Winning in E-Commerce Through A Consumer-Centric Approach
Our deep insights on specific consumer segments in China’s online apparel & fashion industry
China's consumer ecosystem is known to be highly digitalized. Impacted by the COVID-19 pandemic, winning online, especially on mainstream e-commerce platforms is now the key for brands to recover their businesses and achieve breakthroughs. In recent years, e-commerce in China has shifted from "battle for traffic" to "battle for sites (including channels, platforms, touchpoints, in-site markets)" to "battle for mind." During this transition, apparel and fashion brands face many challenges, such as poorly defined target consumer segments, out-of-date product operating model, lack of differentiated marketing approach and ineffective teamwork.
This joint report by my colleagues in BCG Greater China and Tmall, Winning in E-Commerce Through A Consumer-Centric Approach, looks into the key issues apparel and luxury brands face. Through a bionic approach, we are able to quantify “fashion sense” for the first time, bringing together BCG's industry insights and experience with the full power of Tmall's big data assets and analytics capabilities. We determined tags for cluster analysis and identified eight major consumer segments with distinct features: fashion & luxury gurus, classic luxury buyers, emerging fashion enthusiasts, avid trend followers, mainstream fashionistas, quality-focused pragmatists, price buyers and bargain hunters. These eight segments together account for nearly 80% of Tmall users, and more than 90% of platform sales.
We identified patterns in sales-to-inventory ratios, growth potential and penetration rate of these eight segments, and then categorized them into three types of consumers: "emerging forces", "backbone forces" and "blue oceans." The future growth of "emerging forces" will come from the increasing penetration and repurchase rates. Penetration rate for "Backbone forces" is already quite high, but the sales growth is slowing down – brands need to leverage more precision targeting initiatives to drive repurchases and trade-ups in order to continue their growth. For “blue ocean" consumers, continued customer acquisition and improved operations will be sufficient to drive growth. Looking at the relationships between "consumers, products, and touchpoints", we have identified five major trends - extensive choices, novelty seeking, maturing consumer mindsets, immersive interactions and diversified services.
Based on the analysis, we identified three key success factors for apparel brands to capture opportunities and address challenges in the future: consumer-centric online presence, differentiated consumer operations and cross-functional collaboration. They can serve as guidelines for brands to address strategic planning and daily operations, and enable players to accelerate business development to win amid the competition.
? Consumer-centric online presence: consumers in China are becoming smarter and more sophisticated across channel and platforms, one trick would not win them all. Thinking through one’s channel & platform strategy, focusing on core segments and winning on mainstream platforms will be the crux for brands as they move into omni-channel operations over the next three years. In the context of COVID-19, many leading brands have begun to rethink their online channel positioning and re-define their target consumer groups as well as strategic goals to optimize their online presence and boost their e-commerce performance.
? Precise and diversified consumer operations: brands should improve their operations in five areas - assortment, new products, promotions, marketing and user experience, to connect closely with consumers. They should optimize their online assortment categories, develop and launch new high-quality products, use differentiated promotion strategy per target consumer segments, adopt holistic marketing approaches, improve user experience and drive value across the whole customer lifecycle.
? Cross-functional teamwork: Breaking information silos and driving cross-functional collaboration is a prerequisite for brands to stay competitive. Some leading players are already taking a series of actions to strengthen their online business, including forming cross-functional agile teams and leveraging insight into customer lifecycle journeys to determine best-fit strategy together with corresponding operational plans, and act with speed.
The shift from traffic and products to consumer-centric e-commerce operations has triggered fundamental disruptions and continuous evaluation in the e-commerce space. To adapt to the ever-evolving market, brands should embrace new trends and disruptions, reset and adjust themselves, clarify their strategic directions and goals, determine and deepen insights on target consumer segments, boost cross-functional interactions and collaborations within the organization and build capabilities to connect the right products to high potential consumers under appropriate scenarios through optimal channels with best-fit content and messaging.
Read the full report here: https://www.bcg.com/en-cn/china-online-apparel-strategy-crowd-insights
About the Authors
Vincent Lui is a Managing Director and Senior Partner at Boston Consulting Group and head of BCG’s Consumer and Retail practice in China.
Joseph Sun is a Managing Director and Partner at Boston Consulting Group and leader of BCG’s Consumer and Retail practice in China.
Selina Mo is a Principal at Boston Consulting Group and a core member of BCG’s Consumer and Retail practice in China.