In 2018-2019 the quarterly market size of consumer electronics was around 30 billion yuan. However, in the first quarter of 2020 during the COVID-19 outbreak, Chinese consumer electronics market size dropped to approximately 20.9 billion yuan.

Data Source: Statista, Chinese consumer electronics market size

The COVID-19 outbreak in China had a great impact on the Chinese consumer electronics market in China. Forecast predicts it will see a decline in revenue growth from 16.8% in 2020 to 6.1% in 2021.

Data Source: Statista, Chinese consumer electronics market revenue growth

Smart technologies drive the growth of the consumer electronics market in China

The popularity of AI in China has brought new development opportunities to the consumer electronics market in China. In the next decade, smart homes and IoTs (Internet of Things) will be a huge development opportunity for manufacturers.

For example, the domestic smart connected room air-conditioner market in China is expected to grow from 4.1 million units in 2015 to 37.6 million units in 2020. Midea Group and Haier Group are leaders in domestic smart room air-conditioner market. Both these leaders are expanding product sectors of smart room air-conditioners this year.

At the same time, the revenue of smart home appliances in China is growing. In 2017 it accounted for US$ 2 million, when in 2019 it increased twice to almost US$ 5 million.

Data Source: Statista, Smart appliances revenue in China

The growth of the consumer electronics market in China is partly due to government policies

It is quite unique that policies and regulations that the government promulgated play a critical role in the development of the consumer electronics market. As of 2011, China is the world’s largest market for personal computers. In 2013, the Chinese government issued 5G licenses, marking the beginning of a new era in China’s high-speed mobile network. China Telecom promised to create 300,000 5G base stations by the end of 2020. The operator, which is taking part in a 5G network share with China Unicom, deployed 40,000 of its own base stations by the end of 2019. That reflected a RMB 9.3 billion investment in 5G networks in 2019.

2019 was a booming year for e-commerce. China raised the limit on cross-border online purchases, as well as expanded its list of duty-free goods. The government raised the annual quota on cross-border e-commerce purchases for individual buyers from 20,000 to 26,000 yuan. The limit on a single transaction was raised from 2,000 to 5,000 yuan or $723 dollars.

Growing consumption of consumer electronics requires new technologies

 The rise of domestic manufacturers: Huawei, the leading provider of consumer electronics

When it comes to the best domestic mobile phone brand, many people will think of Huawei. Since 2017, Huawei continues to maintain leading position in China’s smartphone market, with a year-on-year increase of 23.4%.

According to GfK, as of the end of February 2020, the market share of Huawei Tablets was approximately 46%. In addition, since 2019, Huawei has surpassed the Apple iPad for the first time in the Chinese tablet market. It has continued to expand the gap with the Apple iPad. In 2020 Huawei grabbed 40.2% of the domestic market, up from 33.9% a year earlier. Its overall unit shipments rose about 1% to 30.1 million.

Data Source: Statista, Market share of tablets in China

Lenovo, Huawei and Xiaomi go global

Consumer Electronics remains by far the best performing category in the electronics market in China, dominated by brands such as Lenovo, Huawei and Xiaomi in China.

David Roth, Chairman of BAV Group commented: “The companies behind China’s brands are taking a more active role on the world stage. They are increasingly shaping the conversation at a category level, as well as helping to support economic growth in developing markets in many ways, not least by investing in infrastructure”.

Lenovo

Lenovo holds 24.4 percent of the global PC market, sustaining its position as the worldwide #1 in PCs. Growth came from premium categories, including Workstations, Thin and Light PCs, Visuals and Gaming PCs. They all had double-digit sales volume growth year-on-year. In North America Lenovo moved up two places in the industry rankings from the previous quarter to number four. In addition, revenue continues to outgrow the market with profit continuing to improve. Going forward, Lenovo will continue its investment in its mobile business to drive future growth opportunities.

Data Source: Statista, Revenue of Lenovo

Huawei

Huawei, thanks to a whopping 16-17 percent annual growth, claimed the No. 2 global smartphone vendor spot in 2019, behind Samsung and ahead of Apple. Both firms have similar global market share numbers for 2019. Samsung had around 20 percent, Huawei at 16 percent, Apple at 13 percent, and Xiaomi and Oppo around eight percent each. Q4 2019 was Huawei’s first quarterly decline—down seven percent from Q3. It blames on the export ban. But this ban doesn’t affect Huawei’s marketability in its biggest market, China, where Google doesn’t do much business. Huawei has had its own software ecosystem in China for years, with the “Huawei AppGallery” store, cloud storage, a browser. 

Data Source: Statista, Revenue of Huawei

Xiaomi

As of 2018, Xiaomi’s international business grew by 150 percent and has successfully entered 82 foreign markets. Among these 82 markets the brand ranks among the top five in about 25 markets. Xiaomi beat its rival Samsung to be the leading smartphone brand with most shipments in the Indian market in the third quarter of this year. Xiaomi’s overall market share during Q3 2018 comes at 27 percent while Samsung managed to grab 23 percent on market share.

In Indonesia, Xiaomi became the second largest brand for the first time and is leading the sub-$150 segments. It holds 22 percent market share in Indonesia while the leading brand Samsung holds 25 percent market share.

The company continues to expand globally and Xiaomi’s global shipment numbers are also growing. The company reportedly shipped 9.7 percent of all smartphones shipped worldwide during third-quarter this year.

Data Source: Statista, Xiaomi’s annual revenue

Apple and Samsung struggle against domestic competition in the consumer electronics market in China

In 2018 the U.S. and South Korean firms had fourth and fifth place in the Asian giant’s smartphone market. Ahead of them came three Chinese firms: leader Huawei with a 16% share, then two companies little known elsewhere, Oppo and Xiaomi.

Data Source: Statista, Leading Chinese global consumer electronics brands as of 2019 (in BrandZ brand power scores, BrandZ is a brand power score based on analysis from Millward Brown)

Brand loyalty is not as strong in China as in other markets. It’s a very crowded, fragmented market and fiercely competitive, with rivals undercutting each other with price and design. Low-priced Chinese competitors have been “particularly troublesome” for Samsung, which has sought to offer phones across all price ranges.

Apple still benefits from its luxury image and the strong loyalty of its long-time users in China. But the California firm sometimes has to contend with the country’s Communist authorities. In 2017 Beijing blocked Apple’s iTunes Movies and iBooks services launched in China. Besides, the Chinese media has prominently reported about alleged security vulnerabilities on Apple devices.

The revolution of distribution channels has promotes sales in all areas

Nowadays, selling-commerce contributes to the diversity of the sales channel and avoids many problems like establishing an outlet in a rural place. Despite the relatively small base, continuously rising disposable incomes in rural areas, together with increasing education and interest in consumer electronic products has stimulated demand and continued to drive volume sales in rural areas. Meanwhile, the expansion and penetration of retailers such as Suning and Gome into the rural areas has also played an important role to boost volume sales in rural areas. However, urban sales still account for the majority of volume sales of consumer electronics products thanks to the higher acceptance of innovative technologies and disposable income levels in urban areas.

Other than large e-commerce platforms like JD, Tmall, and Taobao, many electronics brands sell directly to Chinese consumers through their own websites.

Source: Statista, Top 5 online stores by net sales in the consumer electronics segment in China

China’s overall online and offline consumer electronics market consumption upgrades intensified

In the future, the retail in China’s consumer electronics market will change, and the online plus offline model will dominate.

In China’s consumer electronics market, offline channels are the main channel for consumption upgrades. Taking traditional home appliances as an example, the proportion of retail sales in offline markets reached 70% in 2018. High-end consumer groups pay attention to product experience, so the offline market has an advantage over the online market.

The consumption upgrade trend has continued in the past few years, and the proportion of retail sales of high-end products has increased from 21% in 2012 to 23% today. All-channel retailers such as Suning, high-end products accounted for 27%, which is the driving force. E-commerce promotions have also become important, and consumers are becoming accustomed to it.

Smart home innovations will change the retail format

For offline channels, there will be new value revaluation opportunities due to the innate advantage of the consumer experience. Visionary vendors and retailers have focused on rebuilding their smart home retail prospects in the future. Retailers with online and offline advantages will have more imagination space in new retail.

Brick and mortar locations allow consumers to see a product in action before purchasing and gives them the ability to take a product home the same day. Offline direct-to-consumer tactics can help sell smart home products in China.

Beyond physical brand-owned retail stores, mall kiosks and other seasonal “pop up” stores can be effective at marketing complex smart home solutions.

COVID-19 impact on the consumer electronics consumption in China

The lockdown had a great impact on the companies in the consumer electronic market in China. China’s smartphone shipments will be 5% lower than expected. In total, China’s smartphone market shipments declined by more than 30% in the first quarter of 2020.

COVID-19 has caused severe challenges for leading Chinese manufacturers such as Huawei, OPPO and Xiaomi. Forecast predicts that in 2020, they will face the risk of declining demand in the Chinese domestic market. International brands such as Apple will also suffer from insufficient production capacity and the risk of declining demand in the Chinese market. As China slowed down and then stopped, supply chains were disrupted. It affected Apple as one key consumer electronics vendor. More than 90% of Apple’s products are made in China and the Chinese marketplace accounts for 18% of its revenues.

Slow recovery

Since April 2020, consumer electronics companies have started seeing a  pickup in sales due to healthy domestic demand.

China shipped nearly 21 million smartphones in March, up 240 percent on a monthly basis. In particular, over 24 new 5G smartphone models hit the market in April. The domestic shipments of 5G smartphones exceeded 6.21 million units, representing a 160 percent growth from February.

Wu Qiang, vice-president of smartphone maker Oppo, said the company’s smartphone sales have been recovering rapidly.

Huawei Technologies Co said its sales revenue rose by 1.4 percent on a yearly basis to 182.2 billion yuan ($25.7 billion) during the first three months of 2020, despite challenges from the COVID-19 pandemic. Huawei said revenue from consumer business group (smartphones, personal computers and tablets) will see rapid growth in China this year.

Lenovo said as more people stay at home for work and study, the demand for PCs and tablets will increase. The growing demand for mobile games, remote consultations and video conferencing tools also provides tons of opportunities.

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This article New technology drives the Consumer Electronics Market in China is the first one to appear on Daxue Consulting - Market Research China.

In this episode, Stephen Hopkins discusses China’s third-party payment platforms. China’s third-party payment fees are much lower than the west, this made us wonder how WeChat and Alipay work. Hopkins explains the technical side of these platforms in comparison to PayPal.

Jump to the question:

• 1:10 How is Alipay and WeChat pay different from Paypal and why are third-party payment fees so much lower in China than in the west?

Daxue Talks is a show powered by daxue consulting, a china-based strategic market research company founded in 2010! With Daxue Talks, you will stay up to date with all the latest business updates in China.

This article Daxue Talks 51: How do China’s third party payment platforms work? is the first one to appear on Daxue Consulting - Market Research China.

PayPal is a NASDAQ-listed world-leading third-party payment company, which supports more than 100 currency transactions worldwide. PayPal has more than 286 million active payment accounts in more than 200 countries and regions around the world. Although PayPal has been cooperating with local Chinese companies, it was not able to enter Chinese Market officially until recently.

PayPal overcome the legal restrictions in mainland China

What has held PayPal back from entering China for so long?  The previous difficulty lay in the restriction of Chinese financial policies. Local payments cannot be made in mainland China, which means that Chinese consumers cannot use PayPal to pay domestic merchants. But now, the door has opened for PayPal China. According to GoPay, the company is licensed by the People’s Bank of China to operate online payment and mobile payment service. GoPay also has the fund payment business license in China as well as the cross-border RMB payment business license. Through the acquisition, PayPal China is now able to overcome the legal restrictions in mainland China.

“We look forward to partnering with China’s financial institutions and technology platforms, providing a more comprehensive set of payment solutions to businesses and consumers, both in China and globally,” PayPal CEO Dan Schulman said in a statement on LinkedIn.

China’s online payment market

China’s online payment market is substantial, with total transaction values more than doubling to 2,126.3 trillion yuan (roughly USD$200 trillion) in 2018 compared to five years previous. That is due to, firstly, the rapid growing of e-commerce among Chinese consumers; Secondly, the higher and higher internet and smart phone penetration in China. The convenience of online shopping and strong awareness of technology among Chinese consumers are boosting not only the development of online retailing, but also China’s mobile payment market.

Yet, it seems difficult for PayPal China to compete with the domestic players on the local market as a third-party payment platform in China. The chart below shows China’s third-party payment market share in the first quarter of 2019. As it can be seen: the market is dominated by Alipay owned by e-commerce giant Alibaba and TenPay owned by Tencent. These two companies account for more than 90% of the total market.

China’s mobile payment market

China’s mobile payment market projected to grow 21.8% to $96.73 trillion. Furthermore, the number of active mobile payment users is expected to double by 2023.  Within the fast-growing online payment industry, mobile payment shares a higher and higher proportion. Whether it is a 5 RMB (less than 1 USD) purchase at a market or a huge haul in the mall, most Chinese consumers are comfortable to pay with their mobile phones. Ac­cord­ing to Pw­C’s Global Con­sumer In­sight Sur­vey 2019, 86% of Chi­na’s pop­u­la­tion will make use of mo­bile pay­ments in 2019, for the high­est mo­bile pay­ments pen­e­tra­tion rate of any coun­try in the world. 

China’s mobile payment market has been growing with a tremendous speed thanks the fast development of FinTech in China. The ubiquitous QR Codes make the mobile payment extremely fast and convenient for the consumers. There are two ways to pay via QR Codes in China:

First, the customer scans the seller’s QR code, which is very often printed and visible at the places such as the checkout, restaurant tables or even product itself. Second, the customer shows the QR code displayed on his/her smartphone to the seller for scanning.

PayPal China will have to face the same two huge competitors – Alibaba and Tencent – on China’s mobile payment market. Alipay and TenPay together make up 92% of the mobile payment market by transactions in 2018. Tencent had only a 15.9% market share by 2015 and was able to reach almost 40% of the total market share in the last year.

TenPay (incl. WeChat Pay and QQ Wallet)

Although Alipay toped the market share by transactions, TenPay had the biggest market share by penetration rate in China, with 84,3% in 2018. Tencent owns WeChat – the most popular social media App in China and has developed the most used mobile payment solution in China: WeChat Pay.

WeChat pay transaction fees of 0.1% start at withdrawals over 10,000 RMB as well as overseas transactions such as in case of cross border commerce. The app currently supports 9 currencies, yet cross-border transactions can still be complicated. To be able to become more powerful on China’s payment market, WeChat has recently partnered with Adyen, an international payment technology company to facilitate access to China for foreign companies.

Alipay

Alipay is developed by Alibaba, owner of China’s leading online shopping website – Taobao. Alipay is the only online payment system used on Taobao. Considering low trust in China’s online payment market, they introduced escrow (the payment is made by the buyer before the product is shipped and the payment is released when the product is received) and immediate payment (used to pay for hotel room bookings, flight bookings or other items with no physical delivery) to solve the trust issue.

There is no setup fee for Chinese companies, they only need to pay 0.7-1.2% transaction fees. Foreign companies needs to pay USD 1,000 to set up on this third-party payment platform in China. Transaction fees are btw. 2.5% to 3.0% depending on the annual transaction volume.

