China digital
trends 2019
Discovering the next wave of growth

Lambert Bu, Shenzhen
Jacob Wang, Shanghai
Kevin Wei Wang, Hong Kong
Daniel Zipser, Shenzhen

                            September 2019
Copyright © McKinsey & Company 2019
China digital
consumer trends 2019
Discovering the next wave of growth

                             China’s rise as a global leader in ecommerce has                     China’s 855 million digital consumers - among
                             been nothing less than stunning. This year, online                   some of the most avid users of mobile phones and
                             retail sales are expected to swell to $1.5 trillion,                 social media in the world - represent one of the
                             representing a quarter of China’s total retail                       biggest prizes for global marketers.
                             sales volume, and more than the retail sales of
                             the ten next largest markets in the
                             world – combined. (Exhibit 1)

Exhibit 1
Online retail transaction value
Online retail transaction value (2019 forecast1)
2019 forecast

2017-19 CAGR %          % of total retail value in USD

                                           $30 Bn                                     Canada
        $135 Bn
                                        24%     5%
                                                                                     $55 Bn
        14%    22%
                                                                                     26%   11%

          United                                                Korea $90 Bn
         Kingdom                                                         22%   22%
                                                                                                                          China’s online
                                            China                                          USA
                                                                                                                          retail market is
                   Germany            ~$1.5 Tn                  Japan
                                                                                       $600 Bn
                                                                                                                          larger than the
 France                                                                                15%       11%
                   $80 Bn               24%       25%                                                                     next 10 markets
$65 Bn             9%      9%                               $115 Bn
15%    10%
                                                            5%      9%
                                 $40 Bn
                                                 Indonesia                                                  $30 Bn
                                36%     3%
                                                    $15 Bn                                                  13%    4%
                                                 36%       4%
                                                                                             $7 Bn
                                                                                           21%     3%
1. Online B2C and C2C market; Forecast for year-end 2019
SOURCE: iResearch and MOFCOM for China; eMarketer; McKinsey China Digital Consumer Trends 2019

                             But things are getting a lot tougher: Growth of                     And an increasingly crowded marketplace has led
                             online retail sales is cooling, dipping from the                    to fierce competition between brands, pushing up
                             heady 40 and 50 percent annual rates seen in the                    the cost of acquiring new customers and retaining
                             early part of the decade to 25 percent compound                     them. For example, the CPM (cost per 1,000
                             annual growth in the past few years. (Exhibit 2)                    consumer impressions) of advertisements placed
                                                                                                 on Tmall’s baby channel has increased on average
                                                                                                 by 60 percent since 2017.

                             Discovering the next wave of growth                                                                                     1
Exhibit 2
E-commerce gross
E-commerce       merchandizing
              gross            volume (GMV)
                     merchandizing          growth
                                       volume  (GMV) growth
% year-on-year
% year-on-year


    47%                                                                                                                      India

                                                                                                           31%               China
                                                                                                               27%           US
2014                           15                                16              17                        2018

SOURCE: McKinsey China Digital Consumer Trends 2019; eMarketer

                           These and other challenges –like the rising                are there other ways to leverage these events
                           sophistication of Chinese consumers–are upping             beyond slashing prices?
                           the ante for consumer-facing companies. Brands
                                                                                      In an effort to find answers to these questions,
                           looking for the next wave of digitally-fueled
                                                                                      McKinsey surveyed over 4,300 digital consumers
                           growth in China are grappling with a number of
                                                                                      from across four city tiers and rural areas in China,
                           thorny questions:
                                                                                      and from a range of ages and income levels. To
                           Omnichannel shopping: Looking beyond the                   better understand their digital behavior, we asked
                           hype, are initiatives like omnichannel retail              them questions about their digital activities, how
                           services really taking off in China, and where             they allocate their spending, and their purchasing
                           should we place our bets to capture a return on            decision journeys.
                           our investment?
                                                                                      We complemented this field research with
                           Social media and commerce: China is the land               category specific expert interviews, as well as
                           of social media, and some brands are already               insights drawn from our experience working
                           monetizing the attention they are generating               with some of China’s most innovative and fastest-
                           through social channels. How can we tap into the           growing domestic and multinational consumer-
                           trend? How can we start building relationships             facing companies. In this report, we explore
                           directly with consumers that enable us to collect          five major areas of opportunity for consumer-
                           more granular and actionable data on them?                 facing marketers:
                           Lower-tier cities: Most marketers have focused             1. Digitally-powered physical retail innovation:
                           their attention on capturing consumers in high-tier           Crafting an intentional strategy to tap into
                           cities. But with more than 50 percent of digital              omnichannel behavior.
                           consumers residing in lower tier cities, how can we
                                                                                      2. Social commerce: Monetizing social
                           craft a value proposition that appeals to them?
                                                                                         attention and engaging with consumers
                           Key Opinion Leaders/Consumers (KOLs/                          through direct-to-consumer (DTC) channels.
                           KOCs): KOLs/KOCs wield a lot of influence, but
                                                                                      3. Small town youth: Identifying the next
                           how should we tailor our strategy to drive short-
                                                                                         pocket of customer growth.
                           term sales while building the brand?
                                                                                      4. KOLs / KOCs: Fine-tuning the levers of
                           Shopping events and discounts: The major
                                                                                         consumer influence.
                           annual and semi-annual shopping events like
                           Double 11 and 618 are playing an increasingly              5. Sales events and discounts: Data-enabled
                           important role in driving sales. But what impact              pricing and promotions.
                           are these events having on our profitability, and

