Growth in Hong Kong retail sales remained positive in September 2017, up 1.5%year-on-year, according to the latest Mastercard SpendingPulse™ Hong Kong Report.

Sales recovered from the impact of typhoons in September and were boosted by the launch of new electronics products. Year-to-date sales growth is also positive for the first time since 2015.

Sales in the health and beauty sector saw the strongest growth, while jewelry, clothing and furniture sales continued to recover in September. At the same time, there was close to zero growth in the grocery sector.

“It is encouraging to see consistent spending growth in Hong Kong over the past five months. It shows better consumer confidence in Hong Kong and also reflects increased spending by Mainland Chinese tourists as their numbers rise,”

said Sarah Quinlan, Senior Vice President, Market Insights for Mastercard Advisors.

It will be important to see this spending growth continue as it comes after 21 months of contraction. The trend shows that the economy is on more stable footing with the consumer leading its return.

Analyzing local retail performance and spending, the macroeconomic report uses aggregated and anonymous transaction data, along with all other payment forms including cash, to offer insight into consumer spending trends, providing an early overview of market indices to help retailers, investors, card issuers, banks and government agencies in their decision-making processes.

China’s retail sales grew by over 10% to US$4 trillion in Q1-Q3 2017

Related: 618: China’s major mid-year shopping festival

The growth of 16-25 age group. This age group made up 29.6% of the purchasing of notebooks. Compared to 21.6% last year, young consumers promoted an increasing demand for notebooks, especially for≤20mm notebooks and gaming notebooks. In the 36-45 age group, the decline from 28.8% last year goes down to 20.5% this year. Young customers get higher demand for these products. There is still space to come up with the older age group.

Tapering growth in developed provinces. The developed provinces such as Guangdong, Beijing, Shanghai, Zhejiang, Fujian got lower growth rates for notebooks than the average of whole China. Xinjiang, Qinghai, Jiangxi, Henan, and Harbin grow as the top 5 highest rates. Similar to the sales of desktops, PC market shows a stabilized state in the more developed cities.

AI powering personalized options/choices. eTailers are providing more personalized recommendations for consumers by the technology of big data and artificial intelligence. JD introduced an online virtual assistant to recommend relevant items to consumers based on their purchase history.

For all eTailers, 610,931 units of notebooks were sold with an increase of 37.9% compared to the same period last year. 182,475 units of desktops (excluding DIY) were sold with a YoY increase of 43.4%. For JD alone, the numbers are 38% for notebooks and 44.2% desktops (excluding DIY). JD made up 83.8% on notebooks and 94% on desktops of the overall eTailer sales numbers.

Printers (including single function printers, laser multifunction peripherals (non-copier base), inkjet single function printer and inkjet multi-function printer) made a 41.9% YoY growth during which JD made up 70.1% of the whole market. The laser printer grew 33.9% YoY and the inkjet printer grew 53.3% YoY.

For inkjet printers, Canon continued to top the eTailer market, and HPInc and Epson took the second and third position as last year. For laser printers, HPInc had a market share of 59% which maintained its top position.

Top vendors continue to be the same as last year for notebooks. And the top vendor is still Lenovo (including ThinkPad).

In Q1 2017, based on IDC’s data, notebooks in the “>US$730” price band increased by 110.5% YoY and made up 48.1% of the overall notebook market. Consumers got higher demand for better designs and specifications such as ≤20mm notebooks and gaming notebook. Students’ demands for completing their homework and working adults for external discussions are increasing which also pushes the notebook market.

How to satisfy Chinese consumers’ demand in digital retail era

In June 2015, the consumer electronics brands spent 71.78 million yuan (US$11.21 million) on online advertising . Nikon spent 7.4 million yuan ranking first, followed by Haier (US$1.04 million) and Midea (US$1.01 million) according to iResearch.

In June 2015, the consumer electronics advertising spends were mainly on web portals, online video websites and news websites. Spends on web portals amounted to 23.85 million yuan (US$3.72 million), 33.2% of the total online advertising spends; online video website spent 12.49 million yuan (US$1.95 million), 17.4% of the total spends; news website put 7.1 million yuan (US$1.11 million), 9.9% of the total expenditure.

Also read: China Advertising Insights 2015

According to Weibo’s daily influence index, Tmall, OKHQB, and Dangdang performed best on Weibo among 1,613 active Weibo accounts in B2C e-commerce category in 2014.