PayPal’s possible breakthrough in China: cross-border e-commerce and overseas travel

For PayPal China, it seems difficult to compete with the local players on both China’s online payment market as a third-party payment platform in China as well as on China’s mobile payment market. PayPal China’s breakthrough may lie on cross-border payments such as cross-border e-commerce and payments made across the sea (travel).

China’s cross-border e-commerce market saw 8.8 trillion RMB transactions in 2018, over 20% of which are import e-commerce sales. The top platforms are Tmall Global and NetEase Kaola. Alipay dominates these online shopping platforms. 25-34 years-old are the largest user segment making up 48%. Furthermore, cross-border online shoppers are highly educated with high incomes. It is worth mentioning that it is also more and more common for these wealthy Chinese millennials to shop directly from platforms out of China (such as Amazon.com) or online flagship stores across the sea. The reason is cheaper price or better quality, sometimes also due to the unavailability of certain products within China. In this case, a PayPal account can be much more useful for Chinese consumers.

The purchasing power of Chinese consumers during travel can also not be underestimated. Data from the International Association of Tour Managers shows that overseas travel spending by Chinese tourists reached USD 261.1 billion in 2016, an increase of 4.5% year-on-year ranking first worldwide. According to the Outbound Chinese Tourism and Consumption Trends: 2017 Survey, jointly issued by Nielsen and Alipay, during their most recent overseas trip, 65% of Chinese tourists paid for their expenses via mobile payment, while a mere 11% of their non-Chinese counterparts used mobile payment. Although more and more countries are offering Alipay and WeChat Pay at their airports and shopping malls to encourage Chinese tourists to spend more, it remains a small portion. On the other hand, PayPal has a much better chance on the payment market providing Chinese consumers with a quick, easy and safe payment solution outside of China.

Author: Chencen Zhu

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This article PayPal officially entered China’ online payment market | daxue consulting is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Matthieu David: Hi everyone I’m Matthieu David, the founder of Daxue consulting, China market research company, and its podcast China Paradigm, and today I am with Navin Williams, you are the CEO of Mobile Measure and director of FuguMobiles and in partnership with Prediqt. You’ll have to tell me how you can do so many things, especially in international research business in India and China, and that’s one of my questions.

You’ve been in China since 2008 so more than 10 years – 11 years. Just before the Olympic Games, and I feel there are two types of people who arrived in China. People who arrived before the Olympic Games and people who arrived after the Olympic Games. You arrived just right before, so you saw all the changes which happened after the Olympic games and I’m talking about the crisis when China became more and more important, bigger, and more paradigm. If I want to use the name of our podcast.

Mobile measure is a research company. I feel you do a lot of panels as well and you are very tech-oriented. Actually, when reading your powerpoint and your presentation, I saw many things that were hard for me to understand how to present Mobile Measure. One thing I share is outstanding, different from many others. That you have many products with online community, moderating a community online, with a diary, getting information in the daily life of people. That’s something I would be very interested to dig in, for example, how you conduct Chinese customer data management. So, thank you very much for being with us today, this morning.

The first question, I always have this question, what’s the size of your business, if you can share some metrics?

Navin Williams: Right, so actually as you said, we have three different businesses. So, the scale of each is very different, and two of them are companies that I don’t manage directly but I’m involved in a capacity as either consulting or managing part of their business.

So, I can tell you Mobile Measure, because that’s figures that I control and I am happy to share and so Mobile Measure we are depending on the year, anything between $750,000 going up to 1.5 million US. So, that’s the scale, it’s not huge, it’s not small, but we are very focused on technology-enabled market research. So that is the niche we have picked and we also do, you know – bread and butter research which is maybe just online, or SGD’s, but we are known and our strength is technology-enabled research.

Matthieu David: What does it mean?

Navin Williams: Yeah?

Matthieu David: That thing, what does it mean? Because you said it could be anything, how can you be in the technological world? How can you be anything, because you have to build a product, you have to deliver a solution? How can you manage to have so many things? How can you do an international research business in India and China at the same time?

Navin Williams: The product I built very early, in around 2010 and we called it TPV – which stands for Text, Photo, Video. So, at that time it was simply an app which allowed you to capture text, photos, and video. So, you know, very easy to use from a research perspective for communities. So, allowing consumers to go and collect real-time data and share their opinion real-time. So, it’s basically that’s what we built and it’s not that – so that is the core platform. Around it we do a lot of things, so it could be we layer it with survey data, we layer it with maybe an in-depth interview because that data is very fragmented because it’s just videos, shot videos, photos, and just comments and views. Similarly, we could – we do FGD’s so we have a larger group as well. When I say that we are a traditional research company, but enabled by technology. So, if a client came in and told me they want to do FGD’s, I would say yes sure, let’s do FGD’s but in addition to that for a few of our consumers, we will also gather some additional data and thing. And it could be even just scraping the web to see where a category is at the moment. So, otherwise it’s hard for us to compete at our size.

Matthieu David: I see, I see. Do you develop any internally a software or you also sold the software?

Navin Williams: When I started … A bit about myself in the sense that I came here as the head of consumer research for Nielsen China and within a year – that was the worst time to be in China, you know – the market tanked and effectively within a year I was being relocated to India  on another job assignment within Nielsen. But my family was having too much fun in China so they didn’t want to leave. So, I decided to leave Nielsen and then I joined FuguMobile. A digital agency in China which has many cases of Chinese customer data management.

So, I joined them and while they’re a digital agency, my background is in research, so within FuguMobile I started Mobile Measure and then – and in fact even today we are collocated with FuguMobile who have their own development team.

So, we ride on their development team and designers to build and maintain our digital products for Chinese customer data management. (In 2009 I designed it and started building it out and 2010 we launched it and in those days it was like really no one wanted to touch it because they didn’t feel that it had the scale.  We actually partnered with Kantar – TNS and we did a lot of international research business in India and China, and other countries in Asia Pacific, and Africa as well.

So, in the early days it was more about concept selling and trying and getting people to actually believe that mobile would actually rule the world and it’s funny to think that actually 10 years ago, that was a hard job.

Matthieu David: Exactly, I interviewed someone who has the same intuition, the founder of Mobile Now, 10 years ago – and this name, the word mobile, as for you there is the word Mobile, but 10 years ago, it was pretty new. Could you tell us first to understand, in your international research business in India and China, why a company like Kantar would use your technology? They’re so big, what did they find in your technology that they cannot find internally?

Navin Williams: Right. So one is that I have been – before I started Mobile Measure, I was in research for almost 15 years. So, I have been in research and in those 15 years, around 5 years I worked for a telecom company as well. So, I have a strong grounding in technology and market research. So, I knew the players, I know the market, I know where the gaps are and maybe I was early into the game. I was actually. So, it’s not that – so when I talked to researchers who wanted to evolve, they got what I was saying, but maybe – you know if you’re early into the market then you need to do a lot of concept selling. So, for them yes, it’s not like they were like just adopting our technology whole house, but they were definitely willing to try it, and that definitely helped. Especially in the early years.

Matthieu David: I see, because you believe that you were early, that’s what actually brought them to your software, your solution because it didn’t have – they hadn’t developed yet or it was too early to make it mainstream. To make it big enough for them to do it internally.

Navin Williams: Yes and no, because now the situation today is again, you know I still work with Kantar and other big groups in international research business in India and China but the thing is that research companies, especially the large ones, work in silos. So, either they understand research or technology and the technology part if there is within the company, it is secondary, in the sensitive part of operational services. So, getting these two together is not so easy. So, a company, a research company especially large ones where they see an opportunity or they have a desire to move into technology-enabled research, they need someone who understands both the technology world and the research world, to distill that for them and that’s where we come in. Otherwise a lot of companies, they can go to technology providers to help them say with the research product. However, if the technology services company does not understand research and there’s no one who can convert research into technical language and the other way round, it’s hard to build something that is actually usable.

Matthieu David: I see, I see. So initially you had this app called TPV, I don’t know if you changed the name or not after, it was an app?

Navin Williams: Correct, correct. It’s still there yeah.

Matthieu David: And how has it evolved now? It was about Text, Photo, picture, and video. How has it evolved now? Again, in your – you’re talking about Mobile to me, so I want to know more about how much we can do with your solution and what’s was your leverage?

Navin Williams: Right, right. So online communities actually are quite established and work well. Now like Chinese mobile communities – so our tool works well on that but there are certain things which because of the size of the screen and attention levels in mobile, you might not be able to do. So, you get larger screens of data, but in smaller chunks. Yeah. So, think of it as me writing a letter to you detailing what we want to do. So, I can do an introduction. But in mobile, it’s just bits right.

So, for example when we did the audio check, I would have sent you an email saying this is the problem and you would have sent back a response saying this is the answer, but because we were trying to resolve it on the Chinese mobile community like WeChat, we were not communicating the whole problem properly, so the solution also was coming in bits. Right. So mobile has this thing of continuity. You can have a discussion for longer periods but it’s coming in chunks. So it’s very useful for – if you’re like – day in the life of, you know – so you say Sunday is your shopping day and I request you to mobile connect through our app and engage with us and the moderator through the day, and I give you tasks. So, when you go, I want you to take photographs or videos and give us context to whatever information you’re giving. And then that’s very useful data, and it’s easier to think. So, when it comes to real-time and instinctive kind of responses that we want, intuitive responses – mobile scores way over online communities and that is a way of Chinese customer data management. So I think both have their strengths, so it all depends on how deep you want to go or you’re looking for something way beyond – if you’re looking for surprises I would think mobile would give you more, because you can actually have people go out and surprise themselves, forget about the researcher.

Matthieu David: How does it work? So, with a client you have, when he used your product, your tech product, they make their Chinese mobile community, so you pick some of the clients, they download your app, I mean the clients of the clients – the end clients. They download your app and then you moderate through an app, interactions with this Chinese mobile community. And it could be on Sunday as you said, take a picture of like what is happiness for you? It would take a picture of the blue skies. Could you describe a typical mission and how it works step by step?

Navin Williams: Right. So, say we recruit ten people, and then if we – if a moderator were to live chat with all ten and communicate with them, it can get very heavy. Even if you’re talking about just ten people. So instead what we do is, we break it up into tasks, so there are defined tasks. So, what we call mini-surveys, but actually they say simple three questions. So first tell me where you are? So, it could be a drop-down because we are only looking at type of retail outlet, yeah. So, you select the type of retail outlet and then it says take a photo, video or video. Yeah. So, once you enter you take a photo or a video, and then it gives you an open-ended allowing you to give context to the photo or video you have given. Yeah. Or take an audio recording if that is easier for you. So that’s it. So effectively it is three questions, right. If you want to simplify it. So that we would call one mini-survey, and that mini-survey say would be titled retail. So, every time they walked into a retail space, they’re expected to tap on retail, identify which retail outlet they are in, then, of course, you take a photograph or –

Matthieu David: I see, and send to you? Do you get an incentive when they answer each question?

Navin Williams: No. No, generally it is for the exercise, so say we tell them that we want you to work with us for a week, so generally, they are incentivized for that period of participation.

Matthieu David: Per week?

Navin Williams: Not per upload. So, then we get all these feeds, so it could be retail, it could be consumed, it could be whatever. So, it could be different things that we are evaluating, or it could be simply communication. So, we can send them videos to view or tell them identify ads in the market out there in your daily life. That you can relate to this ad and tell us. Give us your feedback. To see what concepts work, don’t work.

Matthieu David: Okay I understand. So, you have an app, this app has notifications. Its pop-up notification for the people in the Chinese mobile community, in order to achieve Chinese customer data management, people who have the app, different notifications with different communities, to say open the app and now look at the video, what’s the video. Survey on the video, like a 15 seconds video of coca cola and then a small survey to say what do you remember of the video. Or, if they are in retail, they should actually open the app, because you already told them to do that before, and then they use that app to take a picture to shoot a video or to write up text. Am I correct? I have a good understanding?

Navin Williams: Exactly. Exactly. And it could be like – one could be ad relationship. So as you said, there’s a 15 second TVC that you’ve exposed the consumer to because when he clicks it plays that video and after they view the video then they are asked – how can you take a photograph or a video of a scene in your daily life, in your immediate surrounding, that you feel you can match with this video in your life. That it makes sense. Or they don’t want to do it and they just need to write an open-ended – I don’t see anything that actually – that this ad is showing me. Or they say that yes – this is very similar to me doing this, or they take a photograph of something that they see and say that, yes this resonates with me.

Matthieu David: I see, do you have the function of a chat room in your app?

Navin Williams: So, we have not added chat, we have the option of doing it but we just found it very stressful –

Matthieu David: For you or for the users?

Navin Williams: No, not for the users, for the moderator.

Matthieu David: Yes. Very time-consuming.

Navin Williams: Because from their perspective it’s a bit stressful, so we don’t normally use it, but it’s not something that we cannot layer in.

Matthieu David: So, you created your own app. It was a native app right, one for IOS and one for android. So, two app, native apps and like seven years ago, WeChat – how did you think about integrating with WeChat and using the API of WeChat, have you done something with WeChat or other Chinese mobile community? Are you still running it independently and asking the users to download your app?

Navin Williams: We are still adhoc largely. We have integrated with WeChat and however we have not really been able to sell it effectively. So, I think because the protocols are not there, even in fact for our app-based research protocols are not there and qual research alone I believe is a very hard business to scale, so in fact that’s one of the reasons that I started this company with a partner of mine called Prediqt and Prediqt is a mobile-enabled panel and that’s a global panel and in that we plan to add a lot of qualitative functionality. So actually, having consumers from our learning’s of TPV, so have consumers who are doing surveys and polls to actually also capture media on our behalf. So, videos, audio recording, photographs. So, it’s still early days because there we are already getting scale on the panel side. Online quant studies, so that’s a new kind of experience and learning for us, but we will add these features on it. So hopefully we will be able to not only conduct Chinese customer data management but also scale qual as well, using this huge panel we have.

Matthieu David: So, correct me if I’m mistaken, but what you are saying is that because you work with this panel company called Prediqt, you use your app and you don’t connect with WeChat because Prediqt is worldwide and WeChat is China-centric. So, it wouldn’t make sense? Am I correct or -?

Navin Williams: Not that, I think one of the reasons we don’t use WeChat is – one is that we have our own platform and WeChat is not scalable beyond China. You are right about that. That is one part and the second part is that I am not sure if we were to focus on the WeChat based community for Chinese customer data management. If we would be able to compete with some of the very basic ways that research is sometimes being conducted using WeChat. So, sometimes where clients are not willing to spend, you can actually just create a WeChat group of consumers and run a small Chinese mobile community for a small period of time and you don’t really have to build the client for software or anything like that, and there is no development. So, it’s just the data that you collect during those sessions and take that and analyze it and you deliver. So, I think that that’s a tough fight unless you’re building a much wider offer of a long-term community base and panel – a community-based solution sorry, for clients – and I haven’t seen yet a really fleshed out requirement for that.

Matthieu David: So, we understand what the users have, the app, I will say in China, where they can upload documents, they can interact with you, what about the client? What do you get as a Chinese customer data management system? You moderate yourself, you interact with the users, but the client is seeing the results live. Could you describe a bit more about the – do you call that CMS or -?