2                          China digital consumer trends 2019
physical retail innovation
Crafting an intentional strategy
to tap into omni-channel behavior

             In 2014, online retail sales in China were growing   For example, 88 percent of online apparel
             so fast they started to eat into the sales of        consumers said they had shopped in physical
             traditional physical channels. Brands started to     stores in the past 3 months, compared to
             shutter stores, as customers flocked to digital      83 percent in 2017. (Exhibit 3)
             channels. But since 2017, Chinese shoppers have
             made a noticeable shift back to physical stores,
             especially shopping malls and mono-brand retail
             stores. According to our survey, young consumers
             in tier 1 and 2 cities are leading the trend.

             Discovering the next wave of growth                                                                3
Exhibit 3
                          Digital   consumer
                          Digital consumer     shopping
                                           shopping        behavior
                                                    behavior          across
                                                             across physical    physical channels

                          # of shopping malls                                                     % of digital apparel consumers who shopped
                                                                                                  in a physical channel in the past 3 months1
                               +11% year-on-year growth

                                                                                                               2017                2019

                                                                                                     Led by young consumers
The in-store experience is key to the revival                     If brands are worried about losing these
                           of physical retail. Despite the convenience of                    information-hungry, mobile-savvy customers
                           shopping online, some of the most fundamental                     to competitors, another finding from our survey
                           needs consumers have can only be fulfilled by                     might help to allay those fears. With the right
                           visiting a store. Seeing and feeling products                     in-store experience, 80 percent of consumers
                           firsthand; trying on and testing products; watching               who use their mobile phones in the store to
                           product demonstrations; and the immediate                         research products end up buying products of the
                           accessibility of products in the store: These are                 same brand, and more than 50 percent will even
                           what distinguish physical shopping experiences                    buy in the stores they visit as a showroom.
                           from online ones.                                                 (Exhibit 5)
                           And increasingly, Chinese consumers are
                           combining their experience shopping at physical
                           retail stores with their online buying decisions.
                           The proportion of consumers saying they use
                           their mobile phones to research products while
                           shopping in a store, what is often referred to as
                           the “showroom effect,” has more than doubled to
                           63 percent in just the past two years.

Exhibit 5
Omni-channel presence in the “showroom effect”

Shoppers who conduct                    Impact on final purchasing decisions                             Top 5 reasons for conducting
mobile research in a                    Percent of online apparel shoppers who research                  in-store mobile research
physical store                          online in physical stores
Percent of online
apparel shoppers
                                       Impact                    Purchase decisions                               Learn more about product details

                                                                 Buy in this
                                                                 store                                            Check price
                                        Sales maintained
                                        within brand
                                                                 Buy from
                                                                 another           17
                                        81%                      store
                                                                                                                  Check comments
                                                                 Buy online             28

                                                                 Buy another                                      Check popularity (sales volume)
                                        Potential sales                            16
                                        leakage to other
                                                                 Buy a

                                        19%                      different
                                                                                                                  Check for more convenient
                                                                                                                  purchase method
     2017         2019

SOURCE: McKinsey China Digital Consumer Trends 2019

                           Discovering the next wave of growth                                                                                       5
The revival of physical stores is fueling another                             initiatives has exploded, with the share of survey
                               exciting trend with the potential to entirely                                 respondents saying they have experienced such
                               reshape the shopping experience in China:                                     an initiative jumping from just 17 percent in 2017 to
                               Digitally-powered physical retail innovation. In                              43 percent in our latest survey. (Exhibit 6)
                               just the past few years, the adoption of these

Exhibit 6
Use case
Use  caseadoption of “digitally-powered
           adoption                     physical retail
                        of “digitally-powered           innovation”
                                                   physical    retail innovation”
Use case adoption rate                                                                           Definitions of 3 use cases
Percent of online shoppers who have tried at least one use case1                                                                       Shop online pickup offline
                                                                                                                                       QR code for online research & purchase
                            43                   Leading categories                              1           Omni-channel
                                                                                                                                       Check offline stock online
                                                                                                                                       Deposit online full payment offline
                                                          Home decoration                                                              Personalized delivery2

                                                                                                                                       Mobile cashier
      2.5x                                                Luxury                                                                       Self check-out in store
                                                                                                                                       Face recognition

