Does the ‘Taobao Effect’ Threaten Retailing in China?

February 24, 2011 Posted by China Briefing Reading Time: 2 minutes

Feb. 24 – Our good friends at DDMA, a Shanghai-based market research firm, have released a report revealing that what Chinese people and companies say about products online is the number one influence on one-third of all retail sales in Shanghai – worth a total value of US$34 billion. The influence of online information on consumer purchases, the impact of “The Taobao Effect” and the huge potential of online shopping in China are all analyzed – while a discrepancy in terms of actual advertising budgets spent on online media was detailed. With some 6 percent of advertising budgets being spent on online media in China, this report highlights the need to re-think marketing communication strategies.

The Influence of Online Information on Chinese Consumer Buying Behavior finds that Chinese consumers are likely to leapfrog brick and mortar western retail models and move an increasing share of their purchases online. China’s online population (457 million) exceeds the entire population of the United States, and is increasing at 19 percent each year. DDMA found that the equivalent of one-tenth of all Shanghai retail sales are made online – a share equal to the United Kingdom – and about half of these online sales are made through Taobao. The year-long DDMA consumer study identifies 13 key drivers of online shopping, including: “The Taobao Effect,” product authenticity, and cultural socio-economic factors which fuel the popularity of online shopping in China.

Importantly for marketers, qualitative Focus Group China research has found that the type of product consumers are planning on purchasing has identifiable bearings on the information search path. One point in case states that online information is the main reason behind two-thirds of 3G and smart-phone sales, but is responsible for only one-seventh of passenger car sales.

“From a marketing perspective in China the need is not to simply measure web site traffic but to truly understand the full extent of the influence online information has on consumer purchases,” said Sam Mulligan, director of DDMA, “Understanding how and what information consumers seek, as well as where they collect and how they exchange this information is key to planning an effective marketing communication strategy.”

Taobao’s sales revenue in 2010 was equivalent to 2.5 percent of total China retail sales.

The full DDMA report can be downloaded, free of charge, by clicking on the image.