Navin Williams: Yeah so, the CMS has two functions. One is for the setup of the survey as the mini-surveys we spoke about to actually have those sessions go on and then the reporting part where you have those data feeds coming in life. So, we have a client view CMS, so clients can view only the data coming live. They cannot edit, they have no reading or writing rights, so that is there and then they get a few other metrics like how connected the consumers in Chinese mobile community are. Who is the most active, inactive? Things like that. But yeah – and what we would be able to do the Chinese customer data management at our end is we can download all that feed on a daily basis or an hourly basis, how frequent we want to analyze that data. c

Matthieu David: Okay, you struck on the CSV.

Navin Williams: Yeah exactly, and all the data gets sorted by topic, by the grouping. So, if we have a mini-survey on retail, all the videos, and pictures that come can be sorted by that topic or by user or by date. So very often we want to see maybe on a weekend – what the output was or we want to see by topic whatever was done in retail, or at consumer in-home – so based on that we can sort the media as well and once you sort the media, it’s easier to analyze as well.

Matthieu David: Would you mind sharing one or two or three cases to illustrate how it has been used. I saw on your document you’re talking about Coca Cola which uses your platform. You talk about many other companies which are a part of – especially for mobile community interaction and diary as well. Would you mind sharing two or three cases?

Navin Williams: Yeah, so the coke case you’re talking about actually was our first client customer. That was I think 2010 and it was so long ago that we actually created the solution on blackberry’s – so nobody even probably remembers Blackberry. So, we actually built it internally for the coke team globally. So, coke global, the team globally could actually in a way build a community of their own of people they identified in different countries coke operated and they all had Blackberry’s which is company phone and then it moved to IOS as well.

So, they allowed these employees to look at coke global objective and feedback very quickly. So, what happened was – say there was the Olympics and there was a campaign going globally, but that campaign did very well in Chinese mobile community, that same campaign didn’t do well in India. By a couple of weeks. Because the global insight team had these people who used the app to walk in to a store and say that the display is – the retailer is hiding because he feels it is not doing well, or they are very proud of it and it seems people are crowding, and those photographs were uploaded using the app and sent centrally. So, the team could quickly look at the results and go to Chinese customer data management and tell them that working in China, not working in India- things like that. So that project we did for around two years for Coke before it was disbanded.

Matthieu David: Two years.

Navin Williams: Yeah, we did that for two years, I think 10 and 11 I think or 11 and 12.

11 and 12 yeah and then we have also done food tracking– so day in the life of – so we don’t realize the amount of snacking we do and you know we were trying to find out for a dairy client of the snacking, how much was milk-based and we saw people were having a lot of milk-based drinks, yogurt and then mixing it up with chips, biscuits and other – and a lot of traditional food as well and the snacking pattern is throughout the day. So, it’s not like there are fixed mealtimes. And we did it at actually quite a large sample size and we found that snacking was literally a 24-hour process, except when you’re sleeping, you’re not snacking. And a large portion of that is milk-based products. So that was quite revealing for the client.

Another one we did was in the retail space, so we know that natural foods, organic – that is a big theme and packaging companies want to get out of – get into that space. So, when health becomes more heightened, their products – they are there to offer products for clients. So, one of the things we did for a beverage company was actually go into – consumers went into stores and they went to the fresh produce section and then they identified fruits and vegetables they considered to be fresh. Yeah. Fresh and clean.

Now, we matched that with another exercise they did, where they went to the packaged goods section and identified products and goods and brands that they thought were natural and refreshing and pure and then we could see what is working, what competition is doing. Are we in the considered set? And are there any gaps for innovation in products?

Matthieu David: I see. You’re talking about passive tracking of Chinese customers in your PPT and for me passive tracking is related to localization, so it’s the GPS or the mobile or so on, so you can know what people do but also, maybe what people browsed on their mobile. Could you tell us more about that? What is passive tracking? What do you do with passive tracking of Chinese customers? And is it the same app you are using or it’s another solution? How many solutions do you have by the way?

Navin Williams: Okay. So, our main product is the on the quality side, we use a lot of TPV, WAP-based. On the quant side we do a lot of online surveys in Chinese mobile community. And then – actually my partnership with Prediqt started with passive tracking of Chinese customers, so they initially had built this passive tracking solution and them – I started working with them to fine-tune that. Over time what has happened is that passive tracking of data has – so apple doesn’t allow you to do the Chinese customer data management and now android doesn’t allow you to do it as well.

Matthieu David: How do we find passive tracking?

Navin Williams: So, you can monitor all browser activity on the mobile phone. You can monitor all activity of apps to manage Chinese customer data, what app is being used, how long it’s being used, when its being used and of course location services will allow you to know that where they are using these apps, where they are at a given point of time and yeah – so that is effectively it.

Now the really powerful data from passive tracking of Chinese customers is if I can tell you if you’re using a shopping app and within that app – you know what I browsed, what I bought, what I did not buy, but considered to buy, you know this is powerful information in Chinese customer data management and that is something that clients are willing to pay for. And that, unfortunately, is the gap in passive tracking on the mobile because unless you have cooperation of these apps itself, you cannot know that data.

So, as I told you, there are a lot of security restrictions now. So, you can get how long, the session you had in a certain app, say a shopping app and you spend half an hour on it. You know between so and so and so and so but I cannot tell you what you browsed, what you bought and things like that. So, while passive tracking of Chinese customers the same thing can be done online. Online you are getting that information. So that data of Chinese customers are actually with Prediqt – in the US they have some clients where we sell it. We have consumers, so you will be able to know the basket that the consumers on that panel study, have done, bought in a week.

What they bought, categories, scales, like that, those details and also which online platform they bought it on. So that is slightly more evolved on the online side but I think for the developing world where we are generally one device users, so most people do not have tablets, or your PC’s, and laptops, but penetration of mobile is very high and that is increasing and all their lives and all their interactions are happening on the mobile phone. So, if you don’t get that depth in mobile, then passive I think is very tough and also, I think with the whole privacy concerns some of our clients in fact, when they went back to their legal teams and said that no you cannot do this with consumers. So even if we offered it from our largest clients wouldn’t do this research.

Matthieu David: Even with the consent of the consumers. You said that passive tracking of Chinese customers was more possible on online, on PC and more difficult on mobile. So technically speaking on mobile, you were using the API or CLDK on the phone or the company OS and for online or for computers you would basically add a plugin to the browser, on chrome and then explore the data of Chinese customers? And then you get the consent of the user and you will be able to track Chinese customers. Am I correct?

Navin Williams: Yes, yes, that’s exactly.

Matthieu David:  I See I see I understand. Ok, I got it. So, you are partnering with this company called Prediqt and I looked at your data. And what is funny, is, it’s more of inside and something very deep I am going to talk about but is that the gender balance between men and women, it didn’t vary a lot. And in India, I think you have 65% of male and 35% of women, as it is same in Japan. How can you do the international research business in India and China with such an unbalance when China is pretty, the panel you have is like 55 – 45%. How do you explain that?

Navin Williams: I think that social differences are very high in international research business in India and China, and usage and access differ largely. So, 60-40 is not so bad. If you went to say, some other countries like Bangladesh, and I think where we are opening panels now, the difference is even starker, so you know –

Matthieu David: Access to mobile.

Navin Williams: Yeah, so I think it depends on the country and society. If you go to Indonesia, penetration of smoking is very high, but not amongst women. So, you know, it’s just demographics differ and acceptance and penetration within those societies differ. Very often, it’s a single phone household and the male member of the family; he is the one carrying the phone. And everyone else, if they wanted to use it, they had naturally had to request usage of that.

Matthieu David: I see. We just talked about the panel in India and you have been working in India. You are from India?

Navin Williams: Yeah, I am from India.

Matthieu David: How would you compare these two countries, regarding international research business in India and China? That’s a broader question here but – I remember when I was studying in Peking University, there was this book called Chindia – like china-India together. And I always, I knew there was this book that was saying – is it really a concept? Can we really put those two countries together in international research in India and China and think it’s like an economic zone? I felt that very different. The only point in common they have that it’s a very big population. It’s the biggest population in the world. How do you compare both of India and China which are rising countries, economically speaking but my point of view that I don’t know India as much as you do, is that they are still very, very, very different?

Navin Williams: Yeah, it’s very different and if you take China, there is a lot of strength in term of infrastructure support,  Chinese consumers have access to a lot more resources. While in India, a lot of the country is still underdeveloped and rural. And even in urban there is a big divide between, the socio-economic classes. So, because of that, in some categories, they are very mature and there are a huge history and legacy of brands and things for decades. You know almost a century old. While brands here may not have that legacy. Maybe 10 years, 20 years, 30 years, 40-year-old brands maybe if you are lucky. But I mean, take coffee consumption as an example in international research business in India and China. Traditionally not a coffee-drinking country but coffee sales in China has such huge growth and for Starbucks, it’s their number one market. And in India they barely have a few stores at airports and select few cities. So, it’s a very rare thing to see, that’s because coffee has been in India for a hundred years and a consumer knows their coffee.

And they can get a good coffee for, half a dollar or less. So, what will make them pay $5 for a coffee? Do you know how many people are there to do that? So very valued conscious consumers, and so it’s not just the power of the brand but the product as well. Not that it’s any different here, but I am saying new categories I think have acceptance is far greater in China than say in India where you already have a lot of these categories established for long periods of time.

Even if it’s small pockets. So, in India we have coffee preference regions, tea preference regions, and so distinct markets. And even within the tea market, how the tea is drunk in one part of the market is different from another part of the country. So, we have officially over 22 languages and even doing research is a challenge because you need to have that much if you really want a national perspective, it’s very hard to get in it in India. It’s like literally you have 22 plus different distinct cultures out there to deal with.

Matthieu David: I have a question actually about international research business in India and China. India is known to be able to develop a lot of techs; I think Sapiens has a lot of his team in India. Have you been able to experience for your own company this and to develop in India your solution to be able to leverage for China and for the world? Or you have done everything in China locally?

Navin Williams: No, the early days we did everything in China but we do maintain a team in India. We find that development in China is more efficient and faster. That maybe just our experience because we sit here, I guess we can put more attention to it. In India we do a lot of the RND work in India. So, you know, so if we are talking about 3D imagery, how to add it for the product testing or things like that. Something like that is not mainstream but we think that you know that –

Matthieu David: I see.

Navin Williams: So, we will have our team. Anything that is a non-critical thing we use our India team. Or if here there is overflow of work we use the India team. And increasingly, I think for a lot of the operational work, research, scripting of surveys, and things, that again we have started to use the India team more.

Matthieu David: So, Mobile Measures you have a part of your team in India. I didn’t ask you the size of your team actually.

Navin Williams: We are still actually very small. So, in China, actually only five, because we don’t count any of the developers as our team. They are all Fugu and Fugu is around 50-55 people, and so together we are around six teams and in India it’s around 12 people. So total 17-18 people.

Matthieu David: Ok, ok. But you are mixing with Fugu mobile and working within Mobile Measure. How many in India working for Mobile Measure or its mixed?

Navin Williams: Oh, the India team is Prediqt and Mobile Measure. Fugu has another team as well. Which is again the same size.

Matthieu David: Okay, okay, I see, Interesting. That is actually linked with another question I have with international research business in India and China. I think there is a lot of calamities in India in research. There are so many research companies that are contacting us. We are in touch with a firm in India which are doing market research all over the world. And I don’t know if you have foundered, but they are very, very, very value-conscious. I mean they want the lowest cost possible, And I don’t even know it’s possible to run research with such cost structure. How do you react to that? Did you have the same experience?

Navin Williams: Yeah, so, in China – again I think it comes down to – let’s just talk about Kantar’s Research Company in India (IMRB) has been in the operation since the 20’s or 30’s. Yeah, so, almost 100 years of operations. So, research has formerly been conducted for that long. While in Chinese customer data management again, the industry is not that old, from an industry perspective but its evolution has been actually very rapid. So, you have a market which is huge, so almost a billion is what the research market in China is, and where it is still fine-tuning. While in India, very savvy researchers because they have been used to it for a long time.

But the project value is very low and if you are not doing volumes, it’s very hard to sustain in India. But for an international research  business in China and India or you are doing a lot of multi-country studies, India works well because it’s a good low-cost base with high talent. So, you could do some processes in India, do other processes that you need more hands-on and be there where ever you are located. That’s actually been India’s strength for many, now I would say a couple of decades, with a lot of the multi-nationals moving their RND centers, their development centers, their entire – even customer relationship, a lot of things, the non-face to face have all moved there. But I think that also is evolving because costs are not stagnant, that’s also rising. So, there is a shakedown in the Indian market as well.

Matthieu David: Last question for you, especially again relationship between research business in China and India. we have seen Chinese companies going overseas, and when they go to Europe and they see so many countries, so small countries like some countries are not even the size of the city of China. Like Belgium is smaller than Shanghai and France is the size of one province in China. It’s difficult for them to be massive, to sell a brand, to sell a specific product like Xiaomi, like Oppo and some apps as well are going overseas. And we found out from someone on research that Chinese companies are doing pretty well actually in India, some of them. Some of the top apps in India are Chinese. A third – 1/3^rd or maybe 25% I maybe, it may be less but its massive. Do you see this trend? Are you living it? Do you have some Chinese clients who are asking you advise you to go to India?

Navin Williams: We have ad hoc work for local clients but more active kind of relationship at the moment. In fact, in India, the number one phone company is actually Xiaomi, so I think as I said, India is very value-driven and if they see value in a product or service, I think they would give it a shot. So in the early days I would say not the top end products really reached the Indian market.

So, from international research business in China and India we could find that there was a low reputation for the products coming from China and they didn’t do well. But now, increasingly some of the companies are investing and offering their services, which is being bought. So, I think localization, how well the Chinese companies continue to do in India would be driven by localization. Because India is not one victory, it’s like, could be a thousand, a million Belgium’s. So, it’s a very diverse country and you have to win all those battles. It’s a very tough market referring to international research business in India and China.

Matthieu David: Let’s not fragment it by what we think.

Navin Williams: Very, very much so.

Matthieu David: Interesting, thank you very much for your time, I really appreciate. That was very interesting, we went depth in technology, in cases and I really liked to share with you about the differences between research business in China and India. The other question I would like to ask about blockchain, about surveys, about maintaining your panels that would be maybe another podcast because we went a bit off time, it’s already one hour of interview. Thank you very much again and hope everyone enjoyed the talk.

Navin Williams: Thank you, thank you, Matthieu. Ok, good talking, ok buy-buy.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

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This article Podcast transcript #56: How to develop international research business in China and India is the first one to appear on Daxue Consulting - Market Research China.

Unmanned stores in China: Integrating AI technologies in Chinese retail

As the first emerging store-model after the new retail concept was proposed, China’s unmanned stores started sprouting up in China starting in 2017. According to iResearch, the market size of unmanned stores is expected to exceed 3.3 billion in 2020. At this stage, AI technologies in Chinese unmanned retail are mainly divided into three categories: bar codes, radio frequency identification devices (RFID), and machine vision. The following are the major technologies of leading enterprises among unmanned stores in China:

QR codes

The QR code, in other words, the two-dimensional code, provides information storage on both horizontal and vertical axes. It enables consumers to pay for goods by scanning codes on the products. It’s fundamental to unmanned stores with the advantages of lower costs and quick payment. Small unmanned stores such as Bianlifeng and Xiao E micro shop use this technique.

