Singles Day: MNCs evolve e-commerce KPIs in China—just not fast enough

As November hits, Chinese marketers and retailers are abuzz, preparing for the annual carnival of consumption that is the 11.11 (Singles Day) shopping festival extravaganza.  

Some disparage the hype and gimmicks, all designed to get people to buy. But the scale and power of this mega sale season is what pushes China’s e-commerce industry to stay ahead of the world in logistics, payments and marketing guile.

So sophisticated has this sector now become that China is seeing the rise of what are called "retail ecosystems" or "mega platforms that provide enterprise infrastructure as a service, not just a place to transact", said Xian Wang, global content director, Edge Retail Insights, speaking at the company's e-commerce summit in Shanghai recently. For MNCs operating in this space, there is everything to play for—as long as they can keep up. 

Moving beyond O2O

While O2O (online to offline) was the main buzzword three years ago, the challenges of this approach have been revealed in reports such as PwC's Total Retail Survey 2017, which proves that channels remain siloed, return on investment (ROI) is hard to track, costs are rising and customer service is disjointed. 

Smart retailers are already investing beyond O2O, which focuses solely on marketing, and tilting toward omnichannel, which covers a broader spectrum of disciplines including marketing, merchandising, customer service, delivery and fulfilment. "While O2O initiatives meant redirecting marketing spend from offline to online, and executing through specialist digital agencies, omnichannel strategies cut to the core of retailing operations," wrote Tom Birtwhistle, then PwC's China digital strategy lead, in the report.

Alibaba and JD are ploughing investment into stores with futuristic characteristics, such as high-tech supermarkets Hema and 7Fresh, under their "new retail" (Alibaba’s term) or "boundaryless retail" (JD’s term) models. Wang herself calls this “ubiquitous commerce”, a term referring to the fact that at some point in the future there will be no differentiation between online or offline, location or device.

Coke's perspective on the 'new retail' trend is very much the same as many others. "The future is now, and it’s all about aggregation of social media, e-commerce and digital payments with platforms like Alibaba and Tencent," said Brian Chau, Coca-Cola's general manager of e-commerce  for China, speaking on stage at the Edge APAC E-commerce Accelerator Summit. ‘Platform’ is the key word in China, Chau emphasised.

Keeping up with KPI shifts

Under such circumstances, China-based marketers like Chau are evolving how they think about e-commerce KPIs and incentive structures. Historically, performance rested on the shoulders of the commercial and sales teams. Now, brands are trying to tie it back to the whole consumer lifecycle, adding KPIs associated with consumer engagement in early exploratory stages of the funnel all the way down to conversion. This can result in a more concise and dynamic set of KPIs that extends beyond just sales.

Fundamentally, established e-commerce KPIs like store traffic, conversion, or 30-day repurchase rate will still stand in the omnichannel age, but deciding which department is responsible for each KPI is the process that's developing. Traditionally, the marketing team has owned the reach and the sales team has owned the transactions. According to Coke's Chau, all teams now have a "shared responsibility"—the biggest headache is how to set up cross-functional teams to share that responsibility.

Tim Ye, IT director for Greater China at General Mills, whose straightforward-sounding role actually involves e-commerce, data architecture, enterprise resource planning and back-office technology in support of new retail, says the company has never tried to standardise its online and offline marketing KPIs.

"We don’t want too tight a constraint on ourselves or to exert too much pressure on any one department," he told Campaign China in an interview that was conducted in Mandarin. "In China’s business environment, if you overly pursue a certain KPI, you may inadvertently cause some wrongdoing because, to be honest, KPI fraud can be quite rampant in this market."

Last year, just one hour into Singles Day (at 1 am), 62 brands had passed RMB100 million (US$14.5 million) in sales. Among those brands were Adidas, Apple, Dyson, Estee Lauder, Gap, L’Oreal, Nike, Skechers, and Zara. "We don’t dictate that ranking as our main KPI," said Ye. "It’s meaningless."

On a macro level, the "obvious" KPIs at General Mills China, managing brands including Häagen-Dazs and Wanchai Ferry Dumplings, are topline growth (revenues or gross sales) and margins. These are of equal importance, Ye says, as "we don’t want to pursue profitless growth". In fact, nowadays, non-mature brands talk about market share and mature brands talk about margins, he said.

Singles Day is a-coming

As of today, it's a five-day countdown to 11.11. Established and newer brands will have slightly different KPIs for the day, says Doreen Wang, global head of BrandZ at Kantar, in emailed remarks. 

