend their time and how advertisers spend their The share of overall ad spending devoted to the online channel is expected to rise from an estimated 13 percent in 2011 to 17 percent in money. Advertisers have begun to increase 2015—far less than the 64 percent of media their online spending, but the mix is still time that users now devote to the Internet, ac- heavily skewed toward traditional media. cording to Magnaglobal, a forecasting firm. (See Exhibit 11.) Advertisers still plan to increase television’s Exhibit 11 | Advertising Is Still Directed at Traditional Media Share of $billions Annual media time 60 growth, spent by 2009–2011 Internet users 55 (%) (%) 17% 34 64 40 29 52% 33 24 13% 20 11% 20 48% 3 5 41% 14% Not 23 available 8% 22% 32% 8% 7% 6% 20 3 8% 6% 2% 2% 2% 0 20 4 2009 2011 2015 (estimate) (estimate) Online ads TV Newspapers Outdoor Radio Magazines Sources: Magnaglobal; BCG survey of 2,000 consumers from first- to fourth-tier cities and rural areas; BCG analysis. Note: Some numbers have been rounded.24 | China’s Digital Generations 3.0
    • share from 48 percent to 52 percent in 2015, In a recent survey of chief marketing officerseven though Internet users spend only 24 per- conducted by IBM, those at Chinese compa-cent of their media time watching television. nies reported being less ready than theirBy contrast, in the U.S., where consumers peers in other markets. For example, 80 per-spend less time online, advertisers currently cent of Chinese CMOs said they were unpre-devote about 6 percentage points more of pared for the rapidly growing opportunity totheir media spending to the online channel. leverage consumer online data, compared with the global average of 71 percent. Like-Video advertising is in fast-growth mode. Ad- wise, 74 percent of Chinese CMOs said theyvertising on online video sites grew by 58 per- were unprepared for the growth of new digi-cent between 2009 and 2010 and likely grew tal channels and digital devices, comparedeven faster between 2010 and 2011. This is with 65 percent of global peers.still a small market, with only an estimated$600 million spent on online video ads in While the local findings of this survey were2011. Given the amount of time Chinese con- limited to CMOs of Chinese companies, few,sumers spend watching videos, it deserves if any, Western companies have cracked theeven more attention. code for reaching China’s digital consumers. The Boston Consulting Group | 25
    • A CALL TO ACTION E ven if companies never intend to sell online, they must embrace China’s online world. It is consuming 1.9 billion hours a day front companies as they sell to engage with China’s digital generations. of people’s attention. Young professionals, a New Business Models. Companies cannot highly desirable consumer segment, average necessarily rely on what has worked in other 4.9 hours a day online. The Internet may be markets, as the stumbles of many Western more important to brand building and overall companies have amply demonstrated. But awareness in China than television was in the they can tap into the current fascination of U.S. during its heyday. the Chinese people with the online experi- ence to experiment with new ways to build To date, the business “story” about the Inter- relationships with Chinese consumers. In net in China has centered on the three giants: particular, the popularity of weibos and Alibaba, Baidu, and Tencent. Their moves online videos presents opportunities to both still matter because they signal where the engage with customers and develop new market is heading: toward mobile, video, and revenue streams through innovative online social-networking platforms. business models. Consumer Insight. Companies need to China’s online world is con- develop a deep understanding of digital consumers in China. The market is moving suming 1.9 billion hours a too swiftly and is sufficiently different from any other market to rely on old or imported day of people’s attention. segmentation strategies. The payoff for taking the time and spending the resources to understand these consumers on their terms But the broader focus in China should be on will be real and enduring. what all companies are doing to reach and hold on to China’s digital generations. All Channel Management. The channel conflicts companies with ambitions in China should that companies face in the West are magni- have a strong Internet presence and strategy. fied in China because of the resale of their They need to meet their customers in the goods on Taobao and other online market- places where they spend time, and increas- places. Companies do not completely control ingly that is online. The Internet is not just the destiny of their own products. Most another channel. A few key challenges con- companies in China have barely started to26 | China’s Digital Generations 3.0
