Editor’s Note: China is the world’s second-largest economy and the most advanced e-commerce country in the world. The growth engine in China is phenomenal, but is loyalty marketing growing in step with these trends? Are Chinese shoppers loyal, and are they ready for more personalized outreach from Chinese loyalty programs?
News and information about Chinese Loyalty Marketing is scarce so we are thrilled to connect with Joe Wang, CLMP™ and CEO, FILO DATA, to get a view from the mainland into the state of Loyalty Marketing. Here is an unprecedented report on what is taking place inside this economic behemoth.
By: Joe Wang, CLMP, FILO DATA
Economic History sets the stage for Customer Loyalty
Surveying China’s economic development history helps to understand the present state. Before 1990, China's economic environment was a planned economy. State actors generated most commercial activity. Consumers were relatively short of daily necessities and household consumption focused on food, clothing, and durable goods. Supply availability and fair pricing were the key factors determining consumer purchase behavior. There wasn’t much room for anything beyond mass marketing during this period of time.
From 1990 to 2000, China gradually embarked on reform and the economy opened up a bit. The economy sparked and retail industries developed gradually. The market for consumer goods expanded modestly. During this time, Chinese consumers showed a more diversified and pragmatic consumption behavior. They started to recognize brands as differentiators, but price remained the most important driver. Brand and trade (shopper) marketing were dominant.
Foreign brands poured into China, and in the hospitality and airline industry, early loyalty initiatives mirrored programs in the West as the biggest international brands brought their global loyalty programs into China. Even though China's banking industry was dominated by state-owned enterprises, they also copied the western banking loyalty program models
2000-2010 was when loyalty marketing began to develop in China. Offline retail chain stores began to expand, and competition became fierce. It is estimated that more than 300 chain retail brands are operating in Beijing alone. Compare that to fewer than 20 national retail chains in Canada during the same period.
During this time, supermarkets and shopping centers began to use loyalty strategies to attract shoppers. Most programs were simple and not well designed. Often only base level points were available to be earned and the redemption period only lasted a few days at the end of each year.
In comparison to developed markets, user experience was poor. Brands could abide with these simple programs as consumers continued to chase best prices. At the end of each year, long lines of consumers were seen in front of every supermarket or shopping center as they sought to redeem rewards during a tight period.
Loyalty marketing began to unfold gradually through the telecom industry. China's telecom industry is monopolized by three state-owned enterprises: China Mobile, China Unicom, and China Telecom. The three enterprises have the same design concept for their loyalty programs.
Consumers spending 1 RMB earn 1 point and 100 points can be redeemed for 1 RMB worth of the telecom company’s service or merchandise. With the product offer and loyalty promotions identical, you can only imagine why telecom loyalty programs in China didn’t boost the fortunes of any of the three main players. Interestingly, even today, no telecom company would dare reduce their loyalty budget in fear of damaging customer relationships. Apparently, it’s easier to give than take.
2010-2020 has been a booming decade for E-commerce development in China, bringing significant impact and reform to all walks of life in China. In the retail industry, Tmall, JD, and other comprehensive e-commerce platforms have quickly stolen the market share of offline retail and poached the elite talents of offline retail. Most offline retail brands are paring back footprint and practicing cost-saving strategies.
In 2016, our company created a loyalty marketing plan for the most prominent fresh produce e-commerce brand in China. The results were good by Western standards, increasing profit by 25%, but the CEO wanted more. With an expectation of 1500% revenue growth in that year, the 25% profit growth didn't matter.
Since 2020, China's consumer market has been maturing. The excess of internal productivity and external political pressure led to the gradual slowing of economic growth. The pandemic accelerated this trend.
In the most recent years, Chinese consumers bought more goods and services in offline stores and various online e-commerce platforms like Tmall, JD, PDD, Douyin (TikTok) — and even in WeChat and Alipay. The economic power has switched from retailers to manufacturers and consumers. Thanks to the Internet and post-service advancement, CPG’s built brand-specific eStores in WeChat or Douyin. These stores obtain traffic from internet service brands of different industries.
This shift allowed CPG brands to directly influence consumer buying behavior and build consumer loyalty. For example, Three Squirrels (biggest snack brand in China) and Yuanqi Forest (one of the biggest soft drink brands in China) have more than 10 million members in their private domain (branded e-commerce store). Suddenly, Loyalty Marketing became more interesting to marketers as it represented an ideal tool to manage brand-owned e-commerce stores.
Loyalty marketing opportunities today in China
In the foreseeable future, loyalty marketing will become a marketing science that goes hand in hand with brand and product marketing. There are many gaps to be filled in loyalty marketing operation services, loyalty strategy consulting, loyalty technology, and loyalty marketing training.
From a brand perspective, whoever can seize the market opportunity early and build a robust loyalty program will earn a competitive edge in its category.
The dynamic nature of the Chinese retail environment, the advancement of internet development, and the new brand-owned e-commerce platforms will undoubtedly create innovative ways to implement customer loyalty and marketing strategies.
Challenges of loyalty marketing in China
There are key challenges which any foreign service provider should consider:
1) China's market environment is very complex, with a complicated matrix of state-owned, private enterprise, regional, and national enterprises competing for consumer attention.
2) Important to note is that China also has forms of Internet commerce not seen in other parts of the world. This increases the difficulty for foreign loyalty marketing service providers to understand and be successful in the market.
3) In addition to price sensitivity, China is a relationship-oriented society and foreign service providers will inevitably encounter cultural conflicts when entering China.
4) For coalition loyalty, the fragmentation and complexity of the business environment in the United States that led to the failure of the “Plenti” program is even more daunting in China.
The future of Loyalty Marketing in China
I recently completed my training with the Loyalty Academy and earned a CLMP™ certification. The training made clear that the most suitable market environment for loyalty marketing is one that is thoroughly competitive.
According to an estimate from eMarketer, by 2024, the growth rate of China's e-commerce will drop to 7%, and the overall retail growth rate will drop to 5.1%. If this does occur, Chinese brands will become more interested in differentiating services and offers according to their customer preferences. In other words, the market will become more competitive and the demand for loyalty marketing expertise and services will skyrocket.
On the one hand, the development of fundamental theories of loyalty marketing in China is in an early stage compared with the rest of the world. On the other hand, the development of sales channels and member communication channels in China are far ahead of most other countries in the world.
China's loyalty marketing industry will soon embark on a new road which will create an active market for loyalty providers and become a hotbed for experienced loyalty marketing professionals.