Also read: Travel Industry Performance on Weibo 2014

In Nov 2014, total online advertising spend of consumer electronic brands exceeded RMB100 million (US$16.28 million) in China.

Among all the consumer electronic brands, Haier spent RMB18.89 million ($3.07 million) on online advertising in November, ranking first, followed by Midea and Beats according to data from iResearch.

Web portal, online video platforms, and IT website are the top three ad placement channels for consumer electronic companies in China in November 2014. The advertising spend on web portal exceeded RMB42.84 million (US$6.97 million), accounting for 41% of the total spend, followed by online video (21.9%) and IT website (8.1%).

Also read: Kantar: Chinese Consumer Goods Companies Take Share from Foreign Companies

In Oct 2014, total online advertising spend of consumer electronic brands exceeded RMB93.06 million (US$15.19 million) in China.

Among all the consumer electronic brands, Haier spent RMB15.37 million ($2.5 million) on online advertising in October, ranking first, followed by Microsoft and Midea according to data from iResearch.

Web portal, online video platforms, and IT website are the top three ad placement channels for consumer electronic companies in China in October 2014. The advertising spend on web portal exceeded RMB35.59 million (US$5.8 million), accounting for 38.2% of the total spend, followed by online video (23.7%) and IT website (7.8%).

Also read: China 3C Home Appliance B2C Market in Q3 2014

In August 2014, total online advertising spend of consumer electronic brands exceeded RMB92.93 million (US$15.14 million) in China. Among all the consumer electronic brands, Haier spent RMB18.83 million ($3.06 million) on online advertising in August, ranking first, followed by Siemens and Nikon according to data from iResearch.

Web portal, online video platforms, and IT website are the top three ad placement channels for consumer electronic companies in China in August 2014. The advertising spend on web portal exceeded RMB30.07 million (US$4.89 million), accounting for 32.4% of the total spend, followed by online video (24.5%) and IT website (11.9%).

Also read: China Top 10 Clothing Brands by Online Ad Spend in July 2014

For 18 out of the 22 categories, China sees the highest percentage of respondents who are willing to buy online compared with the remaining 59 countries and regions covered in a survey conducted by Nielsen.

It also found out that China sees the highest intent for both online-shopping and online-purchase for categories including clothing, cosmetics, personal care, toys and alcohol drinks.

By one account, China has more than 600 million Internet users and an annual E-commerce growth rate of 120% – making it the fastest growing, and soon to be the largest, E-commerce market in the world,

says Patrick Dodd, Managing Director of Nielsen China.

The deep penetration of smartphones and internet, combined with the comprehensive build-up of shipping logistics infrastructure, are quickly transforming the shopping habits and mindsets of Chinese consumers on E-commerce.

Related: Top 4 Trending in Chinese E-Commerce Market

Strong Intention for Online Purchase in China

More than half of Chinese respondents intend to make an online purchase within the next six months In 13 out of 22 different product categories surveyed by Nielsen. These categories are primarily durable and entertainment-related categories like clothing (74% vs. 64% in 2011), airline tickets (69% vs. 47% in 2011) and hardcopy books (64% vs. 50% in 2011).

Online purchase intention for categories like E-books (51% vs. 26% in 2011), computer software (38% vs. 11% in 2011), toys/dolls (54% vs. 21% in 2011), doubled or even tripled over the past three years.

Chinese online purchase intentions for baby supplies jumped 25 percentage points to 38% since 2011, and both cosmetic and food & beverage categories increased 14 percentage points  to 56% and 57% respectively, and alcoholic drinks rose to 34%.

Strong Growth for Online Sales in China Top-tier Cities

The top-tier cities are seeing stronger growth for online sales in China.

Online sales in food category grew by 37% during period from Nov 2013 to May 2014 compared with the same period in 2013. In contrast, offline channels achieved sales value of about RMB 60 billion (US$9.78 billion) while online sales was RMB 2.5 billion (US$410 million) by May 2014 in tier one cities.

Related: Top Shopping Keywords on Taobao in 2013

Online Buying Rates Exceed Browsing Rates

Chinese consumers are enthusiastic about both browsing and buying online. Electronics, mobile phones and sporting goods are examples of categories that Chinese consumers often purchase online, while many other consumers around the globe prefer to buy offline.

