CHINA DIGITAL CONSUMER TRENDS 2019 - DISCOVERING THE NEXT WAVE OF GROWTH - SEPTEMBER 2019 - MCKINSEY
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China digital
consumer
trends 2019
Discovering the next wave of growth
Authors:
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
1
2017-19 CAGR % % of total retail value in USD
Russia
$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%
combined
India
Brazil
$40 Bn
Indonesia $30 Bn
36% 3%
$15 Bn 13% 4%
Argentina
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 1Exhibit 2
E-commerce gross
E-commerce merchandizing
gross volume (GMV)
merchandizing growth
volume (GMV) growth
% year-on-year
% year-on-year
134%
47% India
31% China
27% US
15%
14%
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 2019Digitally-powered
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 3Exhibit 3
Digital consumer
Digital consumer shopping
shopping behavior
behavior across
across physical physical channels
channels
# of shopping malls % of digital apparel consumers who shopped
in a physical channel in the past 3 months1
+11% year-on-year growth
88%
83%
5,666
5,133
4,629
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
63
Buy in this
55
store Check price
Sales maintained
within brand
Buy from
another 17
81% store
Check comments
31
Buy online 28
Buy another Check popularity (sales volume)
Potential sales 16
brand
leakage to other
brands
Buy a
19% different
product
3
Check for more convenient
purchase method
2017 2019
SOURCE: McKinsey China Digital Consumer Trends 2019
Discovering the next wave of growth 5The 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
fulfillment
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
(“Phygital”)
Electronic price tag
VR shopping
17 AR shopping
Beauty & personal care Digital interactive screen
Robot services
Imported spirits
Smart vending machine
Apparel
3 New go-to-market
model
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 2019Exhibit 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
58
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
Crowdfunding
0
0 1 2 3 4 5 6 7 8 9 10 11 12
Adoption
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 7Exhibit 8
Time spent
Time spent online
online by digital
by digital consumers
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
24%
Others
33%
Social
Total online
(e.g. WeChat, Weibo)
time spend
4%
Online shopping
8% Gaming 11%
358 3% Online music Short video (e.g. Douyin)
minutes
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
shopperswho
whouse
usesocial
socialplatforms to to
platforms gain awareness
gain / evaluate
awareness / purchase
/ interest / purchase
2017 2019
+35% 50% +85% 48%
37%
26% 3.6x 25%
Social is most important for
apparel,
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 2019Notably, 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
onlineshoppers
shoppersusing
usingthe
thechannel
channel
Aware Interest Purchase Loyalty
Mass
e-commerce
54 54 78 31
platforms
(e.g. Tmall, JD)
Social DTC via WeChat mini-
~1/4 ~1/4 program reaches
~1/4 the adoption
Social DTC rate of leading
(WeChat
mini program)
13 12 6 12
e-commerce
platforms
(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 9Exhibit 11
Emerging social DTC use cases for different product categories
Emerging social DTC use cases for different product categories
EXAMPLES
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 2019Exhibit 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
100 94 94
91
89 Young
82
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)
Top
Exhibitbuying
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%
43%
36% 33%
Price discount
24% 28%
Social engagement 12% 14%
11%
(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 2019Exhibit 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
websites
% of
% of digital
digitalshoppers
shoppersgaining brand/product
gaining awareness
brand/product through
awareness the channel
through the channel
Physical stores Vertical websites
Bartenders,
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 13While 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, JD.com 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
promotional
2018 “Double 11” 2019 “6/18”
GMV, RMB billion
RMB GMV,
2 X Australia
JD.com 201.5 Bn +27% YoY
314
Annual online retail sales in Australia
7x OR
Tmall.com 13 Bn
Sales triggered
by live streaming
Total annual online retail Orders from Tier
43
sales of
Pinduoduo 70% 3 & below cities
Singles Black India Indonesia Malaysia
Day1 Friday
Singapore Thailand Philippines GMV growth in
China US
Suning.com +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 2019Yet 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
promotional
Discounts by top brands on “Double 11” Sales of top 10 brands as % of category
Tmall example sales on Double 11 vs. typical day
Tmall.com
Double 11 Typical day
Balabala 45%
18-19%
Mom & baby Avg: 33% GB 41%
6-7%
PurCotton 37%
Chando 48%
Beauty & 12-15%
personal care Avg: 30%
L’Oreal 31%
3-5%
Semir 51%
Apparel Avg: 30% GXG 38% 7-11%
3-5%
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 15Exhibit 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
replenishment-driven
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 2019Discovering the next wave of growth 17
Implications
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 2019instead 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 19How 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.
Authors
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 2019McKinsey Digital September 2019 Copyright © McKinsey & Company Designed by GCO NewMedia www.mckinsey.com/digitalchina 22 2019 China Digital Consumer Trends
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