Radio Frequency Identification Devices (RFID)

RFID is relatively mature in using electromagnetic fields to automatically identify and track items’ tags. It requires sellers to stick RFID tags on each product to improve the efficiency of identifying goods.

Machine Vision

Machine vision uses cameras and computers for facial and behavior recognition. Presently in China’s unmanned stores, machine vision performs as a store clerk to recognize and trace customer behavior. 

However, unmanned stores in China have started experiencing a series of closures, bottlenecking further development. One major obstacle is the difficulty of selling fresh groceries in the store without adding staff. Customers expect to buy processed food when in convenience stores. Some unmanned stores that only carry long-lasting products like drinks and snacks would not attract consumers but only be regarded as a big vending machine.

By analyzing Tao Café and Bingo Box, the most recognized unmanned stores in China, it can be seen that they can significantly enhance the shopping experience. Customers can enter Tao Café and Bingo Box by scanning QR codes on their apps. The stores are equipped with biometric systems and machine vision technologies used for facial and speech recognition. With further upgrades of AI technologies in Chinese retail, Tao Café can track target consumers, analyze what the consumer took as they leave the store, and offer speedy payment procedures, effectively removing the need of a check-out system.

From unmanned stores to smart stores: How AI applications in China have changed the retail landscape

AI is being applied in new ways across the entire new retail product and service cycle, from assembly to customer service interactions. Integrating AI in new retail is helping retailers discover actionable insights with different AI applications. For the perception of the retail process, AI applications in China’s new retail can be broken down into the categories as below:

Customer traffic recognition

The traditional Chinese retail industry lacks effective means to understand consumers’ needs and purchasing habits. Customer traffic recognition is one of the solutions of using AI technologies in Chinese retail. Tech companies support AI technologies in Chinese retail Hikvision and Winner Technology.

Customer traffic recognition can identify the flow density of consumers in the store and draw a heat map through real-time monitoring, thereby calculating the most popular goods and services to understand consumer’s shopping habits. Through the results, operation settings of the store can be adjusted timely. Also, it allows retailers to keep the optimal configuration and realize the balance between people, goods, and places.

[Source: CICC and Hikvision, “AI in China’s new retail: customer traffic recognition in smart stores”]

Digitalizing offline retail

Relying on AI robots and other AI technologies in Chinese retail empowers offline stores to adopt digital management

Traditional large-scale retail chains need to manage hundreds of stores across the country. By deploying Dahua’s smart retail solution, offline retailing stores can implement precision marketing, find the stores with poor sales, and even identify theft through reviewing business data. Also, the remote patrol function can be used to directly view the status of each store, in terms of its operation, display, health, service, and compare the high and low performing stores in real-time. The face recognition among AI technologies in Chinese retail accurately counts the consumer traffic data and combines the sales data to analyze effectiveness and customer preference.

Supply chain and logistics optimization

Increased usage of AI technologies in Chinese retail serves to improve overall efficiency and resolve the limitations of traditional retailers, such as inefficient planning, labor-intensive warehousing, and slow response to market changes. Under the complex network and increasingly diversified consumer demands, retailers will need an automated supply chain. AI technologies in Chinese supply chain include deep learning, machine learning, and sensor equipment. Product tags like popularity, best seller, and high margin will be categorized without human intervention. When a product is contributing relatively less compared with its resource, time, revenue, margin, it would be automatically replaced.

For a specific example, Cainiao Network has created a logistics information platform that links delivery vendors, warehouses, and merchants. The platform is designed to digitize the logistics management with AI applications in China’s new retail. Also, building on their work in smart logistic robots, Cainiao has developed an agile, automated warehouse solution. The self-charging AGV robots in the warehouse are expected to reduce manual staff labor by an average 50,000 steps per day and improve efficiency by 30%.

The promotion of AI in new retail in China is to further accelerate the process of new retail transformation in terms of data, networking, and intelligence. It changes the retailing landscape by creating efficient and accurate user portraits, perfect merchandise, and service, as well as the accurate decisions based on AI-led data.

Retail reform: Using AI technology in Chinese retail to center on customers’ needs

China is the first country undergoing a“new retail” reform to focus on customers’ needs. Compared to the traditional retail industry, the collection of customers information is more time-efficient. At the same time, with updated AI applications in China’s new retail, retailers are considering how to use customer data to analyze customers’ consumption behavior in the store or online in a timely manner. Therefore, customer supports have also been launched by AI in China’s new retail.

1) Smart product search and recommendations

By integrating AI in new retail, real-time data in many e-commerce channels is used to predict what consumers want. It is based on previous purchases, online browsing, comments, to achieve precise marketing. Take Taobao’s AI design system Luban as an example:

Luban system first combines big data and deep learning to decompose the original images, train and learn different designer styles; secondly, according to users’ preferences and other data matching to generate digital ads, the system selects the best ads after scoring. The system processes over 8,000 posters per second as demonstrated in the below picture:

2) Smart customer service (Chatbot)

With the development of the Chinese retail industry, the needs of the online customer service are continuously growing. The data shows the market of China’s online customer service in 2017 was 64.4 billion yuan, with a compound growth rate of 10.62%. Because the traditional type of customer service has many weaknesses such as high labor cost, speech recognition is used as one of AI technologies in Chinese retail to solve problems effectively based on big data and deep learning. It is expected to gradually replace traditional manual customer service and improve the quality of service.

Ali Xiaomi (阿里小蜜) is an AI-enabled personal shopping assistant and customer service representative used on Alibaba’s e-commerce websites. With the use of natural language understanding, Ali Xiaomi stands out from other chatbot services available in China. It is able to understand customers’ messages, including texts, voice, and even photos. It will return a list of recommendations that users can choose by brand, color, and other characteristics. Also, Ali Xiaomi can answer some frequently asked questions and inquiries from consumers.

3) Pervasive personalization

Merchants selling on mainstream e-commerce platforms presently can personalize their virtual storefronts, offer real-time and tailored product recommendations based on purchase histories, demographics, and geographic locations. It is also an effective approach to center on customers and improves efficiency by integrating AI applications in China’s new retail.

Large new retail platforms using AI: the fusion of algorithms and experience

Currently, AI is widely implemented in hypermarkets, supermarkets, and also convenience stores. Apart from such retailing stores, other internet companies like Tencent are also the leading buyer and contributor to developing related AI applications. Thanks to the promotion of retail giants, such as Alibaba, JD.com, Suning, etc., AI applications in China’s new retail are on the rise will continue to expand over the next two years.

1) Hypermarket: Ali & Hema, JD & 7Fresh

Hema and 7Fresh are both highly integrated their online and offline markets. They provide services that connect supermarkets and restaurants. Users add products to their digital cart by scanning QR codes. JD also launched the unmanned shopping cart service, which supported by image recognition. In addition, combined with the no cash payment method, Ali and JD can obtain accurate data of users, in turn, to achieve precise marketing.

The availability of electronic price tags that can be recognized by machine learning applications like RFID, is the key to the efficient operation of hypermarkets. Hence electronic price tags are a key AI technology in Chinese retail.  The use of electronic price tags ensures the same price online and offline sales. Furthermore, with the mobile handheld identification devices, staff use codes to identify which goods to pick from shelves, then package the products and transport them to the express delivery department. The efficient data transmission chain is also important to support for their delivery commitment, as well as to helping expand the customer base.

2) AI + big data: Tencent & You Mall smart retail system (优mall)

Tencent’s Mall Smart retail system was released in 2017. It is equipped with Tencent’s AI technologies called Youtu, and Tencent’s Cloud Data. The system includes VIP-to-store reminders, store compasses, line analysis, customer group management, facial recognition payment, etc., covering the various sections of the store. Youtu’s facial recognition technology is applied to customer identification; shelves display adjustment, shopping guide, and patrol shop functions. Through the moving trajectory in the mall, shopping paths, and correlations between categories and commodities can be recorded and analyzed to optimize the arrangement of shopping malls. The following chart shows the central values of the AI system in digitalizing customers’ information analysis:

In short, AI in China’s new retail indeed has great potential for continuous development. Whether in the hypermarket, the smart retail system, or any new forms that may emerge in the future, the fusion of algorithm and experience is an important factor for retailers to consider when deploying AI. That means it is necessary to combine advanced algorithms of AI technologies in Chinese retail with customers sentiments from the previous retail experience.

What AI technologies in China can bring to your retail shop?

Currently, the main players of AI in new retail in China can be sorted into three categories: cloud services, large retailers with AI uses, and AI companies.

Based on their own database, large internet companies can develop or integrate AI technologies internally. The represented companies are Alibaba, Tencent, and Baidu. AI companies in China can deliver customized technology that addresses individual store needs. Apart from AI technology, relatively small retailers can also learn from large and mature retailers to find AI solutions.

The structure of leading players of AI in new retail in China:

Chinese AI companies in retail are mainly focusing on the technology layer. For example, Malong Technologies provides computer vision service. Some other companies like Megvii, Deepglint, Extreme Vision are also offering AI applications to cover the overall retail chain in China.

Therefore, for the foreign retailers who want to launch or further develop their business and integrate AI in China, cooperating with AI technologies companies is considered as an essential and practical approach to target more Chinese consumers.

Based on the algorithms, there are two segments of technologies that foreign retailers can use to find partners in AI and China’s new retail.

Firstly, in the basic level, it is suggested for those retailers with a market share in China to partner with the AI companies which are serving cloud, data, and algorithms technologies. They can integrate AI in new retail to form their own consumer group portraits and analyze their preferences and expectations through the data analysis services. Here is the list of companies which are providing cloud, data, and algorithms services:

On the other hand, China’s AI companies in technology may bring more solutions to the current retail bottleneck. With applications such as computer vision, intelligent speech, and natural language processing, retail companies can directly target the consumers and reduce costs by more intelligent customer services and improved shopping experience.AI companies in China who are developing this type of technology are below:

In conclusion, an innovative retailer should use AI to make accurate forecasts and anticipate the future. AI in China’s new retail is more expansive than just unmanned stores, also reaching into the territory of hypermarkets and supermarkets, and other retail methods that are yet to be invented. In this world of big data, insights from AI will contribute to creating competitive advantages for retailers to improve the efficiency and profitability within the Chinese retail industry.

Author: Yufeng GUO

Learn more about China’s Artificial Intelligence ecosystem by reading our AI in China White Paper.

See our report on AI in China:

This article AI in new retail in China: not just unmanned stores | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Business in China has grown tremendously over the recent past, making it the envy of most of the traditional economic powerhouses such as the U.S. China’s digital market is breaking borders and records at every corner. But why does it seem so effortless for Chinese businesses to grow? Well, CX professionals attribute this to the unique Chinese customer expectations. Winning customer loyalty here has everything to do with giving them a progressive digital lifestyle.

In the US, customer experience has everything to do with appealing to people’s emotions. Leading brands across industries in America gain customer loyalty by giving their customers what they want, not necessarily what they need. You need to be politically correct for your products to sell in the US, something that isn’t necessarily important in China.

If you want to get a clearer picture of how big the Chinese economy has grown due to the unique Chinese customer experience, just look at their 11.11 Shopping Festival that goes down every year on 11th November. This designated e-shopping day brings together manufacturers and consumers to bring to life one of the craziest 24 hours of business dealings. Get this: In 2013, the festival the reports recorded a whopping $5.8 billion in sales, within 24 hours only. More than 300 million Chinese online shoppers transact on this day.

If you compare 11.11 Shopping Festival to America’s esteemed Cyber Monday or Black Friday; your jaw will definitely drop. According to Internet analytics company comScore, the highest any of these two e-shopping binges have ever recorded is $3.7 billion. That is way low compared to the Chinese e-shopping binge.

That brings us to the question: How different is the Chinese customer experience relative to America’s CX, and how significant is this difference?

The main differences in the Chinese customer experience

Online purchase of offline services is big in China

While trying to measure the behaviors of Chinese online shoppers, reports have some shocking facts. A Chinese consumer is 20 percent more likely to order food online as compared to an American consumer. In the same breath, a Chinese is 9 percent more likely to order dry- cleaning services over the mobile phone than a US customer is. And when it comes to making payment both in online and offline transactions, a Chinese will use a mobile payment tool at least 50 percent of the time while an American will do the same only about 16 percent of the time. This difference means that there is more money making for China’s digital marketing than for the US.

Chinese online shoppers value online reviews more than Americans

Chinese online shoppers are twice as likely to make a purchase based on online reviews compared to an American. This is particularly because culturally-speaking; the Chinese believe more in online relationships than offline relationships. Americans, on the other hand, believe in people meeting offline and then establishing relationships from that point. Not many Americans would believe reviews made by total strangers online.

Chinese online shoppers are more into luxury brands

If you wish to start a business in China, your professional employer organization has probably hinted to you how luxurious the Chinese are. If yet, then get this from me: The affluent Chinese class doesn’t really care about which brand rules and which doesn’t. All they care about is how luxurious a product is and how it can potentially give them a respectable status in the society. Brand loyalty is a new thing in China.

In the US, customers value labels and brands, not necessarily the quality of the products. A popular clothing line, for example, can manufacture substandard fashion products and still make sales in the US. That doesn’t work in China.

Shopping in China is fun

Over 70 percent of Chinese shoppers consider shopping in China – both offline and online – to be a fun activity. They take their time to understand how a product will change their lives and then make shopping decisions from informed perspectives. The Chinese are never in a hurry to get done with shopping, any day of the week.

This is a sharp contrast with the Americans. Only about 48 percent of Americans find joy in shopping. It is worse in Europe, where up to 60 percent of shoppers consider shopping as a chore more than it is a fun activity. As such, these western shoppers end up making fluke shopping decisions in order to save time.

There are many differences between Chinese customer experience and what is currently offered in the US. But now we can ask ourselves: what will be the next initiatives in China’s digital market?

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It is no surprise that China is the most dynamic e-commerce market in the world today. The growth in the number of online shoppers—and the sums of money consumers are spending via digital channels—is astounding. Organizations from diverse areas are racing to shift their business online or improve their existing online platforms to keep pace with this changing e-commerce landscape in China.

According to business.com data, in 2016, the annual online sales of China were valued at USD 672 billion. To put this in perspective, it is double the value of online sales in the United States, the second largest e-commerce market in the world. In this article, we will consider six top China e-commerce trends to look-out for. 

Overview of the e-commerce landscape in China

The Chinese marketplace is competitive, with international and local brands fighting for the attention of consumers and their share of the market. Brands and retailers need to continuously innovate to keep pace with the growing list of customer demands.

The e-commerce landscape in China can be characterized by fads, such as mobile-first consumer behavior, social commerce uptake, and digital payments. These trends can be broken down into four main themes:

1. The adoption of omnichannel technology and consumer movement between the online and offline worlds.
2. The growth of mobile payments and the use of mobile phones for making online shopping purchases.
3. The evolution and growth of the digital ecosystem and the addition of services by China’s top e-commerce brands to improve the existing network. 
4. Partnerships between Chinese social media platforms, search engines, and international players.