    • explore the potential of the mobile channel. Digital Transformation. Companies will haveCompanies need to try to develop a coherent to build new capabilities and a new organiza-channel strategy and build the systems to tion and culture in order to manage theirtrace sales through multiple channels. online presence and multiple channels.Digital Marketing. In the online world, brands Business Development and Partnership.are built by well-managed conversations with While they certainly should build theirconsumers, rather than through the simple internal capabilities, companies will not bebroadcast of messages. Companies need to able to do it alone. Sooner or later, they willcreate an integrated digital-marketing plan have to partner with other players to fill inthat emphasizes online presence and dia- gaps in their capabilities, distribution, orlogue with consumers. They will have to technology. The sooner they start educatingregularly review the alignment between themselves on their needs and the field ofmarketing mix and consumer trends. They potential partners, the stronger their negotiat-must monitor and respond to online conver- ing stance will be.sations about their products and services,engaging and building relationships with The most important step is the first one.consumers. They should also review and Companies cannot win in China unless theyselect the right professional-services partners understand and embrace China’s digital gen-that understand and can guide them through erations. They are the future of the largestthese choices. consumer market in the world. The Boston Consulting Group | 27
    • for further readingThe Boston Consulting Group publish- Going to Market in Developing Turning Local: From Madrid toes other reports and articles that may Economies: The Challenge of Moscow, the Internet Is Goingbe of interest to readers of this report. Channels NativeRecent examples include the publica- An article by The Boston Consulting Group, A Focus by The Boston Consulting Group,tions listed here. February 2012 September 2011 The Digital Manifesto: How The Internet’s New Billion: Digital Companies and Countries Can Win Consumers in Brazil, Russia, India, in the Digital Economy China, and Indonesia A Focus by The Boston Consulting Group, A report by The Boston Consulting Group, January 2012 September 2010 Going to Market in Developing China’s Digital Generations 2.0: Economies: The Consumer Insight Digital Media and Commerce Go Advantage Mainstream An article by The Boston Consulting Group, A report by The Boston Consulting Group, January 2012 May 2010 The World’s Next E-Commerce China’s Digital Generations: The Superpower: Navigating China’s 570-Million-Hour Opportunity Unique Online-Shopping Ecosystem A report by The Boston Consulting Group, A report by The Boston Consulting Group, July 2008 November 201128 | China’s Digital Generations 3.0
    • note to the readerAbout the Authors For Further ContactDavid C. Michael is a senior partner For further information about this re-and managing director in the Beijing port or to learn more about BCG’s ca-office of The Boston Consulting Group pabilities in corporate developmentand the global leader of the Global and value management, you may con-Advantage practice. Christoph tact one of the authors.Nettesheim is a senior partner andmanaging director in the firm’s Beijing David C. Michaeloffice. Yvonne Zhou is a principal in BCG BeijingBCG’s Beijing office. +86 10 8527 9000 michael.david@bcg.comAcknowledgmentsThe authors would like to thank Mark Christoph NettesheimVoorhees, Ashley Peng, Linfeng Yang, BCG BeijingElaine Jiang, Veronica Li, and Nature +86 10 8527 9000Wang for their assistance in the writ- nettesheim.christoph@bcg.coming of this report. They also thank GaryCallahan, Kim Friedman, and Sharon Yvonne ZhouSlodki for their contributions to its ed- BCG Beijingiting, design, and production. +86 10 8527 9000 zhou.yvonne@bcg.com The Boston Consulting Group | 29
    • © The Boston Consulting Group, Inc. 2012. All rights reserved.For information or permission to reprint, please contact BCG at:E-mail: bcg-info@bcg.comFax: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USATo find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.Follow bcg.perspectives on Facebook and Twitter.4/12 The Boston Consulting Group | C
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