                                                          Packaged food                          2       In-store digitization
                                                                                                                                       Electronic price tag
                                                                                                                                       VR shopping
         17                                                                                                                            AR shopping
                                                          Beauty & personal care                                                       Digital interactive screen
                                                                                                                                       Robot services
                                                          Imported spirits
                                                                                                                                       Smart vending machine

                                                                                                 3        New go-to-market
                                                                                                                                       Product customization
                                                                                                                                       Unmanned store
       2017                2019                                                                                                        Crowdfunding

1. Includes 5 categories for a comparison with 2017: consumer electronics, apparel, beauty & personal care, packaged food, fresh food
2. Delivery of multiple products of different colors, sizes, etc. The consumer keeps the ones she wants and returns the rest upon delivery
SOURCE: McKinsey China Digital Consumer Trends 2019

                               So what do we mean by “digitally-powered                                      But while buying products online and then
                               physical retail innovation”? We see the emergence                             picking up in the store may be the most popular
                               of three distinct use cases: Omnichannel                                      omnichannel initiative, only 12 percent of
                               fulfillment, in-store digitization (also sometimes                            respondents in our survey said they’ve shopped
                               called “phygital”), and new go-to-market models.                              in this way before. It certainly isn’t because
                                                                                                             consumers don’t want to shop like this: close to
                               Omnichannel fulfillment                                                       50 percent of consumers have tried shopping
                                                                                                             like this before, but then stopped. So while the
                               Consumer-facing brands now have the
                                                                                                             demand is there, the supply isn’t: Few brands and
                               opportunity to take the integration of physical
                                                                                                             retailers offer this option, and for those that do,
                               and online channels to an entirely new level with
                                                                                                             consumers have not been satisfied
                               omnichannel fulfillment. It is especially attractive
                                                                                                             with their experience, with 40 percent saying
                               for consumers in smaller cities during major sales
                                                                                                             the entire shopping and pickup process was
                               events such as Alibaba Group’s Double 11. Access
                                                                                                             too complicated.
                               to stores that are close to home or office, the
                               chance to try-on products in the store, and the                               Scanning a QR code in-store to access online
                               lack of delivery options mean physical channels                               information, and personalized delivery services
                               have given these consumers another form of                                    that allow customers to try multiple products,
                               convenience they can’t enjoy online.                                          are other examples of emerging modes of
                                                                                                             omnichannel fulfillment that could have a big
                                                                                                             influence on consumers’ desire to purchase
                                                                                                             a product. (Exhibit 7)

6                              China digital consumer trends 2019
Exhibit 7
Use  case
Use case   adoption
         adoption      and influence
                  and influence         on purchasing
                                on purchasing decision decision

  Influence on purchasing decision
  % of online shoppers who rate the initiative “helpful” or “extremely helpful” in triggering purchases
62                                                                               A
60                                                                                   Personalized delivery
                                                    B           AR
56                                                                   Smart                                                      QR code for
                                                                     vending machine                                            online research
54                                                                       Electronic price tag                                   & purchase
                                                                                                      Mobile cashier
52                                   Digital            VR                                                                                             Shop online
                                                 C                                                                                                     pickup offline
                                     interactive screen                          Deposit online full payment offline
50                                                                                                 Check offline stock online
                           Robot services               Product customization
48                                                                                  Facial
                 Unmanned store                                                     recognition
46                                                                                                Self check-out in store
     0            1             2               3           4           5            6           7           8          9           10            11        12

     Omni-channel fulfillment        Phygital           New go-to-market model
                                                                                                                                      % of online shoppers
SOURCE: McKinsey China Digital Consumer Trends 2019

                                In-store digitization                                                  AR application is the pilot being run by cosmetics
                                                                                                       brand MAC. In their flagship Shanghai store,
                                In-store digitization—sometimes referred to
                                                                                                       interactive screens display real-time comments
                                as “phygital”, a mash-up of the words “physical”
                                                                                                       posted by key opinion leaders (“KOLs”) on social
                                and “digital” —is another interesting though still
                                                                                                       commerce app RED, while AR screens allow
                                nascent category of retail initiatives. While just
                                                                                                       consumers to apply make-up products virtually.
                                4 percent of survey respondents told us they’ve
                                tried an augmented-reality (AR) interaction at
                                a store, 57 percent of them said it positively
                                influenced their purchasing decisions, the highest
                                of all such “phygital” initiatives. One example of an

Social commerce
Monetizing social attention and
engaging with consumers through
direct-to-consumer (DTC) channels

                                Chinese consumers are famously voracious users                         Another 11 percent of their time is spent watching,
                                of social media. According to our survey, they                         sharing, and creating short videos on apps such
                                spend as much as 44 percent of their time on                           as the immensely popular Douyin (known as
                                social media apps, the majority of which,                              Tik Tok in English) and over-the-top video
                                33 percent, is spent on social applications such                       streaming services like Tencent Video. (Exhibit 8)
                                as WeChat and Weibo’s microblogging service.