6 China e-commerce trends to look out for

The rise of online shopping in China

In recent years, China’s internet population passed a significant milestone. According to the Chinese government, 802 million people are now using the internet, a whopping 57.7 percent of the entire population. This was announced by the China Internet Network Information Center (CNNIC). The United States, on the other hand, has an estimated 300 million internet users.   

While Chinese consumers continue to window shop, they are less inclined to spend their money in stores, compared with consumers in the West, and prefer online shopping in China. A survey of over 15000 global online shoppers published by PwC discovered that 75% of Chinese shop online weekly, while the global average is a mere 21%.

Mobile shopping

Chinese consumers have not only bypassed the physical shopping experience, but the population is also moving on from online shopping in China and opting for mobile shopping experiences. Data for 2015 reveals that mCommerce accounts for around 51% of total eCommerce expenditure in China. Comparatively, the figure is 33% in the US.

The survey results also revealed that one in four Chinese consumers answered that they shop with a mobile phone once a week or more. This number was notably higher than the global average of just 9 percent. In addition, 77 percent of all people surveyed revealed that they shop on mobile phones, where the global average is estimated to be 43 percent. 

The rise of Influencer and Chinese social media

Social commerce is the integration of eCommerce and social media or vice versa. Social commerce is an influential China eCommerce trend. Nearly all major Chinese social media have fully-integrated native eCommerce and digital payment options, and this has been the case for years now.

The success of marketing strategies that take advantage of social media is down to the accessible nature of these platforms that leverage the social capital of trusted acquaintances or known opinion experts. This is further reinforced with the use of engaging advertising campaigns, which attract the attention of customers through dynamic media.

You can see examples of this sort of integration in the West on platforms such as Snapchat and Instagram.

Omnichannel marketing

Recent research on the consumer experience in China by McKinsey indicates that there is no other market in the world, where the line between online and in-store shopping is so fluid. According to the McKinsey study, over 95% of Chinese shoppers may be labeled as omnichannel-only. They either research products online and go to a physical store to make their purchase or visit a store to see a product before they order it online.

The use of robotics in logistics

Chinese organizations are increasingly adopting AI technology, including, computer vision systems, machine learning-based predictive analysis, and bots. China’s second-largest eCommerce company JD.com, which owns logistics and distributions operations, is aiming to reach a tenfold increase in sales by the year 2030, with the assistance of robotics and AI.

JD.com has indicated one likely direction for its supply chain operation. The company has developed robots capable of delivering products over the last-mile, thus helping with delivery route optimization.

B2B Marketing and Alibaba.com

Business-to-Business (B2B) Chinese marketplaces are developing quickly. Sellers can use these marketplaces to create their own websites to display services or products online, make connections with global buyers, and respond to offers to sell or buy.

In 1999, Jack Ma launched Alibaba.com, a top Chinese marketplace for global wholesale trade. Alibaba.com is based in China and is the largest B2B marketplace in the world. It began with the goal to provide an efficient B2B trading platform for the international trading world. The enterprise is a leading eCommerce stage for medium and small companies from around the globe.

Wrap up: what can we learn from these China eCommerce trends?

Many businesses in the West, look to Asia and China as both a potential threat and a new exciting market. North America and Europe’s status as market leaders have already been lost. Thus, neither of these views is entirely true. Rather the demographics, data, and movement of the e-commerce landscape in China should be approached as a model of how the world will soon shop.

Implementing these China e-commerce trends is not only about entering Asia’s growing markets; rather it’s about using the e-commerce landscape in China as a blueprint or guide. Asia can teach us how our markets will sell and deliver products, now and in the distant future. 

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Full transcript below:

Matthieu: Hello, everyone. I am Matthieu David, the founder of Daxue Consulting, and this China marketing podcast, China Paradigm. Today, I am with Annie Guo. So, we found out about your business online through LinkedIn. I think someone shared about what you were doing in Paris—I guess in Europe now, because you have an office in Barcelona if I am guessing correctly. So, we looked into your business about Chinese mobile payment. So, there’s a company called Silkpay, and you are the founder or co-founder. You may tell us more about it later on. And this business is helping companies to monetize with the Chinese tourists in Europe.

So, when Chinese are traveling overseas, most businesses have difficulties actually to make them pay. And actually, because China uses QR Code. And that’s what you are doing. You’re helping foreign businesses from Europe and from, maybe, US—you will tell us more about that—to be able to sell to Chinese when they’re traveling overseas. So, you founded the company in January 2016. The third anniversary was like three months ago. You have also developed services to support the marketing of this company. That’s something we may talk a bit slightly about later on. But first of all, thank you very much for being with us on a Saturday morning. So, it’s 8 am French time and 2 pm China time. And so, what about the introduction? Was it correct?

Annie Guo: Yes, I’m so surprised about how much information you can get out from Internet searching. And yes, it’s exactly correct about our company. So, I want to start by introducing myself and how I came up with the idea of SilkPay. My name is Annie Guo. I originally came from China. I did my study in Paris in 2001 in a business school called HEC. And then afterward, I moved to London to work in the banking industry. During a personal trip in 2015 to Beijing, I found out that, I became a stranger to my own country in the sense that everywhere, people were paying with their mobile phone, without a wallet, a real wallet. But for example, when I took a taxi in Beijing, the taxi driver refused me paying him in cash in RMB. I was so surprised. He insisted that I used my e-wallet on my phone to pay him by Alipay or WeChat Pay like everyone else in China. 

So suddenly, I realized I had become a stranger in China, in my own country. And I can feel the pain that the Chinese tourists in Europe can feel, not just because of the language barrier, but also, they can no longer use their favorite way of paying in Paris or anywhere else in Europe. So that’s is why I came up with the idea of creating SilkPay and to be a partner of AliPay and WeChat Pay to educate the European merchants about this new way of paying, a new way of life actually. 

Matthieu: For the audience to be able to spell it, silk is spelled S I L K and pay afterward. So, you are helping those Chinese tourists in Europe to be able to continue to use the same system which is exclusively AliPay and WePay in Europe mainly. But first of all, could you tell us now what is the size of your business? If you could share some numbers about the revenues, about the number of payments which went through your system, the number of people in your company, and the number of clients for the people who are listening to us to know where you are in development? 

Annie Guo: Okay. Sure. So, as you said, the name is SilkPay. The silk comes from The Silk road. That’s the ancient road that links China to the rest of the world to enable the trade between China and Europe and the rest of the world. That is also SilkPay’s, our company, mission. It’s to enable and facilitate the payment and the trade between China and Europe. The project took off in 2016, and the company was really created in July 2017. So, it has been a little bit over two years. And now, our headquarters is based in Central Paris. 

We have a team of 15 people based in Paris. We are now present in 11 countries across Europe. In terms of our clients’ presence, we have roughly 500 merchants in France.

Matthieu: I see.

Annie Guo: Yeah. We have roughly 500 merchants in France. We have served 250,000 Chinese tourists in Europe. For example, a number that we can say is the monthly volume of payment that we process is above €5M in value. So, we are quite happy about the speed of how things are developing. We have been increasing our customer base by 15% monthly since our creation. And also, we have been able to find investors to fund the development of our company. We did a round of fundraising in January 2018 with some local business angels, French business angels. And we raised about a €565,000 with those angels.

Matthieu: I see. Thank you very much for all the numbers. I think that the question that people are going to ask themselves when they listen to the volume you are managing—like €5M monthly of the transaction is what’s your business model? How do you charge your clients? 

Annie Guo: Our business model is quite simple for the merchants. Basically, we only charge the commission fees. We don’t have any installation or maintenance fee. Everything is free. They can choose one solution to another. There are no incremental charges. We only charge a percentage based on the transaction volume that we process for the merchants. So, it’s quite easy for the merchant to adopt our solution because if they don’t use it, if they don’t have any Chinese tourists in Europe come to pay, then it is free for them. Completely free. 

Matthieu: Could you share with us the numbers in terms of percentage? For instance, we know Amazon is taking 15% as the marketplace. For instance, we know T-Mall is taking 6-10% as the marketplace. What are the numbers for WeChat Pay, Alipay, and your service? I think that people need to know that we are not talking about payment within China. So, we are talking about the cross-border payment, which is more sophisticated. And as far as I understand, there are some third-party players even in China which are helping businesses to be able to invoice and to make Chinese clients pay. We know other players. Could you share the cost of going through your platform? 

Annie Guo: Yes. We have a single flat fee, which is 1.6%. That is a number that we’re going to deduct from the final amount that we are going to transfer to our merchants’ account. 

Matthieu: It’s very low. 

Annie Guo: Yes.

Matthieu: It’s very low. It’s very low. You need a lot of volumes to make a sizable amount of money, right? 

Annie Guo: Yes. That’s why we also provide digital marketing services to our merchants. And we believe that that is the added value to our merchants. So, we not only process the payment, but we also have this digital marketing service to help the merchants to increase their visibility in front of the Chinese tourists in Europe and help them to make the Chinese tourists loyal to their shops. 

Matthieu: Yeah, retention is a big topic. We may come back to that later on.  They can still buy the product from the shop back to China. I think that’s a very, very big topic. Going back to your model you said you’re offering, why is it so complicated for shops to do that by themselves? It’s a payment system that even the coffee shop can do it in China. Even the beggars can do it. Even the street artists use the QR Code technology in China to get paid. Why it so complicated for foreign businesses to do it?

Annie Guo:  The reason is that they can’t do it directly because there are two systems. There are two ways of working in China and the rest of the world. That is how the system of AliPay and WeChat Pay works because there is one which talks about Chinese mobile payments in Europe or the US or anywhere else in the world. It’s a different system. It’s a cross-border payment. It involves a change in RMB, which is the local Chinese currency to the local currency of the merchants. And if we talk about Europe, that will be Europe. So, there is a foreign exchange involved. That makes the matter a little bit more complicated, the trade between China and Europe complicated, considering the Chinese government has a very tight control in terms of how the money flows in and out of China. 

Matthieu: Great.

Annie Guo: So, it’s a different scenario. And that adds a little bit more layer of complexity to the payment solutions in China. So, in essence, the merchants in Europe cannot just talk directly to Alipay or WeChat Pay and say, “I want to install those payment solutions at my shops.” They have to go through a third-party partner of Alipay and WeChat Pay such as SilkPay. For example, if you think about Visa and MasterCard, they are actually large groups, and a coffee shop just can’t go directly to Visa or MasterCard and say that “I want to accept your payment means in my shop.” That is not possible. They have to go to a local bank or a local payment company and ask them to install Visa or MasterCard acceptance in their shops. It’s exactly the same way for Alipay and WeChat pay. You need to go to your local bank or to a third party like myself to accept those payment means.

Matthieu: I see. I see. Visa and MasterCard have not penetrated the very low little payment. Like if you go to a coffee shop in France and you spend less than a €10, they will ask you to pay in cash. In some way, for Chinese tourists in Europe, it may be easier to pay for small transactions with your solution than for French people. That could be the same. You said 1.6%. I understand now more about the complexity of foreign businesses invoicing Chinese clients. Does 1.6% include condition rates? Does it include all the fees or there are other fees to consider? 

Annie Guo: As for the payment part, there are no fees to consider. Everything is in quotas actually. So, it’s an amount to the fees that the merchant might pay to Visa and Mastercard. We have to be positive as of payment means because otherwise, the merchant will just prefer to ask for the Chinese customer to pay in cash or pay in cards. 

Matthieu: Yeah. Yeah. So how does it work? The Chinese client needs to pay with WeChat or Alipay. The money is going to be taken out of the bank account in China in RMB. And it’s going to arrive in the bank account of the shop. Let’s take a small shop like a drugstore or a pharmacy in France. They are going to receive in Euros. Am I correct?

Annie Guo: Yes.

Matthieu: The shop is going to get the money in Euros and deducted by 1.6%. How much time does it take? 

Annie Guo: It depends. In some cases, it’s two days. Sometimes three days. Depends on if it falls on the weekend or a bank holiday or not. Yes. So, it’s two to three days. 

Matthieu: I see. I see. What technology have you developed in order to offer this service? Have you been able to develop a specific technology with the API WeChat or Alipay or you are leveraging existing technology and making it more known within the European market? I feel you are filling two gaps. You are filling a knowledge gap—those who don’t know that Chinese consumers are using WeChat and Alipay. That’s what you provide to those… it’s a knowledge gap. And you are also filling a technological gap. I fully understand the knowledge gap, and I think it’s been very easy to understand. But with the technological gap, what are you offering on top of the existing solutions in China. Have you had to develop something?

Annie Guo: We have to develop to adapt to the local market needs. We have to think about the French market, for example. 80% of transactions are paid by cards—bank cards. So, every shop is equipped with the facility to accept a payment made by card. But this is a completely different technology because the Chinese e-wallets such as Alipay and WeChat Pay are based on the QR Code technology in China which nobody actually uses in Europe because they prefer the other way which is a non-touch technology. So basically, they just use the e-wallet or the card to touch the reader to make the payment. That’s the most popular technology in Europe then. So, we are introducing the solution adapted to the QR Code technology in China which is used by all the Chinese mobile payment companies.

Matthieu: So, what you are offering them is for free. So, I guess you are asking them for exclusivity to be the exclusive partner for Chinese buyers. And then you help them to connect with AliPay and WeChat Pay plus creating what you call a static QR code because QR codes can change all the time. They link to the same identity, but they can change all the time. So, you’re creating a static QR code which is not changing. That’s what you are offering to them; connecting to the platform plus helping them to use the QR code technology in China, but in Europe.  

Annie Guo: Yes. As a part of our service, we actually offer six different ways of accepting AliPay and WeChat Pay in their shop. It depends on the situation of the merchants. The static QR code is the most widely used one among our clients purely because of the simplicity of the same method. So once the client’s account is opened, we just need to email them the image of their QR code. They print it out on a color printer, and that’s it. They’re ready to go. But other solutions will involve… for example; we can give them a scanner machine which we have to train them about how to use this scanner machine. And with a scanner machine, they can generate…with the pass machine; you can generate an image of a dynamic QR code which can change transaction by transaction. And also, they can use a machine to scan the phones of Chinese users. So, the shops don’t really have this kind of machine. And we can equip them with the machine to enable them to accept Chinese mobile payments. 

And there are other solutions. For example, we can integrate our solutions into their cashier system. It is compulsory in France for the retailers to be equipped with a cashier system which will register all the transactions that pass through the shop for fiscal reasons. And also, we can integrate our solutions into this cashier machines, and the shop owner can simply use their scanner attached to their cashier machine to scan the telephones of Chinese tourists in Europe. They already have those systems or hardware in their shop. They can just use our software, our API, to enable those acceptance solutions.

Matthieu: Have you created your own API?

Annie Guo: Oh, yes. We do have our own API. Yes.

Matthieu: Okay. And this API is connecting them to Salesforce and other solutions which are prevalent in Europe, in France. 

Annie Guo: Well, the shops actually use different cashier systems. There are about a thousand of them in France. 

Matthieu: I see.

Annie Guo: Yes. So, there isn’t predominant used ones. No. So it is, uh, a meta, case by case. 10 shops can have 10 completely different systems. 

