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Why did Amazon fail in the Chinese market in 2019?
On April 17, 2019, Amazon announced its main business would exit from Chinese market, but Kindle e-book and cross-border business will be retained. Amazon confirmed that they would stop providing seller service for the third-party sellers on the Amazon China website on July 18, 2019.
This means Chinese consumers will not be able to purchase third-party sellers' products on the Amazon platform in the future, but they can still buy the products from the US, UK, Denmark, Japan, and other places through Amazon's overseas shopping platform.
Later, Amazon denied that the media called it "exit from China market". Amazon China announced officially: Amazon will focus on cross-border online shopping, further deepen strategic transformation, make full use of Amazon's global resources, optimize operational efficiency, and focus resources to promote the rapid development of overseas shopping business.
We can say that Amazon just shut down the third-party seller business in China, turning to focus on overseas cross-border shopping platforms. As we all know, the Chinese e-commerce platform model, third-party sellers is the world of Taobao, Alibaba began to build a link platform to "Let there be no difficult business in the world", so in the B2B2C model, it is difficult to have another rival that can compete with Taobao. JD.com can not do this, not to mention Amazon.
However, as the global giant in e-commerce, although Amazon didn't "exit from China", it is an indisputable fact that the business in China is shrinking. Amazon's development in China over the years is indeed very general, why the foreign giant can not defeat the Chinese local brand? In the words of Bezos, the founder and executive chairman of Amazon, because Amazon in China "is not aggressive enough, doesn't invest enough, not localizing enough." But is that the reason?
Bezos does not understand the Chinese culture and is not familiar with the characteristics of the Chinese market, so it is difficult for Amazon to adapt to the "local culture" in China.
The glory and shrinkage of Amazon in China
When Amazon entered China, it had already conquered the markets of Canada, Germany, and Japan. In Bezos' view, the Chinese market would also be a must-have. In 2004, Amazon acquired joyo.com from Lei Jun for $75 million, expanding all the way to occupy an absolute share of China's e-commerce B2C market.
In 2008, Amazon's market share in China had reached 15.4%. At that time, Taobao and JD.com had not yet made much progress.
But since then, Amazon's localization in China has not been smooth, not only has the market share been gradually shrinking, but also missed the boom of mobile e-commerce, eventually left behind by Alibaba, JD.com, and other Chinese e-commerce platforms.
Today, Amazon's e-commerce business in China has been squeezed by Tmall and JD.com with a market share of 0.7%. In 2014, Amazon launched the "Overseas Shopping" business and "Prime Member" service, which allows users to directly purchase goods from overseas sites through Amazon's official website in China, with cross-border direct mail, and access to Amazon sites in the US, the UK, Japan, and Germany. The overseas shopping business soon became the first of Amazon China's core strategies.
But the innate advantage of Amazon's cross-border e-commerce was soon left behind by the latter. The same year that Amazon went online for overseas purchases, Alibaba went online with Tmall Global, which provides direct overseas imports for Chinese consumers, and NetEase's cross-border e-commerce NetEase Kaola officially launched in March 2016, the emerging platform Xiaohongshu has also captured a large number of young consumers.
According to the data monitored by Ecomon, the transaction scale of China's cross-border export e-commerce reached 7.9 trillion yuan in 2018. AI Media Consulting's report shows that in 2018, Netease Kaola and Tmall Global occupied the top two positions in cross-border e-commerce transactions, and Amazon was squeezed out of the top five.
Amazon doesn't know Chinese consumer's preference
Bezos believes that the reason for Amazon's shrinkage and decline in China is that it "is not aggressive enough, doesn't invest enough, is not localizing enough." This is just the business attitude and awareness, he recognized the localization is not enough. He did not point out the more specific technical aspects of the problem.
The first thing to understand is that in China, the majority of consumers who shop online are young people. What do these young people like? They like hilarity, they like nonsense, they like entertainment. What do they not like? They don't like seriousness, they don't like the high and impersonal commercial brands, they don't like the boring things.
More importantly, Chinese people's consumption habits are always dominated by the markets, from going to the bazaar in rural in the past to today's online shopping festivals, which have remained unchanged for hundreds of years.
Under such insight, the smart Taobao began to create a festival. Double 11 became a strong boost for the rapid rise of Taobao. Double 11 originally meant bachelor's day on the internet, and it was a pioneering move to choose to make bachelor's day a shopping festival where the whole internet gets high. Taobao implies that people use the best opportunity to please their girlfriends on this day. It is also possible that on this day, singles please themselves by shopping.
Double 11 has become a phenomenon, JD.com, Suning quickly joined, taking advantage of the momentum to share a piece of the pie. But Amazon was unmoved, watching coldly, probably not like to join such an explosive event.
The Double 11 includes almost all the elements that Chinese consumers like, entertainment, celebrities, ultra-low prices, together with madness, experience consumption, and materialistic release to bring consumers to the carnival. Chinese e-commerce, in a sense, has become a master at creating entertainment topics, whether it's Taobao's Double 11 or JD.com's 618.
When Chinese e-commerce is firmly grasping the eyeballs and consumption habits of young people, Amazon, a Yankee, is alone on the sidelines being gradually marginalized and has been standing still, it does not follow the step of the various Chinese e-commerce partners and has not figured out how to attract the attention of Chinese consumers.
According to Amazon's staff: " Amazon does not promote in China. The logic does not meet the habits of Chinese users. There is not enough authority and resources to deepen localization, so market shrinkage is inevitable."