                                Discovering the next wave of growth                                                                                                     7
Exhibit 8
Time  spent
Time spent   online
           online     by digital
                  by digital       consumers

Total time spent online                                     Social media & content account for 2/3 of total online time spent1
minutes per user per day                                    % of time spent by digital consumers on different online applications & activities

             Total online
                                                                                                                        (e.g. WeChat, Weibo)
             time spend

                                                              Online shopping

                                                                     8% Gaming                                           11%
               358                                                 3% Online music                                       Short video (e.g. Douyin)
                                                                                 9% News              8% Online video (e.g. iQiyi)

                                                                                 Social Apps                 Content Apps             Other Apps

SOURCE: QuestMobile; McKinsey China Digital Consumer Trends 2019

                            Increasingly, brands are converting the awareness                     of respondents said they had made a purchase
                            they generate on social media into purchases, with                    directly through a social channel, an extraordinary
                            50 percent of survey respondents saying they had                      increase of 3.6 times from just two years ago.
                            become aware of a product on a social platform.                       (Exhibit 9)
                            And awareness is converting into sales: 25 percent

                            Exhibit 9
                            Influence of social
                            Influence           mediamedia
                                         of social    and content
                                                            and on  the consumer
                                                                  content  on thejourney
                                                                                   consumer journey
                            % of
                            % of online
                                 online shoppers
                                                          socialplatforms to to
                                                                  platforms  gain awareness
                                                                                gain        / evaluate
                                                                                     awareness          / purchase
                                                                                                / interest / purchase

                                                                                                    2017         2019
                               +35%             50%         +85%           48%


                                                               26%                         3.6x            25%

                                                                                                                                  Social is most important for
                                                                                             7%                                   beauty, and
                                                                                                                                  package food
                                        Aware                       Interest                      Purchase                        categories for engagement

                            SOURCE: iConsumer 2017; McKinsey China Digital Consumer Trends 2019

8                           China digital consumer trends 2019
Notably, social platforms are emerging as drivers          To tap into this trend, established e-commerce
                           of impulse shopping and creating incremental               players have featured social elements prominently
                           demand. Social interactions, including interactions        in the shopping journey of their consumers. For
                           with KOLs, posting of user-generated content               example, Taobao generated more than 100 billion
                           (UGC), and reading recommendations from                    RMB (USD 15 billion) in GMV from live streaming
                           contacts, motivated 40 percent of respondents              in 2018.
                           to buy a product they had not originally intended
                                                                                      In addition to giving brands a platform to leverage
                           to purchase.
                                                                                      social elements to build consumer awareness and
                           Emerging social commerce players have been                 engagement in third-party channels, social media
                           leading the trend. Pinduoduo, which built its              now also offers new Direct-to-Consumer (DTC)
                           success on social group buying, has consistently           channels to influence and engage with consumers.
                           reported triple-digit revenue growth since its             These are led by WeChat mini-programs, which
                           founding in 2015, while user-generated content             have grown from nothing to driving one-fourth of
                           (UGC)-based shopping app RED now vies for                  the awareness in the digital consumer’s decision
                           one of the top spots as China’s leading social             journey. (Exhibit 10)
                           commerce channel.

Exhibit 10
Social direct-to-consumer
Social  direct-to-consumer(DTC) adoption
                                (DTC) adoption
Percent of online

                      Aware                 Interest                  Purchase   Loyalty

                         54                     54                         78    31
 (e.g. Tmall, JD)

                                                                                                    Social DTC via WeChat mini-
                               ~1/4                  ~1/4                                           program reaches

                                                                                                    ~1/4 the adoption
 Social DTC                                                                                         rate of leading
 mini program)
                         13                    12                      6          12
                                                                                                    (from ~0% in 2017)

SOURCE: iConsumer 2017; McKinsey China Digital Consumer Trends 2019

                           It’s still early days, and the playbook for success        For example, beauty brands including Estee
                           is still being written, but we’ve already seen             Lauder, L’Oréal, and Shiseido offer samples of
                           8 different use cases of brands leveraging                 newly launched products through WeChat mini-
                           WeChat mini-programs to drive sales, from                  programs. Home decoration retailer IKEA set up
                           attention-grabbing games and quizzes to one-off            a membership center and launched pop-up
                           opportunities to purchase unique products from             stores using WeChat mini-programs.
                           online and physical stores. (Exhibit 11)

                           Discovering the next wave of growth                                                                         9
Exhibit 11
Emerging social DTC use cases for different product categories
Emerging social DTC use cases for different product categories

Counselling services                     Product trial /                  Gift card store                        Flagship/ Pop-up store
Provide tools, content,                  service reservation              Leverage “gift card”                   Setup e-commerce
KOL counselling and                      Leverage product-trial           function to acquire users              stores, either as always-
service reservation                      to accelerate new                and increase store traffic             on flagship store or time-
as guidance                              product go-to-market                                                    framed/ event-driven
                                                                          •   Starbucks
                                                                                                                 pop-up store
•    MeadJohnson Nutrition               •   Estee Lauder                 •   Gucci
•    Ping An                                                              •   Dior                               •   Nike
                                         •   L’Oreal
                                                                          •   MAC                                •   Dior
                                                                                                                 •   IKEA