Matthieu: I understand. So, it’s even more than the payment system that you are connecting with the CRM. You also make it compliant and legal for them to use it because as you said, there is a legal challenge with the cashier to connect the taxes which is actually very established already in China with the payment system. I see. So, it’s much more than the payment system only. You mentioned that you are also on your website. Before we started, I mentioned to you that it’s on your website. It’s mentioned that you are also providing marketing services, managing Weibo, WeChat, and so on. I feel now that it was very natural for you to begin to push your clients to use those marketing tools. Maybe not doing that yourself, but at least to work with partners and all the people that you provide the system. Because first, when you receive the payment of someone, you can get the WeChat identity. So, you can push them to follow you.

Secondly, when someone is buying a product in Paris, you may want to continue to sell when they are back to China. Let’s talk about WeChat. WeChat is so involved in the daily life of everyone that it would actually be on a daily basis. So, I see the interest in offering marketing services. Can you tell us more about what you feel is necessary and the most attractive for those businesses in order to continue to sell to their clients in China? 

Annie Guo: Yes. I think what you said is very important because, from the European merchants’ perspective, they think the Chinese market is so far away. It’s so difficult to understand and to penetrate. But actually, there are some existing solutions which are very easy to use. They don’t cost a really huge budget. You just need to be smart about it and not be afraid of using them. And then you can convert all these Chinese visitors into repetitive visitors of your e-shop.

So, it is really a virtual cycle that, by adopting WeChat Pay in the shops, you can convert all the Chinese users into loyal customers of the e-shop of the same brand. So basically, we provide these marketing tools. For example, we can help the brand to create the e-shop based on WeChat and then the Chinese tourists in Europe who have paid with WeChat will become members of this e-shop. They will continue to follow the official WeChat account of the shop or the brand. And they can continue to buy, to make the purchase, through the WeChat e-shop that the brand will connect to their official WeChat official account. 

Matthieu: I thought that you could not open an official account if you didn’t have a Chinese company.

Annie Guo: It’s no longer the situation. 

Matthieu: Okay. Okay. So, any foreign business in China with a foreign license can open a WeChat page or official account. 

Annie Guo: Yes. Because WeChat actually is a constantly changing company, their way of doing business and functionalities they provide change on a month-on-month basis. So that is not possible until September last year. But since then, things have changed. Now they are adding more foreign countries where the foreign companies can directly own a Chinese official account. And that enables consumers based in China to buy directly from their e-shop. That is possible right now. So, we help our French merchants to open a WeChat official account, then attach an e-shop on that and then convert all the travelers into frequent buyers of these e-shops. 

Matthieu: I see. Could you tell us about, in this case, if the Chinese consumer or client is back to China and needs to get the product delivered because I guess it’s most of the time product and services, what are the taxes? What are the legal restrictions and taxes you have to apply? 

Annie Guo: Well, since January 2019, the Chinese government has issued a new law to regulate exactly the cross-border e-commerce activities and trade between China and Europe and the rest of the world. With this new law, it says that… there are a lot of details about the law, but essentially, the cross-border entities like the French shops can legally sell things cross-border to China and by paying the customs fees. And the customs fee is actually quite reasonable. For example, if we take a very popular French food, which is the red wine made in Bordeaux, the taxes applied to it for the cross-border trade is only 20%. 

Matthieu: Including VAT, right? No other tax? 

Annie Guo: Yeah, but actually, VAT is only applicable when it’s a sale in Europe in the same VAT zone. And if you sell it to China, I don’t think we need to apply for the VAT. That’s the idea of tax-free shopping because the Chinese consumers don’t have to pay the VAT applied to European consumers. So, if I take the example of a couple of bottles of Bordeaux wine directly delivered from a Bordeaux producer to the doorframe of the Chinese consumer, what basically the Chinese consumer will be charged is 20% of the customers’ taxes plus and the delivery fees. And the delivery fee is quite reasonable actually based on the volume and the weight of the goods. But in the case of a couple of bottles of wine, it is somewhere between €13-20 euro which makes the total bill to be something around €20-30 Europe. And if we compare the price that they purchase those bottles of wine directly from the producer, it is much lower than the price they can find for the equivalent products in China. And also, what is very important is that the authenticity of the product is nearly guaranteed because you buy directly from the producer. But we all know that in China, there is a huge problem with counterfeit goods. So, you’re never sure that what you buy is really what you want to buy. 

Matthieu: It’s very interesting. I think, actually, it’s raising a lot of other questions; the first question being that why is the Chinese government helping foreign businesses to actually be more competitive than local importers and local distributor who have to apply, I think, a total of 48% on a bottle of wine including VAT? So that’s a question I don’t have an understanding of how to explain why the Chinese government is…

Annie Guo: I think I have a few ideas about why the Chinese government is helping foreign businesses to do business with China. One thing is that they can’t stop them. Whatever they do, foreign businesses will consider…. the Chinese consumer market is one of the most important ones in the world. And all foreign businesses will try to do business with Chinese consumers anyway. If they don’t have this transparent and quite favorite taxing system, then that will be Daigou. You know, the personal shoppers. If I want to explain the Daigou that actually are the Chinese who are actually not paying any taxes at all. So instead of encouraging the Daigou, the Chinese government just issued this new law which will encourage a business to do things in a very transparent and legal way. And to encourage that, the taxes applied to this new cross-border business is not very high. So, people will not really risk the sanctions to do the Diagou, which is an illegal business. 

Matthieu: Oh, I see. I see. It’s a bit pragmatic. The market forces are too strong. I see. You were talking about being able to continue to sell to a Chinese client when they are back to China. So, you pretty well explained the case of wine. Wine, I feel, doesn’t require too much regulation. You can send wine. You don’t have to do tests and so on. But that is a case of cosmetics. What about products which are a bit more touchy? I’m thinking about food. I am thinking about infant formula. I’m thinking about cosmetics in China. I am even thinking about drugs about medicine. Do you have restrictions? 

Annie Guo: And the second point is with logistics. When you send wine, you have to pretty careful on the temperature or the humidity level and so on. 

Matthieu David: Those two questions are both in terms of regulation and terms of conditions of logistics. How do you work on this?

Annie Guo: In terms of this new cross-border law, if you send small quantities across by post, actually, you don’t really have to be compliant to the Chinese food and safety regulations. You don’t really have to register with those Chinese ministries, which is very… I mean a lot of French cosmetic brands are relieved because it is really costly to pass those tests. For example, if you take a brand like Lanvin, they have thousands of SKU. So, each SKU has to be examined in a Chinese laboratory. And every time they change the formula or the ingredients of their cosmetic products, they have to re-pass those tests. It’s really costly and time-consuming. And the Chinese government will ban certain ingredients which are quite widely used in Europe. So, by using this new system, we can send things with parcels. The cosmetic brands will not really have to pass those laboratory tests and register with the Chinese ministries. 

Matthieu David: Yeah. Again, I think for European leaders, it sounds so surprising when you listen to the government saying Google has to pay taxes, pay taxes in France, and the Chinese government is saying, “Pay a lower tax. Sell from overseas. Don’t follow exactly the same rules because anyway, the market is working this way. So, we are going to take off the taxes we can get out of it”. I feel that that is the idea. And we are going to achieve it by different rules. But that sounds a little bit surprising, isn’t it? 

Annie Guo: Yes. But I think behind it, there are some political reasons as well. Like all these things will contribute to building Chinese power globally. Imagine that by encouraging foreign businesses to sell directly to China. That basically just closely link foreign businesses to the Chinese interest. And even the small producer of Bordeaux wine or a biscuit shop in Paris can feel the importance of China and the economic power behind it that they couldn’t feel before. Now they sense it, and if there are some problems between Europe and China, the businesses in Europe will feel so much pain. That is actually a political pressure on it. 

Matthieu David: Yeah, we saw that with actually the solar panel and the wine industry. Solar panels were banned from China to export to Europe, I think, a few years ago. And China reacted by putting a restriction on wine affecting many in France. So, I think it was a bit painful for wine producers. So yeah, that makes a lot of sense. 

I interviewed a couple of companies working, especially with influences, KOL (Key Opinion Leaders). It could be with live streaming. I interviewed Lauren Hallanan yesterday. But also with platforms within China like Xiaohongshu or with the platforms dedicated for finding KOL like ParkLu, do you think that the people who are buying in France from the shops could be converted once they are back to China as a KOL or influencer and being able actually to create evangelists of the brand or the product? 

Have you worked on the product, or have you pushed your clients to do that with their existing database? 

Annie Guo: Yes, it is a very controversial issue. I feel that we sense that more and more… the influencers on Xiaohongshu and those kinds of platforms dominate the voices, the images, and the messages that a brand can send to the Chinese consumers. Those are the most efficient ways for the brands to communicate with Chinese consumers, but every French business that I speak to find that the pricing charged by the Chinese influencers is so many times more than the equivalent that stars or influencers will charge in Europe. So, it is not really within everybody’s budget to communicate through the Chinese KOLs. And only the big businesses in Europe or the luxury industries with a high margin will be able to afford it. For a lot of our customers, just because their margin is so thin sin that they cannot possibly use these kinds of tools to communicate and to build their image with the Chinese consumers, which is a quite a shame. 

And I think that with technology developing, the knowledge gap between the Chinese consumers and the rest of the world is actually narrowing quite rapidly. And one day, we wouldn’t really need to depend on the influencers to be the advocate of the brands or products made in Europe. Just by virtue of these products, it will speak for themselves. And through different channels, the Chinese customers can acquire as much knowledge and information about these products as European consumers. But today, because of the language barrier, because of lack of active channels, the Chinese consumers cannot get the right and enough information about what the real products and services are in Europe. So that will play a very big role now for the moment. 

Matthieu David: I see. Yeah. So, have you worked with companies or have you thought about developing a system so that your clients you have in France from the drugstore could actually resell or could advertise on the product they build like you invite your friends so you’ll get the discount from them. I feel that something you tell you has thought about in order to scale a bit more those companies in China without being present physically. Have you already worked on it? Have you thought about it? 

Annie Guo: Yeah, we need to understand that the gap between what the Chinese consumers want, their behavior, and what the European market, the merchants… the European merchants are more concentrated on their offering and their image and the positioning of their brand than doing discounts to increase the sales. What we can see in the Chinese market is that without the discount, without promotions, you can’t sell anything. When it’s a full price, nobody is going to buy it. Everybody will wait for the single day or another offering, and they always wait for the promotion campaigns to come. They know they will come in. But it’s not the case in Europe. There are so many brands. The luxury brands don’t sell on promotions. They never do promotions actually. And a lot of European businesses and brands think that way. They think a promotion is bad. It’s damaging their image. So, we still need to do the education. One or another, there is not a right answer, but we need to narrow the gap to make sure the two of them enmesh somehow.

Matthieu David: Getting more bundles. Getting more clients and expanding the database of each client. And expanding the database of each client necessarily is a China topic. Within China, there are returning clients. There’s a client who could come from the returning clients and so on and getting more client for you. It’s a European business, but then to get returning consumers for Europe than, it’s going to be a big China business.

I was asking a question on how you can create a snowball creating more and more followers, more audience for all those businesses — one question about your location. You are in Paris. I understand you worked some time a long time with HSBC. That’s something I would like to go back to later on. And Barcelona. So, could you explain why these locations? 

Annie Guo: Actually, we have an office in Venice. The location is actually based on the frequency of Chinese tourists in Europe and the strategic importance of the market. Barcelona is one of the most visited cities in Europe. Lyon is the second largest city in France. And Venice is simply because it’s one of the favorite destinations of Chinese tourists in Europe. And our single number will increase. In terms of Chinese travelers, the most important country in Europe is France. 2.2 million Chinese travelers visited France last year. With the ‘gilets Jaunes’ or the social movement that disturbed the business in Paris every Saturday, the number of Chinese visitors has decreased because of the fear of safety, but we hope that they will resolve this kind of social issues and the Chinese travelers will still come back to Paris. 

Matthieu David: For those who are listening to us who don’t speak French, the ‘gilets Jaunes’ is a yellow jacket. It’s a movement of protests in France which is happening every Saturday, which is a bit surprising, but that’s the way it works. And they actually are on major news or stories. And there had been a lot of damages on some Saturdays. It has been on every TV in the world, so some Chinese, I guess, have been a bit scared and at least puzzled by what’s going on. 

So, you were saying that it has decreased a little bit, but still, I guess it’s a major force within the tourism industry and Chinese tourists in Europe. 

Annie Guo: Yes. 

Matthieu David: You talked about Lyon, but Nice seems to be one of the biggest…. if I had to say which city Chinese tourists in Europe like most, I wouldn’t have thought about Lyon, to be honest. 

Annie Guo: Yes, but Lyon actually is also because it is very close to Switzerland. It’s actually convenient to go to Switzerland. Our Lyon office also covers the Switzerland market. Switzerland is a very interesting market because there are 1 million Chinese visitors every year visiting Switzerland. That is a huge number. They are not just leisure travelers, but also business travelers. We can consider there are two Chinese ambassadors in Switzerland. I don’t know any other European countries that have full Chinese ambassadors. It’s because there is one ambassador to the country in Bern, which is the capital of Switzerland. And there are like three of them based in Geneva because Geneva is a diplomatic position. There is the UN etc. There are organizations and the Chinese send ambassadors to them. So, there are many business and political travelers to Switzerland, and they are very high spending consumers. The top products that Switzerland sells are watches. So, it is a very important market for people like us who facilitate cross-border transactions. So that’s why we are in Lyon. 

Matthieu David: I see. Before we started, we talked about the need of getting a license in Europe? You talked to a journalist online. I mean, I saw the article when preparing the interview. You were thinking, or you were getting, or you just got… I don’t know… maybe, that’s some news about it… a license to be more independent. Can you tell us more about what license and why you need that? 

Annie Guo: Yeah. Payment businesses are regulated by the European Union. Every payment company has to have a payment license. Every country issues its own payment license. But if you get one in one country, you can passport it across 26 countries across Europe. So that is why we don’t have a payment license yet. We are in the process of getting one, and hopefully, we will get it by the end of this year. Now, how do we do our business? We are agents of the payment company with a European license which allows us to do business already without getting our license ourselves. 

Matthieu David: What is the payment company? Could you give some names?

Annie Guo: Yes, there are so many of them, and we work with a number of them so that we can cover all the geographies. For example, we work with the Accor Hotel Group, and they had 4,000 hotels last year. Now they have more across the world. So, we work with different payment companies in the US, in Australia, in Asia, and in Europe, so that we can enable Accor Hotel Group to get AliPay and WeChat Pay in all the countries they cover. I don’t remember the number, but they cover like 60 or 80 countries across the world or some of the African countries never heard of. And then we need to cover Alipay and WeChat Pay in those hotels as well. That’s why we work with several payment companies across the world.

Matthieu David: With the payment company license, is it what Visa and MasterCard have? Is it what PayPal or Stripe has? I don’t really get why the license system would be helpful for you to use it. Is it going to lower your fees? Is it going to make it possible for you to…

Annie Guo: Yeah. It won’t lower my fees, but it will increase my margin. Because now we are agents of other payment companies, so we depend on their system, and we need to pay them for using their service. And once we become a payment company ourselves, we will save money on the payment we make to those payment services companies. So that will increase our margin. 

