Tmall Global: a Crash Course
This article was originally written for RLG (ASX:RLG) on May 21st, 2020
Cross-Border eCommerce Vs General Trade Registration
As western retailers seek out new markets to offset the global standstill, China provides an attractive proposition. For newcomers, Cross-Border eCommerce (CBEC) offers the easiest, most attractive route to market.
If you’re looking for an extensive explanation on the origins and evolution of CBEC in China, this page will help (See ‘A Brief History of CBEC’). Otherwise, the important thing to undertand is that prior to the launch of CBEC’s in 2015, the only routes in which a western brand could sell their exported products in China were (i) via unofficial Daigou, (ii) through Duty Free Stores, or (iii) through putting each of their Stock Keeping Units (SKUs) through an intensive registration process called General Trade Registration (GTR). Compared to General Trade Registration, CBEC products can be launched:
- Quickly: Registration takes days as opposed to months or even years.
- Inexpensively: CBEC Registration costs are virtually non-existent. By contrast, GTR for cosmetics products may cost up to US$20K per SKU.
- Ethically: CBEC bypasses GTR’s mandatory animal testing protocols for cosmetics and beauty products.
Before we continue, it’s important to point out that CBEC only represents roughly 10% of total eCommerce sales in China. Furthermore, goods cannot be listed in physical retail locations, or domestic eCommerce platforms. As such, for businesses who are serious about long-term China growth, GTR should be on the agenda. Leaping from Tmall.hk to Tmall.com has been known to result in a 7–10x boost in brand exposure and sales. Furthermore, we’re seeing indications that animal testing requirements may be relaxed in the future. As such, GTR may soon become feasible for cosmetics companies which are ethically opposed to undertaking animal testing, as is presently required to sell in China. [Note: New Animal testing regulations have since been changed, ending mandatory animal testing for many product categories]
With a market valuation of ¥415 billion (USD$58B), CBEC provides a vital stop-gap. Businesses can ‘test the market’ inexpensively to see which products are worth GTR investment. For businesses who understand the market, Tmall Global is the ‘holy grail’ of CBEC platforms.
Alibaba Emerges as the ‘Winner’ of CBEC
After their purchase of Kaola in 2019, Alibaba is emerging as the dominant force in China’s CBEC space with a 52.5% market share. While Kaola boasts a slightly higher CBEC market share than Tmall, their direct-purchase model relies heavily on price discounting. So, while Kaola is a powerful sales engine not to be dismissed; Tmall Global’s marketplace model offers greater esteem and brand-building advantages.
A listing on Tmall Global (tmall.hk) means your products also appear on Tmall’s domestic platform (tmall.com). This has clear marketing and exposure advantages. Notably, because Tmall is China’s premiere B2C platform with 500 million users and a 61.5% total market share. Furthermore, all Tmall products are also listed on Taobao, Alibaba’s C2C marketplace with 666 million monthly active users.
Four Key Considerations When Launching a Tmall Global Store
1. Market Research, Product Selection & Optimisation
Before launching in China, it’s vital to undertake extensive research into the market, competitive landscape and customers. This will enable you to optimise your STP strategy and marketing mix, as well as avoid making costly errors.
Product selection is a key early consideration. Your existing hero SKUs may enjoy a slight advantage here, due to their established domestic presence and availability to daigou. However, brands frequently discover that their top sellers in China differ vastly to local markets. This is most obvious for food and beverage categories. It’s no secret that Chinese consumers frequently show preference for exotic flavours, such as durian, dragonfruit, pomelos, goji berries, macha and red bean.
Big data crawls are a great option to quickly identify popular formats, volumes, flavours, brand messages etc. The Tmall crawl data next to this paragraph summarises monthly orders by price for a niche alcoholic beverage segment. Over this month, 330ml units accounted for 72% of sales. Six-packs were by far the most popular bundle option at nearly 60% overall. Isolating 330ml six-pack orders by price, you can immediately identify key pricing guidelines for your product, and avoid falling into traps.
2. Plan for Sales Promotions
Each month, Tmall hosts a number of small-medium sales events. Generally speaking, they’ll give you 1–4 weeks notice depending on the size of the promotion. After receiving notice, you may have one-seven day(s) to decide whether or not to participate.
2.1 Setting Prices
There are three distinct Tmall price points you need to be weary of before setting pricing strategies.
- The Listing Price. This is effectively the ‘RRP’ that is listed on Tmall. In most cases, this may be a multiple of your domestic RRP. If you’re unable to offer a 50–70% discount from this price, you will not be able to participate in many of Tmall’s monthly promotions.