Engagement                                                             WeChat mini-programs                                   Commerce

Games, quizzes,                          Membership center                Referral program                       Product personalization
and tests                                Strengthen online / offline      Encourage members to                   Provide options for self
Create fun games, quizzes                membership engagement            refer new members via                  design of products or
and personality tests to                 and profile management           gamification and                       reservation of
engage customers for the                                                  membership rewards                     personalized services
                                         •   IKEA
first time
                                         •   Starbucks                    •   Abbott                             •   Levi’s
•    Gucci                               •   Nespresso                    •   Luckin coffee                      •   MAC
•    NBA                                                                  •   Jins

SOURCE: McKinsey China Digital Consumer Trends 2019

                             To tap into this trend, super apps such as Alibaba’s
                             Alipay, as well as user-sharing apps like RED and
                             Douyin, now also allow brands to interact directly
                             with consumers through mini-programs.

Small town youth
The next pocket of growth

                             As online user growth in China’s tier 1 and tier 2           consumer trends research in 2016, ecommerce
                             metropolises like Shanghai and Beijing reaches               spend in lower tier cities has caught up with that of
                             a plateau, brands are actively looking for the next          top tier cities.
                             wave of growth. Our research points to the large
                                                                                          But serving these consumers requires
                             pool of younger consumers in China’s lower-tier
                                                                                          understanding how they are different from their
                             cities and small towns. According to QuestMobile,
                                                                                          top-tier city counterparts, and then crafting offers
                             tier 3 and below cities house 670 million mobile
                                                                                          that meet their needs.
                             internet users, which is more than half of China’s
                             total. Of these, 72 percent are below the age of 35.         According to our survey, young consumers in
                                                                                          China’s lower-tier cities are almost as likely to shop
                             High online readiness of younger consumers
                                                                                          online as their top-tier-city dwelling counterparts.
                             in China’s lower-tier cities represent a big
                                                                                          (Exhibit 12)
                             opportunity. Based on our previous digital

10                           China digital consumer trends 2019
Exhibit 12
Digital consumers’
Digital  consumers’online shopping
                       online      adoptionadoption
                               shopping     by city tierby city tier

Normalized; Tier 1 overall indexed to 100
% of digital consumers who shopped online in the last 3 months

100                                 94                                 94
                                       89                                                                                       Young
                                                                                                78                       79     generation
 80                                                                                                                             (
Living costs are lower in lower-tier cities, allowing         While younger consumers in smaller cities are
              them to enjoy a much more relaxing lifestyle as               also price sensitive, they tend to be less discount-
              consumers in larger cities. They have a lot of time           driven. Small-town youth still rank price discounts
              on their hands: Consumers in smaller cities tend              at the top of their list when considering a purchase,
              to leave work and go home at 5 or 6 pm, and they              according to our survey. But price doesn’t
              spend a lot less time commuting to and from work              determine everything for them. They value social
              than their counterparts in larger metropolises.               engagement, which could come in the form of
                                                                            referral programs or endorsement by KOLs/KOCs,
                                                                            and special edition products. In fact, they value
                                                                            these things more than their counterparts in tier 1
                                                                            and tier 2 cities. (Exhibit 14)

                     14         factors for Double 11
             Top buying factors for Double 11
             % of online shoppers across different categories
              % of online shoppers across different categories

                                                       60%         61%
                                                                                                 36%           33%
                        Price discount

                                                                                                 24%           28%
                        Social engagement              12%                         14%
                        (e.g. referral, KOL,
                        celebrity, gala show)

                                                                                   21%           21%           21%
                        Exclusive product              13%         12%
                        (e.g. new release,
                        limited edition)
                                                      Tier 1       Tier 2         Tier 3        Tier 4         Rural

             SOURCE: McKinsey China Digital Consumer Trends 2019

KOLs and KOCs
Fine-tuning the levers of influence

              Like in other markets, content marketing plays                pharmaceuticals and nutrition products, and home
              a major role in generating brand and product                  decoration items. (Exhibit 15)
              awareness in China, but the type of content that
                                                                            In OTC pharmaceuticals and nutrition products,
              impacts a customer journey varies according to
                                                                            70 percent of those aged 55 and over said
              category and brand. Survey respondents told us
                                                                            professional channels including hospitals,
              that content projecting professional knowledge is
                                                                            clinics, and doctors were helpful when evaluating
             “critical” when purchasing imported spirits, mom
                                                                            a purchase.
              and baby products, consumer electronics, OTC

12            China digital consumer trends 2019
Exhibit 15
                          KOL/KOC’s influence
                          KOL/KOC’s           on digital
                                      influence          consumers
                                                  on digital  consumers
                          Professionalism-driven categories                              Entertainment-driven categories

                          >50%            of consumers rate “professional
                                          knowledge” critical for decision making        ~55%        of consumers gain awareness
                                                                                                     through entertainment-related content

