What can the West learn from Amazon China’s failure?
Amazon China did not do enough to build on brand reputation, and it is only until they can appease the demands of an increasingly connected and experience-orientated consumer base that they have a chance of challenging the giants in the East.
For native businesses in the East, the rapidly developing economies are a fertile landscape, offering profitable prospects and opportunities. As new economic nations are forged, these businesses flourish at an unprecedented rate and scale. Peculiar then, that these same markets are like barren land for international brands who seem to be struggling to get a position in the Eastern race – and it’s especially obvious in the retail category.
Amazon China after a long-fought battle for control of China’s e-commerce market. With its Chinese rival, Alibaba, holding over 70% of the market share in China leaving Amazon just over 1%, and with profits larger than Amazon and eBay put together, it is in many ways a modern day David and Goliath story, except David missed his shot.
And so, whilst Amazon’s story in China might have reached its end (like in all great stories), there are lessons to be learned. Jack Ma, co-founder of Alibaba, has built a brand that has developed an over-arching infrastructure and boasts unrivalled customer loyalty; elements that Amazon China struggled with during its 14-year stint in the region. Learning from the success of brands in emerging markets will be important, as they are revolutionising how customers will experience brands in the future.
A model for the people
Jack Ma’s success is rooted in his ability to focus on practical needs. Where Amazon was able to provide confidence in a well received returns policy, Alibaba offered a proposition where customers did not pay until they received the goods and were happy with them. While Amazon was faster, Alibaba was simpler, and less risky for the consumer.
What’s more, while both companies focused on marketplace and entertainment offers, Alibaba is far more integrated when it comes to payments. Alibaba has been able to utilise the tap-and-go mechanic that has been successful for banks and merchant services by offering its own service. In China, it is nearly impossible to get through the day without Alipay, making the act of paying frictionless in a world where a quarter of consumers call for retailers to adopt better payment technology.
Whilst Amazon’s own digital wallet, Amazon Pay, has over 30 million users, it is overshadowed by Alipay’s almost 900 million users worldwide. The brand is pulled out of people’s virtual wallets many times a day, creating further trust, awareness, and familiarity. It may be true that Amazon created greater convenience for a certain type of customer looking for fast delivery and trust from the retailer with OneClick, but Alibaba won the race on a risk-free proposition and payment certainty.
Collaboration of the physical and the digital
In Western retail markets, the divide between the high street and online commerce is vast, and it is only recently that brands have begun to see the importance of the omnichannel journey. Ecommerce giants like Alibaba and JD.com, however, have invested heavily in bricks-and-mortar retailers in order to bridge this gap.
While the future of retail will include battles over friction-free convenience, the war will be won over experience – and Alibaba has understood that its customers want to experience the brand across all platforms, destinations and moods. One such move is More Mall, which launched in Hangzhou last year. The mall boasts an array of technologies including AR, VR, facial recognition and its very own Tmall Genie voice assistant, which all contribute to an engaging, futuristic shopping experience.
Hema, Alibaba’s premier grocery offer, is a brand that is able to both bridge the physical-digital chasm and offer an experience in a way that shows Ma’s canniness for retail. Whilst Amazon Go is an incredible technical feat that does for physical shopping what OneClick did for online shopping, it still lacks the same roll-out success as its Eastern counterpart.
Hema stores are found in city centres were young, affluent and worldly consumers live. They are one-part convenience store focused on fresh produce, one-part food and beverage offer, and one-part distribution centre. Customers select a fish out of one of many live fish tanks, bring it to a counter to be weighed and sip a beer for five minutes until it arrives at the table fully cooked and dressed. It’s a social place, packed with friends who want to enjoy a fresh cheap meal after work.
The Hema stores have also used technology to unlock a physical-digital collaboration that provides both a positive brand experience and exceptional customer service. Through the adoption of AI in the company’s wider infrastructure and the stores themselves, these developments have led to greater consumer engagement. Customers within three miles can have their groceries delivered within 30 minutes, stores are filled with overhead conveyor belts to transport groceries (that contribute as much as 50% of store sales), and customers can purchase items using facial recognition.
Ultimately, Western retailers and brands will do well to pay attention to the different elements that can deliver top customer engagement and invest in the strategy and tools to help drive this.
Amazon China did not do enough to build on brand reputation, and it is only until they can appease the demands of an increasingly connected and experience-orientated consumer base that they have a chance of challenging the giants in the East.
Alibaba (and Hema) are winners in China; the models on which they are based would be winners anywhere, and they demonstrate that Jack Ma is tapped into the future of retail. After having chased eBay out of China before, Ma said: “eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose – but if we fight in the river, we win.”
With Amazon now also out of China, Ma is now looking towards India. Amazon may have a successful foothold in the Indian market, but Alibaba’s success in China goes to show that it is all still to play for.
Aaron Shields, executive strategy director at the world-leading retail and brand consultancy, FITCH