For more than half of the 22 categories surveyed by Nielsen, online buying rates among Chinese respondents well exceed browsing rates, especially in the categories like clothing (57% browse online vs. 74% buy online), airline tickets (48% browse online vs. 69% buy online), hardcopy books (45% browse online vs. 64% buy online) and even cosmetics (45% browse online vs. 56% buy online).

According to Nielsen, the category that sees the largest surplus of online browsing versus online purchasing is car, motorcycle and accessories. 30% of respondents said they would love to shop online, while only 24% plan to purchase online in the following six months.

Chinese Online Shoppers Spent Much Time Researching Products

Chinese online shoppers like to spend a considerable amount of time researching products before buying (72%), while 86% of online shoppers prefer  to read online reviews prior to purchase.

In a separate report by Nielsen on the online-shopping behaviors of Chinese consumers, social media (36%) is one of the Top 3 online information channels used by consumers to help make purchase decisions. Search engines (52%) and category specific websites (42%) were also within the Top 3.

Search engines, category specific websites, and social media are the top 3 channels to help Chinese consumers make purchase decisions according to a separate survey by Nielsen.

In order to increase digital engagement with Chinese online shoppers, retailers need to deliver on multiple shopper needs such as low price, wide selection, and high quality products. Moreover, consumers want to shop on easy-to-navigate websites that offer a number of unique products with plenty of images, accurate descriptions and a history of good e-reputation on social media. These points are a must for brands that hope to convert more Chinese online browsers in to online buyers.

Recommended by Nielsen.

Total transactions of China’s online shopping market, a combination of B2C and C2C markets, reached RMB6,28.76 billion (US$101.58 billion), 10.1% of total retail transactions in China, according to iResearch data.

Also read: Chinese Cross-border Online Shoppers Insights

From Traditional Retail Business Model to Ecommerce

Unlike traditional retail business model, a well-executed e-commerce platform gives Xiao Gou Company a more cost-effective way to reach to a wider range of Chinese consumers. Staying solely on online retail platform helps Xiao Gou company to channel synergies to attract consumers from all parts of China, unlimited to the geographical limitation of offline stores, helping them win and retain the most valued customers – and to do it profitably.

Xiao Gou Company estimated that the sales closed by a sale staff in a departmental store is near to the number of deals Xiao Gou Company closes in a day on one single e-commerce platform. In addition, online sites serve as effective marketing tools, as shoppers increasingly rely on web searches and reviews. These sites provide an effective way for filling gaps in a company’s physical store network, including untapped markets with little competition or product offerings that might not be available in physical stores.

Quality Control

Xiao Gou Company believes that stellar product quality is the key to retaining customers. Xiao Gou Company’s purchase team stations at Suzhou, where its suppliers are located, to frequently conduct inspections on productions, so to ensure quality control from raw materials to final products.

Xiao Gou Company promises a “7 days return/exchange” service to all customers. Even with such flexible return/exchange service, and a monthly sales of 20 000 vacuum cleaners monthly, Xiao Gou Company manages to keep its refund rate at a low 0.9% due to its outstanding products quality.

Post Purchase Customer Service

Apart from producing quality products, another aspect Xiao Gou Company holds dearly is providing excellent customer service. Xiao Gou Company sees this as a crucial value-adding component, where only constant upgrading and improving of customer service can help to establish customer-brand loyalty. This has allowed Xiao Gou to champion all major ecommerce platforms as the No 1 vacuum cleaner for five consecutive years.

Competitors

Domestic brands such as Midea, Haier and Deerma as well as international brands such as Philips, Panasonic and Electrolux are Xiao Gou’s main rivals. Domestic brands especially have less product differentiation, from product specifications to price and to design.

Consumers

Target customers of Xiao Gou are mainly customers between the ages of 25 to 40 and the bulk of Xiao Gou sales tend to be for household purchases.

Marketing Efforts

Xiao Gou’s current marketing efforts are solely based online. It takes forms of promotional advertisements on latest Xiao Gou products. Xiao Gou’s brand manager revealed that there is no deliberate intention of focusing their marketing efforts online.

As Xiao Gou is only operating through online ecommerce platforms, it naturally directed its marketing efforts on the web. Xiao Gou’s brand manager also mentioned that they haven’t found a right timing or campaign idea to launch an offline campaign. Execution of an offline campaign is possible and will need to contain a strong message and have an effective delivery.

This post is an excerpt from BizAsia, a student society of Guanghua School of Management, Peking University.