                                          Imported                   Mom                             Beauty &            Packaged
                                           spirits                  & baby                         personal care           food

                                            OTC                    Home                              Apparel
                                          & nutrition            decoration

                          SOURCE: McKinsey China Digital Consumer Trends 2019

                           In the mom and baby products category,                         When it comes to channel engagement, physical
                           57 percent of respondents say that professional                stores and vertical websites are most influential
                           content is important, while two-thirds say                     in generating awareness for categories which rely
                           that information they collect from vertical                    on information delivered by industry professionals.
                           websites such as Babytree, influences their                    For example, 80 percent of survey respondents
                           purchasing decisions.                                          said vertical websites like Jiuxian and 1919, as well
                                                                                          as off-line touchpoints like bartenders and tasting
                                                                                          events, influenced their awareness of imported
                                                                                          spirits. (Exhibit 16)

Exhibit 16
Professional-driven      categories:
Professional-driven categories: physicalphysical
                                         stores andstores
                                                    verticaland vertical websites
% of
% of digital
             shoppersgaining brand/product
                       gaining             awareness
                                brand/product        through
                                               awareness     the channel
                                                           through  the channel

                         Physical stores                                                   Vertical websites
Imported spirits                                              63%     wineries,                             35%
                                                                      specialty stores

Home deco                                               50%                                          22%

OTC & nutrition                                         48%                                             28%

Mom & baby                                      39%                                                  22%

SOURCE: McKinsey 2019 McKinsey China Digital Consumer Trends 2019

                           Discovering the next wave of growth                                                                               13
While content delivered by industry professionals                     are now the leading source of information for
                               influences consumers in some products                                 packaged food shoppers, particularly among
                               categories, in other categories, like beauty and                      young consumers. Brands such as Three Squirrels
                               personal care, packaged food, and apparel,                            drive sales of some of their bestselling snack food
                               celebrities still exercise consiwderable sway.                        products through short video cartoons of squirrels
                                                                                                     placed on Douyin. L’Oréal sold 30,000 bottles of
                               For these categories, building a presence on
                                                                                                     facial essence in a single hour when it launched a
                               social platforms such as Weibo, Douyin and
                                                                                                     social commerce promotion with Chinese popstar
                               RED is critical. Social media channels like these
                                                                                                     Xukun Cai on Weibo.

               Sales events
               and discounts
               Data-enabled pricing and promotions

                               Discount driven sales events have dominated                           of Southeast Asia. This year, generated
                               news headlines for several years now. Last year,                      $29.3 billion GMV (including sales made during a
                               GMV generated during Double 11 was 7 times that                       10-day pre-sale period) during the 618 mid-year
                               of Black Friday in US, and exceeded the combined                      shopping festival, up 27 percent on 2018.
                               annual online retail markets of India and most                        (Exhibit 17)

Exhibit 17
Impact ofof
Impact   promotional events events
2018 “Double 11”                                                                                 2019 “6/18”
GMV, RMB billion

                                                                                                                                      RMB GMV,
                                                    2 X Australia
                                                                                                       201.5 Bn       +27% YoY
                                           Annual online retail sales in Australia

                    7x                                       OR
                                                                                                           13 Bn
                                                                                                                                      Sales triggered
                                                                                                                                      by live streaming

                                            Total annual online retail                                                                Orders from Tier
                                            sales of
                                                                                                 Pinduoduo                    70%     3 & below cities

Singles            Black                    India       Indonesia        Malaysia
 Day1              Friday
                                            Singapore     Thailand       Philippines                                                  GMV growth in
 China                US
                                                                                                     +230%        rural markets

1. Total GMV for all platforms on “Double 11”
SOURCE: Alibaba Group, press search, eMarketer for other countries and regions; McKinsey China Digital Consumer Trends 2019

14                             China digital consumer trends 2019
Yet while the size of the holiday sales opportunity                    This strategy has proved successful in increasing
                            is undeniable, the events have so far been                             sales of the top 10 brands by between three and
                            characterized by fierce discounting that has                           five times the level of typical days, leaving little
                            engulfed brands large and small alike. For mom                         space for smaller brands to compete. (Exhibit 18)
                            & baby, beauty and personal care products, and
                            apparel, the average discount level on Tmall on
                            Double 11 can reach 30 percent.

