The Rise of O2O Marketing in China

Marketing

In the China retail market, only 12% of purchasing decisions happen entirely online. This is according to data from McKinsey’s China Digital Consumer Tends 2019 report.[1] It implies that over 88% of consumers – especially Gen Z and Millennial consumers – make their purchasing decisions through an omnichannel process – both offline and online.



Furthermore, these figures highlight why Chinese retailers are quickly adopting O2O marketing. Online and offline purchasing cycles are no longer separate.

Instead, they have merged to form a customer experience-focused “new retail”.

What is O2O Marketing?

Online to offline (O2O) marketing allows brands to connect with and reach their consumers and to activate an offline retail experience. Therefore, it encourages consumers to connect with retailers and take their online connection off-line.

Brands can also use O2O Marketing in the reverse. However, because the retail journey begins online for most Chinese consumers, the purpose of O2O Marketing in China is to encourage consumers to interact with retailers off-line as well.

The Advantage of Using This Strategy

The success of online to offline marketing – which is estimated to reach over 150 billion USD in consumer spending by 2022 – depends on the digital ecosystem. Over 99.1% of consumers have access to mobile Internet and spend an average of five hours and 50 minutes online. Therefore, the easiest, most effective way to target this digital consumer is online.

However, the advantages of O2O marketing far exceed increasing sales and profits and extend to other valuable aspects of business, including:

An Increase in Brand Appreciation and Loyalty

Three core factors encourage consumer spending, especially in Millennials and Gen Z consumers:

  1. Convenience;
  2. Inclusion; and
  3. Validation or approval from peers.
Gen Z China's Household Spending

An O2O marketing strategy enables you to answers these customer pain points during the consumer purchasing cycle.

Convenience: At the beginning of the online purchasing cycle, consumers can browse and gain data about a product. They can then test or purchase the product in-store.

Inclusion: Retargeting and personalizing the experience to each customer’s preferences will motivate them to develop loyalty for your brand.

Validation: Taking the online experience off-line means that the experience can become more communal.

Enhancing The Customer Journey

Millennials (who represent 25% of the Chinese population [2]) appreciate an interactive, personalized customer journey. Their younger counterparts – the Gen Zs – mirror these sentiments. Enhancing the customer journey improves retention rates and increases your customer’s lifetime value. This without a doubt inspired local and luxury brands to improve the customer journey as a driving factor of growth. Brands like Apple, Burberry, and Alibaba [3] were all early adopters of enhancing the customer journey through O2O marketing.

The Customer Journey
The Customer Journey – revelx.co

Thanks to O2O marketing enabling your business to create a personalized experience for each customer by using their purchase history, their location, and payment preferences, you can create hyper-focused recommendations that can entice your customers back to your store.

Driving High-Intent Foot Traffic

O2O marketing increases foot traffic to a brick-and-mortar store. However, unlike other foot traffic, foot traffic gained through online initiators like advertising, incentives or to complete the purchasing process through in-store inspections or checkouts are high-intent. This means they’re more likely to make a purchase.

Most importantly, when you introduce a customer to a physical location, you also increase the likelihood of them continuing to return to the location without being prompted online.

Gaining Access To Big Data

Data is always touted as an accelerator of growth because it gives you insight into your customers that you don’t have access to as a traditional retailer. These key insights reveal who purchases at your store, how they progress through the customer journey, and what they’re buying and considering to purchase.

Big Data from Multiple Online and Offline Marketing Sources
Data comes from many sources – lotame.com

Having this data enables you to make better marketing and business development decisions to further expand on the growth achieved through O2O marketing.

How are Retailers Implementing this Channel?

Businesses and retailers are already redistributing their advertising spend so that the lion’s share goes to digital marketing. Part of that strategy requires that you implement effective O2O marketing. However, O2O marketing isn’t limited to pop-up ads or prompts reminding customers of an annual or seasonal sale. Instead, it is far more interactive and customized.

Therefore, to successfully implement O2O marketing, businesses and retailers should consider including the following in their strategies:

1. Geo-tagging

The most effective means of implementing O2O marketing is to enable geo-tagging. This allows you to base marketing prompts and recommendations on a customer’s precise location.

Yum! China (who owns KFC and Pizza Hut) successfully implemented geo-tagging to its O2O strategy to create a customized menu for its patrons, increasing revenue by 840 million USD in a single year.

2. Offline Experiences

In 2011, Alibaba’s Taobao launched its first in-store experience [4], enabling customers to complete the purchasing cycle after testing its furniture products in store. It took this online-to-offline experience further during Singles Day of 2018 with brand collaborations that allowed customers to do digital try-on in-store.

This example shows that customers are more intent to go to a physical location if it completes or adds to the online experience through a meaningful offline experience. Any business can achieve the same results if it makes the offline experience valuable or crucial to the customer’s purchasing cycle.

3. Interactive Applications

Consumers want to interact with a product before making a purchase. That is to say, this allows them to do product research and compare prices while understanding what they’re buying before they make a purchase.

QR codes popular in O2O Marketing in China
QR codes to scan products and get info – uqr.me

This can be achieved through something as simple as implementing QR codes to facilitate information sharing about a product. Consequently, this can assist in building trust or simulating the entire purchasing experience from browsing and research to checkout.

The Future of Online to Offline Marketing in China

To understand the effectiveness of O2O marketing, you must understand the new retail experience. Approximately 99.1% of the Chinese population has access to mobile data [4], and of those, 60% make decisions based on prior research.

Additionally, 69% of customers purchase items online after viewing them in-store. This is commonly referred to as “showrooming[2].

For Millennial shoppers, the O2O experience means they can compare prices in-store, complete click and collect, or purchase items as they’re browsing or arrange delivery.

To clarify, the O2O experience also works for basic transaction methods such as booking spa appointments and calling cabs.

To conclude, the entire O2O market is gearing up to surpass 1 Trillion Yuan by 2022 [5], so retailers and businesses that implement O2O marketing sooner will receive greater rewards.

References:

  1. https://www.mckinsey.com/~/media/mckinsey/featured%20insights/
  2. https://daxueconsulting.com/chinese-millennials-spending-behaviors/
  3. https://www.techinasia.com/talk/opinion-alibabas-mall-shows-o2o-real-business-model
  4. https://techblog.comsoc.org/2020/01/01/china-internet-penetration-reached-61-2-in-1st-half-2019-99-1-access-internet-via-mobile-phones/
  5. http://www.xinhuanet.com/english/2020-06/22/c_139158682.htm