Established brands tend to set KPIs that are CRM-related, she says, such as looking for ways to build new customers into their CRM systems and how to use sales, loyalty schemes and coupon tactics to turn them into repeat users. Newer brands, on the other hand, are focused on getting a "foot in the door" and generating awareness as well as product sales on Singles Day.

However, brands have learnt hard lessons in the past from over-reliance on Singles Day, which "can generate great sales on the day but be detrimental to long-term profitability", according to Wang. Brands, therefore, require strategic investment to make sure customers keep coming back, even when the discounted period is over. 

2018 Tmall's "buying calendar" with discounting tips

Kearney, who spends half his time in Singapore and half in China, is surprised by how "diversely unprepared" a lot of MNC brands are when it comes to e-commerce execution in China, let alone omnichannel investment.

"Even if the online penetration of a certain category, like FMCG, is very low, the online buying experience is having a lot of impact offline," he says. "I’m being critical, but every brand should be pretty advanced in e-commerce by now in 2018. The reality is there are lots of brands that have siloed organisational structures. Thus the business case for e-commerce has not been presented to their headquarters in a powerful way. Think about it—if it had been, then all brands based in China would have 50 people in their e-commerce teams!" 

Have these brands failed to demonstrate the business case for e-commerce because the margins from the largest platforms aren’t exactly very attractive? A report compiled by Michael Norris, research manager at Resonance China’s consumer insights, strategy and digital innovation team, SMART, shows margins have proven measly over the last three years.

 

The luxury angle

 

It's a more nuanced story for luxury brands. For Singles Day, if luxury brands only benchmark on sales as their KPI, none of them will achieve it, states Chenyin Pan, China manager of Shanghai-based boutique digital agency Fireworks. Luxury brands don’t have a lot of activity for Singles Day because discounting is "disastrous" to their brand image. "Some of the luxury brands I know invested up to 90% of their annual digital marketing budget on Tmall, and as the direct result of that investment strategy, the brands not only made no progress on social media but also projected an ingrained image of a Tmall discount brand," Pan says.

The brand-building effect for luxury labels is a little "far-fetched" on such platforms, says Pan, even on the dedicated luxury sub-platforms of the giants like Luxury Pavilion of Alibaba and Toplife of JD. These sometimes appear self-serving, having functions that try to steer offline traffic at physical luxury-brand stores to the online stores of the same brand.

Luxury brands may, therefore, be benchmarking on completely different KPIs when 11 November arrives. They will look at eyeball factors like 'share of search' and 'number of site visits' more than actual purchases, says Pan. In fact, ‘share of search’ from seeding keywords in organic searches was part of the e-commerce KPI of Edge's most successful client, setting a foundation for them to move one step further to paid search, says Edge's Meng.

Another issue with the sales metric is inflation from consumers buying multiple sizes and versions of a product online during 6.18 [JD's own version of Singles Day] and 11.11, then returning many of them after. This explains why 'share of search' as a KPI is more indicative of brand health for luxury brands. "Sales is focused on the final revenue, but 'share of search' tells you more," says Meng.

As O2O matures into omnichannel, who is pivoting successfully in China?

When brand merchants have top-to-top executive meetings with these retailers, they are using different languages, notes Kearney. "Alibaba and JD want to be having an omnichannel conversation and are expecting that. If someone from a brand walks into a meeting and says 'I’m the head of marketing and someone in my team does e-commerce', they’re not that interested," he revealed. "But if the brand has an omnichannel team and brings that message to the retailers, the more the retailers will invest in them."

 

Brands like Coke and P&G appear to be heading in that direction. However, about 80% of MNC brands in China are still grappling with e-commerce readiness, estimates Harshal Acharya, head of consulting at Edge by Ascential. The holy grail is when ownership of KPIs is wholly shared and no longer shouldered by only marketing, sales or finance, as shown below.

 

 

Challenges still abound. For example, Pernod Ricard China's e-commerce department is quite new: under three years old with roughly a tenth of revenue contribution from e-commerce sales. According to Pierre Delfosse, associate director of e-commerce, other department structures are yet not optimised fully to facilitate selling alcohol online, with worries about cannibalisation occasionally being raised.

 

"We do not yet have a lot of collaboration with departments in marketing or IT," says Delfosse, speaking on stage at the same Shanghai summit and describing how the company lagged behind in campaign planning because it did not fully utilise marketing data in e-commerce. Answering a hypothetical question from the panel moderator, he states: "If I were to be the CEO, how will I change things? There must be transparency in providing data and sharing resources, and to ensure other departments know how each business KPI is met even if that KPI is not owned by that department."

 

There is still something to celebrate. The most valuable data the alcohol company gets is from e-commerce channels. "From a strategic viewpoint, e-commerce is our next frontier," says Delfosse.