Exhibit 18
Impact ofof
Impact   promotional events events
Discounts by top brands on “Double 11”                                                           Sales of top 10 brands as % of category
Tmall example                                                                                    sales on Double 11 vs. typical day
                                                                                                                                Double 11       Typical day
                                               Balabala                  45%
Mom & baby           Avg: 33%                  GB                        41%
                                               PurCotton                 37%

                                               Chando                    48%
Beauty &                                                                                                                         12-15%
personal care        Avg: 30%
                                               L’Oreal                   31%

                                               Semir                     51%

Apparel              Avg: 30%                  GXG                       38%                                        7-11%

                                               Peacebird                 33%

SOURCE: VENN Singles Day report, expert interview; McKinsey China Digital Consumer Trends 2019

                            These shopping events have dented margins for
                            some brands. Brands need to think about offering
                            price discounts but at less discounted levels than
                            those once-a-year or twice-a-year events. Our
                            research suggests buyers of big-ticket luxury and
                            home decoration items want deep discounts on
                            sales days. However, in categories which favor
                            repeat purchases, such as imported spirits and
                            personal care, consumers prefer consistently low
                            prices. (Exhibit 19)

                            Discovering the next wave of growth                                                                                           15
Exhibit 19
Consumer    preference
Consumer preference        for different
                    for different          pricing
                                  pricing models     models by category
                                                 by category
Percent of “Double 11” shoppers
Percent of “Double 11” shoppers

                                 “Everyday low prices”          Big event-driven promotions

Imported spirits                            63                         37
Personal care                                    54                         46
                                                                                              Consumers prefer
Mom & baby                                       53                         48
                                                                                              “everyday low prices”
OTC and nutrition                                51                         49
                                                                                              for high-frequency,
Apparel                                           50                         50
Fresh food                                        43                         52               categories
Beauty                                                44                         56
Consumer electronics                                  43                         57           Consumers like “big
Luxury                                                 42                         58          discounts” for low-
Packaged food                                          42                         58          frequency, large ticket,
Home decoration                                        38                         62          non-necessity products

SOURCE: McKinsey China Digital Consumer Trends 2019

                           As sales strategies for Chinese shopping holidays
                           evolve from leveraging digital apps to tapping into
                           retail channels, marketers will need to develop
                           a far more nuanced understanding of which
                           categories demand discounts, and which can
                           sustain more rational pricing.

16                         China digital consumer trends 2019
Discovering the next wave of growth   17
for brands
     As competition intensifies and consumer               marketing channels and formats, such as user-
     preferences and buying behaviors continue to          generated content and short videos.
     evolve, brands should consider pursuing a number
                                                           Brands that have cracked the social media
     of actions that will help them discover—and tap
                                                           engagement code are building up their in-house
     into—the next wave of growth in China:
                                                           capabilities even as they continue to outsource
     1.Break-down the silos separating online              some functions to digital agencies. They’re
     and physical channels                                 forming social media “war rooms” that are
     As consumers seek a more seamless shopping            singularly focused on creating and disseminating
     experience across online and physical channels,       content, monitoring and engaging with their users,
     brands will need to define what the omnichannel       and collecting and analyzing data that they then
     journey looks like for them. This might include       feedback into their social media marketing plans.
     enabling consumers to buy products online and
                                                           Global brands that do this right are granting more
     picking them up in the store, or placing “showroom
                                                           autonomy to their local teams in China, who are
     screens” in the store that help consumers make
                                                           closer to consumers, have a better grasp of local
     more informed decisions.
                                                           market trends, and understand and speak their
     Turning this omnichannel vision into a reality,       language and can interpret subtle cultural cues.
     however, will require brands to break down the
                                                           Empowering the team on the ground also gives
     silos in their organization that are keeping online
                                                           them the freedom and flexibility to create new
     channels from fully integrating with physical ones.
                                                           content and engage with consumers at a far faster
     Brands should assign clear owners to oversee          pace than what traditional marketing campaigns
     and drive the integration between the online and      require. Instead of the usual monthly or quarterly
     physical channel teams. They should introduce         marketing splashes around new products, today’s
     KPIs and incentives that encourage everyone           savvy social marketers are cranking out new
     to contribute towards building the whole brand,       videos on Douyin on a daily basis, and responding
     and not just focus on sales they generate within      to comments and content uploaded by users
     their own channel or stores. Some brands, for         in realtime.
     example, double-count omnichannel revenue and
                                                           3. Tailor products and in-store shopping
     credit their online and physical retail teams, as
                                                           experiences to consumers in lower tier cities
     long as each contributes to stimulating consumer
                                                           Until recently, most global brands devoted the bulk
     engagement. Some brands also incentivize
                                                           of their marketing resources to cracking China’s
     inventory sharing when orders are placed that
                                                           largest cities like Shanghai or Beijing. If they hope
     require a transfer of inventory from one store
                                                           to tap into the growth opportunities represented
     to another.
                                                           by the new breed of young consumers emerging
     Brands will need to pilot new incentives              in China’s lower tier cities, however, brands will
     and organizational approaches in their self-          have to spend more time understanding what
     owned stores before rolling them out to their         they want, and craft online and in-store shopping
     franchise outlets.                                    experiences that address their needs.
     2. Embed social media engagement                      In the cities with the highest growth potential,
     capabilities into your organization                   brands should consider establishing a physical
     As social media exercises greater sway over           retail presence that reinforces their brand
     consumer decisions, marketers are gradually           image and allows them to deepen penetration of
     shifting resources and attention away from            consumers in lower tier markets. This will likely
     traditional marketing tools to social based           mean creating an omnichannel experience that

