Merchants considering JD.com and Alibaba for China market entry are to be twice congratulated for their perspicacity. China’s ecommerce market surpassed America’s in 2013, $298 billion to $263 billion, and has robust growth characteristics, especially in demand for western goods, in most consumer categories, including FMCG.
Also, big ecommerce retail platforms make an ever-more compelling case for China online sales than a stand-alone website. Sunk costs in hosting, CDNs, and implementation put the benefits of standalone in perspective. Add to that the high costs of driving targeted traffic to a stand-alone site, as big platforms increase ad spends to monopolize that traffic. Factor in lower conversion rates for visitors who don’t trust your site as much as the big platforms, and the case for whale-riding becomes clear.
Tmall and JD have 51% and 23% respectively of all China B2C online market share, as of Q12014. While the latter has 140 million registered users, Tmall has access to over 500 million, largely because it is the B2C sister of monster C2C platform Taobao. Alibaba created Tmall as a brand-verified alternative to the rampant fakery and low-price leadership of Taobao, which is not a viable choice for building a brand and sustainable profits.
So looking back to Tmall and JD as primary choices, given that other players hold less than 3% market share, it is important to understand the two platforms’ primary distinctions. Tmall is aptly named, a vast collection of individual stores in one place, a reflection of Alibaba founder Jack Ma’s commitment to empower the vendor in building loyalty, and the consumer in having full transparency as to the vendor’s quality. JD is more of a massive online department store, offering a wide array of goods, but all under the JD imprimatur of guaranteed quality and terms.
Therefore, Tmall puts the onus of driving sales squarely on vendors, who, after registration, design and implement their stores, and are responsible for promotion, service, and delivery. Of course, Alibaba offers a host of services to help with these tasks, and allows for ever-expanding UX capabilities.
Pantone’s Tmall store, for example, has replicated the interactive product selector from its home site, and Vans’ Tmall About Us page is a multi-media paean to the California punk scene that the brand grew up in.
JD, on the other hand, does not require any such effort from a company. JD will buy the product wholesale, and take care of everything from there, including the rapid delivery which is a key factor in driving its growth. As a result, the brand has no say in its pricing, positioning, or promotion. It is the online equivalent of that oft-sought Chinese distributor, who will buy product in volume and do all the heavy lifting.
It is important to note, however, that JD has begun offering individual stores to vendors, Tmall-style. Most of these vendors are in niche product categories, such as guitars. Also, these vendors are not individual brands but distributors of various related products. Such individual stores are clearly labeled as outside of JD’s extensive guarantees and fast-delivery service.
Meanwhile, more and more big western brands are committing to Tmall as a platform, with all the attendant work that entails. Burberry and Estee Lauder are two of the most recent. In response, Tmall has been facilitating flagship store owners in their efforts to clear up gray channel competition on the site.
Well and good for the western company with the resources to commit to brand-building in China. As mentioned, though, such resources are less than those necessary to establish a stand-alone site, then drive traffic and convert it for sales. Logistics are very much a part of the question in either case, with only 13 million square meters of what can be considered international standard warehouse space for all of China, equivalent to Boston’s.
In the final analysis, the choice between JD and Tmall boils down to surrendering responsibility to a massive online distributor, or setting up shop on the world’s busiest, and in many ways most competitive B2C site. Thankfully, the depth of online analytics and big data now available can make that choice much easier.