Chinese retailers need to recalibrate value proposition to meet consumer expectations in new digital age

Published: 3 November 2015

China’s retail sales reached RMB 26.2 trillion in 2014, of which only 11 percent of sales were conducted online. Even so, digital technologies influenced approximately 59 percent of offline sales, indicative of the importance for retailers to assess how well their value proposition can meet the expectations of consumers in an evolving omni-channel retailing environment, according to the latest research from Deloitte.

Titled “Navigating the Digital Divide – Addressing the evolving needs of Chinese Customers”, the Deloitte white paper draws conclusions from a survey of over 2,000 respondents to see how their behaviors are increasingly influenced by digital technologies.

“We may not see an urging need to address digital challenge if we only adopt a traditional method of dissecting sales between online and offline. If you look at the full picture, you will understand how digital and mobile technologies are influencing how consumers shop and setting heightened expectations for the digital capabilities of retailers,” said Mr. David Lung, Managing Partner of Consumer Products and Retail Industry, Deloitte China.

The report said over 50 percent of in-store retail sales are influenced by shopper’s use of digital devices and the percentage is even higher among “function driven” products, such as electronics and apparel (64 percent for both) and lower in “experience driven” products, such as automobile (57 percent) and beauty products (56 percent). Among consumers who use digital devices for consumption, over 30 percent of their in-store sales are influenced by shopper’s use of smartphones.

One interesting finding is that the digital impact also extends to the amount spent by consumers who use digital devices for purchases. From the surveyed customers, 43 percent indicated that using digital devices makes them spend more than they would otherwise, with an average 10% increase in spending amount. Separately, the Deloitte research indicates that digital technology is generally more influential among high income consumers than their lower income peers.

When it comes to the actual impact of digital technologies, consumers look for inspiration from social media which also assist them with selecting and validating products. Surprisingly, when consumers are in-store, smartphones can be considered as important as talking with in-store associates, sometimes even more important. Geographically, tier one consumers are more willing to use retailer’s website/mobile App when browsing and researching, and then to select and validate using social media. While tier two and tier three consumers prefer social media earlier during shopping journey – when they are browsing and researching, then refer to customer/expert review when selecting products.

“These are very useful pieces of information for retailers. They should not underestimate the power of social media, which can help them connect and engage with customers. Retailers need to think about how to fully leverage the word-of-mouth marketing which has grown exponentially on the social media space,” said Mr. Robert Hah, Consumer Products and Retail Industry Consulting Managing Partner, Deloitte China. Considering that consumers use different digital mediums to assist their shopping journey at different purchasing steps and in different occasions, Mr. Hah also recommended retailers to understand the entire customer journey and how customers leverage information across all channels.

The report concluded that it is important for companies to understand their goals and aspiration in China and decide what they need to do to reconfigure their business and build the necessary capabilities. Companies need to ensure that their internal functions do not work in silos, but rather, they should consider mobilizing a cross-functional task force to tackle the omni-channel customer challenges. "The digital transformation of your company should start today, if it hasn't started already. While different companies might be at different level of digital maturity, it is our belief that (re)examining the Customer Purchase Journey (Inspiration, Research, Select, Purchase, Service) is critical. It's time for companies to take action, to see if you REALLY do understand your customers." Said Mr. Joseph Fan, Director of Deloitte Consulting and Lead of Monitor Deloitte's Customer & Market Strategy Offering.