Matthieu David: I think I am beginning to get it. So, does it mean that you would not have to go through a third party when transferring from a Chinese bank account to a French bank account? Does it mean that this transfer will be fully processed by you instead of going through those third parties like maybe every bank has one of them, and they charge you? You wouldn’t have to do that anymore. 

Annie Guo: Exactly. Yes, we will save money on the fees. Yeah. And the finance sector is very regulated. It is very tightly regulated in Europe. So that is why the payment service industry is regulated as well. And so, to do business independently, we need to have this payment license within the European Union. 

Matthieu David: What it means is it’s difficult to get. What do you need to do? Do you need to pay? Do you need to show a lot of documents? Do you need to comply with a lot of other elements? 

Annie Guo: Yeah, the entry barrier is actually quite high. Otherwise, everybody will be able to become a payment company. The laws are very strict, and they will look at your company’s structure. They will look at how you do business and your procedure. You have to document every single thing you do throughout the day. You have to ask for a lot of documents from your customer. And that is what we call the KYC (Know Your Customer) which means that the merchants that we send with have to provide us with several documents to prove their business and to prove who is the real owner behind these businesses. And that actually caused a lot of questions and oppositions from the merchants because they don’t understand why they need to give me, for example, their passport and the proof of address of their owner. Sometimes, for the big companies, the owner doesn’t want us to know he’s the real owner behind the business. So, we are asked by the regulators to do that, and we have to do that. We understand why they want us to do it. But to enforce it is quite a difficult task. 

Matthieu David: I see. Last question before we end. You had been Vice-President of HSBC for the M&A Department. How is it to transit from being in a very nice office, from a very big company, and having a lot of comforts to actually starting from zero? Could you share the motivation behind this with me? 

Annie Guo: I think that the investment banking industry is a very good experience and it’s very interesting. I have been working with very interesting people and had some deals that were in the newspapers, but I think that that working for other people is to realize how can others realize their own dreams. Actually, at a certain age, I wanted to start realizing my own dream. And I think I have something to say and some opinions to express. I can only do it by starting my own outlet, which is why I started to create my own business. Chinese mobile payments can have in the European market because now the market share of mobile payments is so small. And then, it can only increase in the future. 

Matthieu David: I talked with another entrepreneur in China who used to work in investment banking and dropped it because she wanted to start a business but also to be able to work more with China and her investment bank was not allowing her to work with China. And she was seeing not being able actually to leverage it. So, I feel there’s a lot of Chinese tourists in Europe and not exposed enough to China. So, they want to actually do the things themselves. What about the next step for you? You want the license to be more independent. What is the next development for SilkPay? 

Annie Guo: We are always in the process of acquiring more merchants, and we will cover more territories in Europe or outside of  Europe. We’re looking for partners to accelerate our development in different countries. And we are also in the process of doing another round of fundraising because this is like the gun powder that will enable us to accelerate our development. So, yeah, those are the main things we are doing; fundraising and going to different countries.

Matthieu David: Okay. Congratulations for all you’ve done in such a short time. It’s not even three years since you officially started. So, congrats for everything you’ve done. And hopefully, you enjoyed participated in this episode of our China podcast, China Paradigm, and all the listeners enjoyed it. Thank you very much for your time. 

Annie Guo: Thank you, Matthieu. Thank you for having invited me to China Paradigm. Bye-bye. 

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This article Podcast transcript #25: How to leverage Chinese mobile payment overseas is the first one to appear on Daxue Consulting - Market Research China.

Matthieu: Hello, everyone, thanks for listening to China Paradigm, the China business podcast sponsored by Daxue Consulting. Today we interview a strong entrepreneur in China Thomas Meyer. Thomas, you are the co-founder of Mobile Now group which is if I read correctly on LinkedIn, a full-service mobile development studio with a focus on branded apps and games, set up in 2009, you are in Shanghai, Hangzhou, and Changsha (so that’s for China) and also Singapore, you are about 50 people now as I understand and you worked on more than 80 product. And actually your website is full information about all the cases you have worked on, I would have a lot of questions on them and also a lot of information on how you started a mobile company in China. So thank you very much for being with me and us actually, the listeners.

Thomas: So thank, Matthieu, for working with me, and it’s very nice to be here and also to have the opportunity to share and hopefully some interesting information.

Matthieu: To give an idea to the people listening to us about the size of your foreign business in China, could be in terms of revenue, a number of people in the team could be number clients, but to give an idea of the size of the company contract.

Thomas: Yes. So Mobile Now Group is today about 50 people, 48 to be exact, with a couple of people joining students so, you know, still 50, and it’s been a very stable number for a few years now. It’s… which is great because we can focus on projects and not so much on growing teams and skill set. From a revenue perspective, we’re very happy, but I’d rather not give too many specifics for various reason, China is pretty competitive markets start all right.

Matthieu: In terms of clients are you work on return on linking 80 product, you say a between 80 to 100, right?

Thomas: Yeah. So I think we’ve done probably over the course of the 9 years about close to 100 projects for the mobile industry in China so that’s roughly around 20 projects per year and there are fairly large projects, there are a platform, mobile platform projects.

Matthieu: Yeah, from what I saw, if we dig a little bit on some of your product, I saw that for TRL, you created a marketplace for the real estate.

Thomas: Yeah, that was a fantastic story. So they basically it’s their online marketplace, so they have a China Mobile first websites and that website has been going across the region at the moment and replicating various versions in Australia, New Zealand, India, Singapore, Japan Korea, and so on. So it’s a typical story for China firsts that are now spreading around the world, just because China is actually quite advanced these days in terms of mobile technologies, mobile platforms and mobile experiences and it’s also big business market, it’s major markets. So we see clients more and more adoptees China first strategy international; clients I’m talking about.

Matthieu: And you are developing for the other countries, for Singapore, Australia, and the other countries?

Thomas: It’s more marginal but it happens more by accidents because of the nature of our clientele or the clients, they are themselves international. So most of them really want us to stay focused on the Chinese mobile market, and it makes a lot of sense, but in some cases such as JLL, yeah spreading across the region can often become an option.

Matthieu: For people listening JLL is Jones Lang LaSalle, so they’ve been doing real estate for decades. It’s a major real estate company in the world, and I didn’t know they would be doing anything with China and their marketplace for that, I didn’t know but…

Thomas: Yeah, you need JLL when you need to find a very fancy office for your staff, and they serve mostly MNCs and large clients looking for office and commercial space.

Matthieu: Well, I’m surprised, my question was, you are China-focused, you started your mobile company in China, you seem to be very centered on China, you are in Changsha, Hangzhou, I guess that shows how centered you are in China and you are actually following clients to go to Australia and Singapore. But I feel as far as I understand by being in China for 10 years, China is very specific and from very often, you don’t work with the same players, the same agency or when you go out of China if you have worked on this case for the entire marketplace?

Thomas: Yeah, I think you’re absolutely right. I think some agencies networks are international ones and so they have the benefits of having offices in markets all around the world, but they may not have the specific skill sets that we have from a design and development and technology perspective. And I think we are in a sweet spot where we understand the China market and the mobile trends in China and can deliver on the China market but also on an international team. So we can bring whatever we learn in China in other relevant markets. And in the global economy, we live in today, that could potentially mean a much wider region. But I have to say that most of our work is still very focused today on China, yes scenarios in China challenges.

Matthieu: Talking about what you just say, it is very interesting for everyone who is living in China or with connection with China, you say that we can leverage innovation in China to go global to adapt it to the world instead of the reverse we saw like 10 years ago. You’re in China long enough to see the change, could you elaborate more on a couple of cases where you have seen an innovation which is Chinese or made in China, I’m thinking about QR codes in China of course, but linked to mobile in your industry with your cases that you have been able to leverage the fact that it’s a very mobile first industry and mobile first economy sorry in China? I know if you have a couple of cases that he would be very interesting to know.

Thomas: Sure. So actually in my case, I’ve been a mobile specialist in China, a mobile innovation specialist for 17 years, I started in Japan. And when I was in Japan working for operator there, I discovered already 99 QR codes, recovered mobile wallets and code screen phones with rich media content which we could do a lot of things with that. And of course it was on a totally different sets of technologies, different phones, Japanese phones, and I constantly say that QR codes were invented in China, but I can definitely say that adoption, and there is ash and what people do, what companies also do with those is that it’s probably where the innovation really lies and where you can really talk about China first.

So through both the scale of the markets and the inventively of the businesses involved here because they’re working from a y-shaped basically so how they look at their daily problems to solve and they look at it differently from a different angle, the innovations are really there. They have not invented QR codes, but they use QR codes more and better than pretty much anyone else on the planet.

Matthieu: Do you have other cases that you feel China has been served to use so still innovation to adapt to use something?

Thomas: I can think of a lot of things, but perhaps one that will be the most interesting for everyone here is mobile payments. You just have to look at share size of peer-to-peer online to offline or mobile commerce payments, wherever it comes from, China’s really leading the way. And in terms of numbers, I mean, just comparing China versus the US, totally dwarfs the US when you look at those graphs if you compare to China, so you see you create big transactions happening over mobile and going super fast in China.

In the US, it’s kind of like still stagnant in comparison to that. So it’s very sustainable that perspective it’s not a… you know, it’s not an important point to look at because mobile payments define transactions, define business, and they helped to define experiences and customers, and shoppers experiences in there are different ways than what happens to the rest of the world. So social commerce in particular on a platform such as WeChat is what our clients and our teams are thriving on and working with and for quite a few years now and for about 4, 5 years. And it’s just amazing what can be done with social commerce and social CRM and how it can help really our business, our clients, develop their business.

Matthieu: When you’re talking about social commerce and social CRM, is it about selling through social networks? Is it creating, as you said, apps iteration on social networks? What is it exactly what you call social commerce? Is it to leverage KOL to sell social marketing?

Thomas: Yeah, no, it’s always something that is super clear that anyone understands when they live in China, but something that’s nobody quite understands when they live outside of China. Because the other social networks such as Facebook, Instagram, and the others, LINE, Kakao, are not really geared the same way as WeChat is in China, right? So let me just summarize in this way by explaining that WeChat in China, it’s postal of services. It’s not just a social network; it’s my mobile wallet, it’s my postal services. I buy my train tickets through WeChat; I buy my groceries through WeChat. And the reason really is that WeChat has built an app that’s actually an operating system for building services on top.

So as a mobile company in China, what we see is clients not asking us anymore to build native apps, iOS or Android apps, they ask us for building WeChat mini-programs. And for us, it simplifies my life a lot because WeChat provides us on this API, all these tools that enable us to build really quickly very, very smart mobile services, but on top of that can deploy it and share it really easily over social networks.

So if you’re doing the right thing, if you’re building the right services or selling the right product over WeChat, then it spread like fire because of word-of-mouth because of the shared shareability of many programs over the social network. It’s a bit like if Facebook wanted to become an operating system where we could be those applications to do pretty much anything. It kind of did that in your desktop days where you might remember the Facebook apps, but it missed totally the boat of mobile.

As soon as we move our app of Facebook appeared and all these applications disappeared, and at the same time, WeChat which was of course protected in the Chinese market, is well-protected market as far as the internet, you know, is concerned. WeChat developed a mobile wallet, developed API to anymore anybody in a very open way it’s open to anybody to develop any services that it like, and it kept doing that year on year on year, improving their platform at superfast speeds. So from this site being in China, when you look at Facebook, we’re finding them pretty slow at developing the right features and the right tools to become something like WeChat. So now when we meet international clients that have to explain to them what WeChat means in China, it’s quite difficult to download the app to live in China, that’s really what you have to do to interact with people and to really understand what it means from a customer perspective, from a user perspective to use WeChat and to do things on WeChat.

Matthieu: So when talking about social commerce, is mainly basically leverage an app or social app and going through this app to sell and to use the payment system. And so that what you can much social commerce because I guess in the West when you talk about social commerce, they will think about KOL, they will think about how to drive traffic to your website, and the transaction will be on your website on the platform like Amazon whatever.

Thomas: Correct. So I think if you compare to Facebook, Amazon and other platforms, WeChat functions very differently. I don’t think… I think it’s fair to say that they haven’t been trying to be a master team media promotion platform, they’ve actually trying to preserve privacy for their users from the start, but they’ve developed a lot of functions and features that enable users to interact with offline, scanning QR codes that’s one thing we’re talking about, paying for food, restaurants, splitting the bills, collecting coupons and it could show, at the stores, but also buying directly through WeChat.

So if I go to a fancy restaurant or maybe more of a fast food restaurant for sure, today I could scan the QR codes as I arrive at the table and basically order and get either staff or maybe even a robot in some restaurants, you know, bring the food to my table and, you know, split the deal with my friends, and all these pictures over a mini program that sits on WeChat. So this is what I talk about WeChat with the portal of services that enables my life, my offline life, through a digital enhancement or digital tool that’s super powerful. And I think everybody else that’s, you know, doing social media outside of China should really be inspired by what happens in China because I think otherwise, they are risking to miss the boat, and that’s basically what as professionals we expect to see and looking forward to seeing because it’s always interesting to see newcomers coming in with new ideas, with innovations that really transform people’s behaviors and lives.

Matthieu: So as I understand, social commerce is pretty much WeChat commerce in China, and would you have some best cases, some best practice to share on how to do e-commerce through WeChat? You’ve talked about coupons, you talked about using the API of WeChat, you talked about word of mouth, so word of mouth is KOL I guess, European leaders, as far as I understand so far, it’s very difficult to use the system of WeChat advertisement to get a good ROI on it.

Thomas: Yes.

Matthieu: The targeting is not as great and precise as Facebook. I think Facebook may have been better on this point. And so the still the pending question for a lot of marketers, a lot of companies, how do you seven WeChat? Is it through the mini-app you produce, you create? Is it really interaction? Do you have best practices to share?

Thomas: Yes. I think our approach is really starting from innovation, starting from users, what really are the published source for users in a particular business context or in a particular life scenario, whether it’s for example shopping, whether it’s participating to events or to anything really or booking a trip to a specific place. Innovation on native apps iOS tablets, we come in and define and design those services, those interactions using our processes and tools.

And the promotion components is something we don’t worry so much about because I think in our business, we are in the business of expectation management and we focus on delivering the best experience we can so that we, you know, we make the user happy and in consuming the digital destination. And we are less focused on the marketing side, which is actually a very different way of thinking. I always used to joke to my friends from the marketing agencies that they overhype.

Matthieu: I see. So how do people… how do you… the users of the app you are creating, how do they do find out for the app? Do they go from search of WeChat or do you actually leverage the existing client base applying on your clients and you leverage then better interaction and the way you are saying, you’re including interaction of existing database of clients and at least for this specific case when you leverage existing database of clients and to interact better with them, would you have some cases to share with us about interaction which have been successful or which you see some momentum through mini apps to H5 you have developed or progressive apps as you said?

Thomas: So let me come back to the example I was explaining earlier. For example, so one of our clients, Pizza Hut, for which we delivered a whole WeChat experience, is called a super app, super WeChat app just because it’s an app that delivers all of the functionalities you would expect if you’re going to interact with Pizza Hut digitally. So you can of course order the food right to be delivered at home, you can also order a table when you’re on the way to the restaurant, find where the closest restaurants, and you can pre-order your food and be able to validate your payment as you scan that QR code on the table.