18   China digital consumer trends 2019
instead of simply monitoring traditional exposure
is embedded with social elements, and may
                                                       metrics like sales conversions, brands should
entail the launch of experience centers and
                                                       track KPIs that measure things like response
showroom stores.
                                                       rate and speed on WeChat groups, WeChat
Brands should leverage data they have on               membership retention rates, and the quality
consumers in lower tier cities to provide insights     of discussion.
into what they are looking for, and to identify the
                                                       And, in addition to the usual monetary incentives,
most promising markets. Data could come from
                                                       brands could create new KPIs that allow them to
direct-to-consumer (DTC) touch points such as
                                                       monitor and tap into the need among KOCs for a
retail stores or WeChat mini-programs. Brands
                                                       sense of belonging and pride through association
could also collaborate more closely with the digital
                                                       with the brand.
platforms that hold the keys to data on consumers,
data that can provide valuable insights on how to      Beyond monitoring and measuring, brands will
engage the consumers there.                            need to take a far more proactive approach to
                                                       managing their relationships with KOLs and,
4. Take a more proactive—and nuanced—
                                                       especially, KOCs. Brands will need to equip
approach to cultivating KOLs and KOCs
                                                       them with a more comprehensive toolkit of well-
KOLs and KOCs wield tremendous influence over
                                                       designed marketing materials and talking points,
consumer decisions and an endorsement by a
                                                       and supported by training sessions that educate
celebrity or a community leader can still move
                                                       them about the brand’s heritage. And by digitizing
product off the shelves and out of warehouses—
                                                       lead and commission management, brands can
and quickly. But with the rising sophistication of
                                                       make it easier for KOLs and KOCs to serve as
Chinese consumers, brands need to take a far
                                                       brand ambassadors.
more nuanced approach to managing KOLs and
KOCs if they want to engage more effectively with      5. Develop data-driven pricing and promotions
consumers and maximize the impact from their           Many brands join in on the discounting frenzy
marketing budgets.                                     that takes place during the several major online
                                                       shopping festivals hosted by the large ecommerce
As aspirational figures, KOLs may have the power
                                                       platforms. Some brands, however, are now
to quickly generate massive brand awareness,
                                                       starting to question the impact these events are
but their interaction with consumers is generally
                                                       having on sales and profits, and are trying to figure
one-way. KOCs, by contrast, may have much
                                                       out how to best leverage them.
smaller followings than KOLs, but they generally
engage in a much more two-way and peer-                In order to rationalize pricing decisions, brands
like manner with consumers, and thus more              need to use data-driven insights to dig deeper into
personalized engagement by them may in fact            what consumers in their product categories really
trigger higher conversions.                            want, which can differ according to consumer
                                                       demographics, shopping platforms or channels,
 Brands may therefore need to apply an
                                                       and shopping occasions.
integrated, hierarchical approach to managing
KOLs and KOCs. One home appliance brand in             Brands can immediately tap into the consumer
China collaborates with several leading interior       data they collect through direct-to-consumer
designers who act as KOLs for the brand, while         (DTC) channels, or from platform-provided tools
at the same time cooperating with hundreds of          such as Tmall DataBank.
moderators of community WeChat groups, who
                                                       They should also build in-house analytical
serve as KOCs.
                                                       capabilities and hire data scientists and data
Brands will also need to refine the way they           translators who can turn the data they collect
measure and reward success, by creating and            into insights that will help them refine their
tracking a new set of KPIs and incentives. So          pricing strategy.

Discovering the next wave of growth                                                                        19
How we conducted the China digital
consumer trends survey
In the spring of 2019, we conducted an in-depth survey of
more than 4,300 digital consumers across four city tiers and
rural areas in China, and covering a range of ages and income
levels. To better understand their digital shopping attitudes
and behavior, we asked them questions about their decision
journeys across digital and physical touchpoints.

About McKinsey Digital
McKinsey Digital helps our clients use digital technology to
transform their businesses. With a team of 2,100 consultants
and experts across 60 offices, McKinsey Digital works on key
technology topics including IT modernization, IT strategy, agile,
cloud, cybersecurity, and digital transformation. We serve
a range of companies, from start-ups to global Fortune 100
firms, and have delivered over 15,000 digital and technology
engagements at more than 2,000 clients.

           Lambert Bu                                   Jacob Wang
           Partner                                      Associate Partner
           Shenzhen                                     Shanghai

           Kevin Wei Wang                               Daniel Zipser
           Senior Partner                               Senior Partner
           Hong Kong                                    Shenzhen

The authors would like to acknowledge the contributions of the
following colleagues to the research and writing of this report:
Glenn Leibowitz, Nianling Liao, Lei Xu, Siyi Shao, Anna Zhang,
Esme Zhang, Herb Chung, Yimin Jia and Dina Xiao.

20                 China digital consumer trends 2019
McKinsey Digital
September 2019
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22                          2019 China Digital Consumer Trends
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