If you compare Amazon and Coca-Cola, the same two American brands, you can find that Amazon is simply weak in brand marketing.
In addition, Amazon was late to realize the power of Alibaba, did not make efforts in time. It pursued a strategy of no advertising, which brought a chain reaction in the competitive Chinese market. "Because of the low market share of the site and less data, the goods can not get low prices, then no one wants to buy products, so there is a vicious circle." Market sources have analyzed that.
To underestimate Pinduoduo, Amazon is wrong
Some say that Pinduoduo and Amazon positioned themselves completely differently, and the two are not comparable. Amazon entered China in 2004, and as an international giant, it has already achieved great success in the world and is specialized in e-commerce. But Pinduoduo was only established in 2015. Why Amazon, as an expert in e-commerce, is not even as successful in China as such a latecomer of Pinduoduo?
Not to mention Pinduoduo, and even Xiaohongshu, Vipshop, Yanxuan, etc., are developing an e-commerce to the point where others can not keep up in specific areas. In comparison to these unicorn e-commerce platforms, Amazon's other weakness is exposed: unclear positioning, or to say that Amazon has no clear positioning in China.
It is one of the important factors for the success of e-commerce to make certain categories occupy the first position in consumers' minds. JD.com started by focusing on electrical appliances, Taobao focused on apparel. So, until now, to buy digital cell phones or home appliances, the first e-commerce platform that comes to mind is JD.com. And female consumers to buy clothing, daily necessities, will still consider Taobao or Vipshop, but what is Amazon selling? Consumers do not have a clear concept in mind.
Pinduoduo is looked down upon by many people, but its success is to capture the low-end consumer groups in the third and fourth-tier markets that everyone disdains. This is proof that Pinduoduo's positioning is extremely accurate, otherwise, it would not have risen so quickly in such a short period. This precise positioning is precisely what Amazon lacked in the early stage of its business.
The Chinese market is unique in the whole world. Because no other country has such a huge population as China. China has 1.3 billion people, while the United States has only 300 million in 2019, a fraction of China's population. These multiple populations extend the diversity of the Chinese market, and any kind of unique positioning for different levels of consumers has the potential to be successful.
From another point of view, the huge population of the Chinese market has produced a huge long-tail effect, those low-end and middle-range consumer demand. Just like plankton in the ocean, if a company can meet them, then they can completely satisfy an e-commerce platform very well. And these huge consumer groups are ignored and disdained by giants like Amazon.
Taobao, JD.com, Pinduoduo pay attention to these low-end markets since the beginning, like the wind diving into the night, silent, quiet, and constantly penetrate the third and fourth-tier cities, and even rural markets.
Focusing on overseas shopping is a good positioning, but still challengable
The Chinese market is a huge cake, Amazon naturally can not give up, so when the media have interpreted Amazon "exit from the Chinese market", Amazon China rushed out to debunk the rumor: "We are not quit, just remove the third-party seller business, and focus on providing overseas shopping to Chinese consumers."
In the future, for Amazon, the overseas shopping business is to make Amazon succeed in China, and the key to success is depending on four points:
First, at the technical level, how to provide safe and efficient logistics. Logistics is Amazon's biggest weakness. Taobao has Cainiao, JD.com has built its logistics, under the influence of Taobao and JD.com, Chinese consumers have long adapted to online shopping 24 hours to arrive, which is difficult for Amazon to do. And cross-border e-commerce logistics, Amazon is afraid that it is more difficult to ensure safety and efficiency.
Second, national policies and the impact of uncertainty caused by trade wars. China and the U.S. became two major economic powers, and the trade war made China and the U.S. full of fractions. As a foreign company, how can Amazon digest China's trade policy and gain an advantage in terms of tariffs? At the same time, how can it manage to minimize the impact of trade friction between countries?
Third, how to ensure the competitive price advantage of goods? Without the B2B2C model of third-party sellers, Amazon's direct model will have very little cost advantage compared to Taobao and JD.com in terms of operating costs. And Amazon's sales volume in China is also much less than similar competitors, how it can ensure the price advantage of goods?
Fourth, how to highlight their brand in the domestic overseas shopping e-commerce giants of the environment? Whether focusing on overseas or domestic purchases, Amazon's development in China over the years has proven that it is far behind Alibaba and JD.com in terms of marketing strategy, and it is not good at grabbing a place in the minds of consumers. Even if it focuses on overseas purchases in the later stage, the current competitors also have the same business. Can Amazon change its original low-level strategic tactics in terms of marketing in the later stage?
To win the Chinese market is the true victory in the world
In 2018, there is a documentary called "Amazing China" which is very hot, which mentions that China Bridge, China Road, China Car, China Port, China Network, are very powerful in the world, and have become the leading global high-tech. Why? First, China has a large population, and second, China's geography is vast. For example, high-speed rail, to run through the east, west, north, and south of China, will face a variety of extremely complex terrain, if China solves all the technical problems faced in the country, the Chinese car will smoothly go to the world without a big problem.
Similarly, China's 1.3 billion people, nearly 800 million people will be online on the Double 11, as long as the e-commerce server can withstand such a large number of consumers online at the same time, and without a problem in the network system, payment system, logistics system, when they then face the world, there will be no big problem.
As the same, as a foreign company, if it can stand firm in the Chinese market, then it is possible for it to win a dominant position worldwide and can truly be called a world-class winner, which means a lot to Amazon.
This is an article from WeChat official accounts CH Review (ID:CHReview), written by Lao Dao.