- The Everyday Selling Price: In any given month, this is the average order price after factoring in promotional discounts. This can be viewed as a ‘target’. It’s important to undertake extensive forecasting to ensure these targets are hit within a small margin of error.
- The Bottom Selling Price: This is the absolute minimum price your product can sell for. This effectively covers the bare costs of logistics, warehousing, platform commissions etc. — and of course, your profit.
2.2 Inventory Management
Inventory forecasting is of major importance within the CBEC industry. At any given time, you must be at least three months ahead on your inventory planning. The process is complex for a number of reasons:
- Cross-Border eCommerce requires all goods to have at least 2/3rds shelf life remaining. This creates challenges for products with shorter shelf lives, like food and beverages. Assuming a 12-month shelf life, you’ve effectively got 4-months to receive, sell and ship your stock. When factoring in container-load volumes, the stakes rise very quickly.
- Simultaneously though, striking gold with a good KOL often leads to surging demand. When this happens, lacking sufficient inventory equates to leaving significant sums on the table.
- When you leave money on the table, so too does Alibaba. As such, Tmall mandates that brands hold a minimum of two-months inventory at all times. Furthermore, to participate in major sales events, merchants must hold inventory levels 3x more than their forecasted monthly unit sales.
One way to address these challenges is to set a simple ROI target for your KOLs and/or sales initiatives. So, for a target ROI ratio of 1.5, you could expect a KOL to generate $1.50 in sales margin for each dollar spent on them.
3. Expect to Invest in Marketing
China’s digital ecosystem has evolved in such a way that eCommerce platforms fulfil many of the functions westerners rely on Google or branded websites for. Furthermore, businesses can’t simply open a store and expect to see an immediate commercial profit from their investment in Tmall. As such, Tmall should also be viewed as a tool for raising exposure and building brand legitimacy.
There are three key pathways for driving traffic to your Tmall Global store:
- Sales events and promotions
- Off-platform digital campaigns and initiatives (i.e. KOLs, WeChat campaigns, Douyin ‘challenges’, Xiaohongshu livestreams etc.)
- Alimama on-platform marketing
AliMama is Alibaba’s full-service marketing insights and management platform. The add-on service provides store operators with various tools to undertake display marketing, search marketing, real-time product bidding, commission-based promotions and various other tools. Alimama enables merchants to maximize traffic and ROI across all of Alibaba’s affiliated channels. It leverages Alibaba’s big-data ecosystem to maximise efficiencies and optimise campaign delivery. Alimama offers a suite of marketing tools and services. Some of the tools we leverage the most include:
Diamond Booth
Zhizuan (Diamond Booth) is a bid-based advertisement and banner placement service. You can push targeted ads to PC, mobile and/or tablets across a Alibaba’s extensive digital-ecosystem. This includes on Sohu, Taobao, Tmall, iQiyi, Sina and many other platforms.
Express Train
Express train is a keyword-bidding service which can push your brand/products to the top search results within Tmall/Taobao. The tool also allows for laser-like focus: targeting consumers at specific times and in certain geographies.
DMP
Alibaba’s big-data-driven target-marketing and insights service. Executes precise, measured, multi-platform campaigns. DMP procures and analyses consumer information across a wide variety of data-points. These include interests, demographics, locations, shopping history etc.
Pinxiabao
A media-purchasing & retargeting tool. It enables high-performing Tmall merchants to create larger, more prominent ads and banners. Ads are built on keywords which must be related to the brand.
4. Nurture Testimonials with Direct Marketing
The prevalence of counterfeit and low-quality goods in China is no secret. As a result, product reviews are seen by many consumers as almost a civic duty. The Tmall platform itself has evolved to follow suit. For example, Tmall’s ‘Ask Anyone’ function instantaneously matches you with a previous buyer of the item you’re browsing, enabling a live-chat review.
Upon purchasing from our stores, our customers are encouraged to connect with our self-operated WeChat accounts. WeChat groups are in effect, China’s most effective direct marketing channel. Like organic search marketing, email direct marketing (EDM) never really took off in China.
WeChat Groups enable you to interact directly with your customers. You can send them recipes, incentivise positive feedback with vouchers and coupons, promote new products and campaigns etc. Most importantly though, WeChat groups enable you to turn regular consumers into Key Opinion Consumers (KOCs). Rewarding loyal customers with free gifts and coupons will more often than not result in compelling, positive eWOM. For example, the following video was generated via a KOC.