And the pre-ordering system as well as on a table or any system is just, you know, really convenience. It makes people save time; it helps also share and view what my friends may be ordered as they can also the table… A QR code on the table, sorry, and it also helps to redeem coupons so I can click purchase which is huge business for Pizza Hut, it’s really transforming the way Pizza Hut interacts as well with customers and do business with them. And I even get to split the bill at the end and decide which, you know, how much somebody to spend on to this amount.

Other apps that are very public e-commerce I’ve seen in WeChat for example, one’s called Pinduoduo, very fast growing marketplace within any program that itself sits within WeChat, right, if you follow me, leveraging not only an enormous catalog of products, we featured products pretty much every day, limited edition products that people care about and may buy, but also a lot of very user-friendly and unified functionalities. To find the volume is active a day, I get a little free cash that I can spend on buying product, so it makes… it builds enough stickiness into it, or if I share a specific product to friends who buy this product, right, then I will get rewards, I will get points or some free cash as well.

And so that kind of social commerce activities that are not just about posting on social media product, but really believes name social communities to buy together or to interact together around products and services and content and games even are WeChat have managed to achieve to do. Very interesting, very, very complex, very rich, very sophisticated and I think the rest of the world is probably 10 years behind where China is today.

Matthieu: Talking about Pinduoduo, it’s independent of WeChat, right?

Thomas: Yes and no. It is an independent company and service to WeChat, it was actually an app and the mini-program, and today we believe that from the numbers we see that the most of that growth comes from there WeChat mini program by far and that’s because the service is thriving and developing through the social network and on assured unity features and also supported by the fact that Chinese people spend their life on WeChat.

Recent numbers show that WeChat represent 34% of the mobile Internet data network in China and I feel if we compare for example what Facebook means in Europe or in the US or in other parts of the world in Southeast Asia, Facebook is nowhere near half of that. So Facebook is very important, it’s really already impressive what Facebook does manage to do and what Facebook is elsewhere, but it’s really a media where WeChat is a portal of services and new operating system to build social services.

Matthieu: The name of the company Mobile Now group and you created a company in 2009. I think the iPhone was created in 2007, right?

Thomas: Yes.

Matthieu: So you were very early in naming your mobile company in China ‘mobile’ when I guess it was pretty early when people thought that everything will go through mobile. Could you talk about it, about how you saw it quite early actually that you would call your company Mobile Now with this direction on mobile?

Thomas: Yeah. I mean, I… I mean, my personal stories after leaving a school and university both in France and in the UK, I landed somehow in Japan as I mentioned earlier, Tokyo of all cities, just a fabulous city to be in; still today, but it was a family city to be in the 90s just because of many things including mobile technologies. And I guess as I was looking for what to do in my life is just hit me on the face.

And I’ve again, been a mobile specialist in China and mobile innovation professional for 17 years, working for large agencies, communication, and innovation agencies around the world, first helping evaluators then helping handset manufacturers or banks or FMCG start to look into it. And then today, we basically see uses for pretty much anything. And digital has become mobile, or mobile has become digital. When I start to Mobile Now, it was really hard still to envision that people would use websites less, that they would be using mobile phones more, but it’s really Apple and Android that made us believe that that was possible back there.

And it’s true; I started a mobile company in China super early just when iPhones were not really selling officially yet. I remember there were about 1 million iPhones in a country of 1.X billion people so it was a very low penetration rate and China Mobile was not ready yet to officially sell the iPhone. And we’ve been very lucky because of year on year iPhone and Androids… Apple and Android developed amazing products and technologies, China became number one market in the world in no time, they sold phones like pretty much like shortbread, and Chinese people started to learn to use their phones and develop services that made sense for themselves.

And probably got faster because the leap forward merely from somewhere and, yeah, so I think that’s the way and I see how things, the mobile trends in China, you know, looking back have developed and I guess in a way unlucky, but in another way, we saw it coming, and so that’s what we call a company Mobile Now.

Matthieu: In such an industry where things are changing fast, I guess when in 2009 you still had a lot of BlackBerry, you may have tried to work with Windows as well, and then you had Android and iOS taking over. And think actually fast, you talk about Pinduoduo, you talk about WeChat, WeChat is about, I guess 6 years old, I mean, the momentum is about 5 years something like this, even it may be older actually the creation of WeChat.

So how do you keep being up-to-date? How do you keep knowing what is good to develop? You said that now you don’t develop the local estimating app, you develop more many programs and also progressive websites and apps. Is it the clients who are actually coming with questions and then you actually react? Is it yourself, you’ll do your own research, and you investigate? How does it work? Maybe it’s both of them. Could you explain it to me how do you manage this constant change?

Thomas: Yes, sure. From my perspective, of course, clients and every stakeholder bring their inputs into your spectrum of things, but it’s really when you look at users, and when you are user-centric that you’re able to catch those, I would say those threads of opportunities and innovate on top of that very early stage. It’s pretty easy, and as an innovation agency, we always have to represent the users, our clients, customers when we meet our clients and let them realize really what is innovation meaning for their customers or their users.

So this user-centric enables us to catch for example things like when WeChat explodes in terms of usage and opens up services to be able to catch them then and then develop the right strategies or the right destinations and the technologies and the platforms that come behind that. Of course, that’s one of the other aspects is to be very agile from a technology perspective. So we have a very strong focus on technology and restaurant team that when you see people using certain technologies, they are super curious, they go in there, they check the frameworks, check what can be done to keep it simple. And that’s how we can then enable our designers and employees, so they were also so.

So it starts really from users from the user perspective. Clients are of course initiating these projects, and they themselves have to deliver a mandate first, they have to have a strategy that says, “I want to be doing something great on mobile,” or, “I want to do a fantastic platform to solve my clients or my customers problems,” so that used to come from them. But they are not really coming up with those strategies early stage, that generally happens when they have been convinced somehow that, “Yeah, oh, something is going on there, let’s get on board.” We act earlier than that, we, you know, follow the trends much earlier. And I think it’s pretty typical of an innovation agency, yeah.

Matthieu: Following what you are saying about the team that learning new ways of actually developing, you have offices in Changsha, Hangzhou, could you elaborate a bit more? I think you’re one of the only agencies I know that have offices in Changsha.

Thomas: Yes. The reason why we want to spread this across various cities in China, and it’s, you know, very modestly is just 3 cities, we’re not really spreading across the zillion of cities and opportunities that are to tap into fantastic talent in China. But the reason why we are doing it is to… there are 2 reasons really. The first one is to access talents that are not always available in one city, and there are many different skill sets that are needed to deliver the kind of work that we do.

And the second one is to ensure that we stay relevant to a large market like China. So a Chinese person from Shanghai and the Chinese person from Beijing on Hangzhou, Dali, and Changsha, think very differently actually differently and live very differently and it’s very important for us to stay in touch with the different type of City, Tier 1, Tier 2, Tier 3 you have in the market. So talent access and relevance to the market are one of the key reasons. The reasons why we need specifically Hangzhou and Changsha are pretty much led by our teams.

So the way it’s happening outside is we have a developer based in Shanghai wants to go back home in Changsha and we, this was years ago, 8 years ago trusted him to build a team around him back home. And that team is grown over 8 years to be extremely skilled and bigger and stronger and delivers amazing work to us. Hangzhou is a slightly similar situation; there’s actually absorption that happens, so we absorb the team, we acquire the team in Hangzhou that has also amazingly specific interesting skill sets on agile development and backing full-time technicians. So don’t want to bore you with very technical things but those are the things we need to perform for our clients and those are the real reasons why we operate in those specific cities, yeah.

Matthieu: How is it to work with 3 offices? I mean, you are 48, so it’s not like 100 people, how do you work with… how is it to work remotely and with different offices? I guess it is adding complexity, but it’s adding so some better life/work balance at the same time, how does it work?

Thomas: So we… yes, we… I think we can move in many ways because we work in mobile technologies in China and we work in design so actually the work we do scales very fast. So we do not need to grow our teams members to be 100, 200, 500 people, and actually to me, this is a good thing because it makes my life a lot easier in terms of managing the human side of things, managing teams and ensuring they are happy thriving for the kind of work that they do at Mobile Now. You were talking about work/life balance I think it’s my biggest learning as an entrepreneur in China and a leader to my team that work-life balance is an essential thanks for retention for keeping people in my company.

Perhaps because of the type of people we hire smart skilled and senior and they themselves appreciate immensely being able to evolve and develop their after the skills or their science, you know, in a place that helps them do that but also where they can live their life and have a personal life and great work/life balance. So I think this is something that we appreciate and that we get our clients to appreciate as well and, you know, it’s basically where we will get it. So it’s a lot fewer growth prospects for us from a number of people perspective so that we can keep the right growth balance and ensure that we do things right and quite important in our trade.

Matthieu: Only 2 managers are Street offices and your being in Shanghai, are you have you read the thing? Have you there are a lot of books talking about working with different, different places remotely when you have your team spread over the world, I think about a book called we ‘Remote’ actually. Have you read things or it has been quite normal for you to manage this way?

Thomas: I think it comes with its challenges for sure but somehow with the union, we’ve built the process, the tools and I think people build a different skill set to communicate. So face-to-face communication and mobility being able to meet as in when face-to-face and travel from one place to another helps example a lot. I think this is very often, you know, something that people forget; it’s very important to do that.

And I think that the world is moving, I personally have to believe, it’s a personal condition that the world is moving towards more and more mobility and remote work. I would love to be able to work from the beach, you know, and just send emails and do video calls like here, I’ll give you a fantastic background, you know, and being able to be maybe smiling even more and be happier and anything bad work. So we’re not quite there yet but I think that’s a great goal, it’s a great goal to go for, right, to be able to offer this kind of work environments to your team, yeah.

Matthieu: To continue on your team, on your profile link, it says you’re a co-founder of this mobile company in China, but I’m not seeing the other co-founders, how many of you are you and how did you find your co-founders? How do you work together?

Thomas: Yes. I think one of the most important things for foreign businesses in China is to select partners and work with partners that can help you grow and can help you basically deliver on your vision and you’re your dream, and I’ve been very lucky on that perspective. So I’ve met my partner, my business partner through work actually in one of those large agencies we used to work with. So I think we met in Singapore back in the day and he just like me had spent even a few more years of Asia and me, about 20 plus years and I spent know about 17 years myself here, and we have the same outlook on life and on what the great agency should be.

So what made us really click is by being fortunate to meet and interacts in the previous business where we found each other and could work very well together, we decided that further down the line, we decided just to start a business together and that was just an amazing adventure to be able to do that with him. And I think… I don’t know what advice to give actually to find the right partners, I think it’s a matter of our feeling it, it’s a matter of trusting, it’s a matter as well of complementarity of skill set, so there’s a rational side to it. But I want to say. First, it’s about trust and being able to see eye to eye and have empathy for each other because that needs to last a very long time. Building a business is not easy and being able to yeah and, you know, rely on each other and trust each other is essential.

Matthieu: How long have you known each other before partnering?

Thomas: I think about probably 8 years, 8 years before starting in the mobile industry in China with Mobile Now group, yeah.

Matthieu: Okay, oh 8 years you have known each other, okay, I see. I think your partner is called Liam, right?

Thomas: Yes, it’s Liam Winston, yeah.

Matthieu: Yeah, and I saw him on your profile, he joined you 1 year after you started.

Thomas: That’s correct.

So when I started a mobile company in China, it was a 15 people agency, it was much, much humbler, it was me plus 1 plus 1. And actually, I have another business partner I started with originally called Jerry who was more focused on games. And we when we started our business, we’re having this dual business model, which is not necessarily the best thing to do but it worked very well for us. So we built our own IP and mobile games very early on. We had some amazing successes from a download and usage perspective, and we started to work with brands as well and delivered fantastic work for the likes of KFC and Coca-Cola and so on gaming and mobile game platforms. And when the market started to shift a little bit more towards transactional and e-commerce type of activities or service based activities, this was less of the liking of my business partner, so he… my other business partner, so he decided to take his own and focus on what his vision is.

And you have to expect that, you know, that’s part of this trust and empathy I was talking about. You know, as partners are not really locked to each other, I think that concept is completely crazy, it would be a really sad situation if it’s the case. I think you’ve got to be your own man and keep your own dreams, and when they’re alive, then it’s fantastic, you can keep on going for a very long time. So perhaps the last advice to give on finding your partner would be to make sure that there’s really a complete fit of goal and that you’re ready to do the same thing together for a very long time, not just for the first few years.

Matthieu: And how easy is it? Because you said you changed, so Jerry turned into the beginning and change then left, how easy is it to manage those changes? I feel as an entrepreneur in China as well that it is very difficult to have to choose to partner with someone then to un-partner with someone, how do, you know, a value? How do you sell the share? Do you give up on the share because you say you do not come, you are investing? What advice would you give to set up good like a shoulder agreement or agreement with as in a very early stage?

Thomas: Yes, I think a good agreement template early stage is necessary. So, you know, and the principles are pretty much established in the markets, the standard practices of course. So an active partner is rewarded in certain ways, and if a partner decides to spit out, that often comes up with a bunch of conversations and discussions. But I think it happened pretty well in our case since perhaps, again, in lucky there, but I think my business partner was very lucky in his other professional ventures as well, and I think perhaps that helped. And he respected also… again, back to trust and respect, he respected what I wanted to do, I respected what he wanted to do, and that helped us to move forward. I think sometimes new entrepreneurs in China get a bit scared, a bit too scared about that. I think, again, if you choose partners that have empathy and also the rights business sense, you can function in ways that are smart and that works for both sides, yeah. Perhaps also change is a good thing, right? It’s not always a bad thing to see change. So as an innovation agency, a mobile company in China, we embrace change, and as an individual living in China which is super fast changing, I almost have no choice than to love change or else, I don’t know, I should do something else.

Matthieu: One question about you, you know, your story before you started your mobile company in China you are not a tech person.

I saw on your profile you went to business school, when you are not a tech person, how do you start and how do you get enough knowledge without being a developer to start basically a mobile agency in China which is based on tech and development? How do you feel about that? I feel there’s a lot of changing concerns, questions that peoplfearlye want to go into tech but we don’t have this background, do you partner with someone with some who’s from tech? Do you hire people? And then how do you hire good tech people when you don’t even know how to check if they’re good? I mean, do you have this challenge?

Thomas: Of course, you know, I think it looks through learnings and making mistakes to be able to then do the right thing and surround ourselves with the right people with complementary skill sets. There are processes to do that, and those processes get developed over time.

So in the beginning when you start a business in China, things are super chaotic, you know, oh you managed to get the first temporary, you convinced one person to join and share your dream and get maybe underpaid for actually help you in doing that, and then a second one and then the third one. And things are really imperfect, but as the team continues to grow and as people by themselves decides to stay or go and develop the skillsets to work together, then things eventually work out really well. I think the luck that we’ve had is to be trusted by my clients that give us a chance. And I think the reason why that happened is they didn’t have many options to work with agencies like us in China back and then and still today.

I think that finding this type of skill sets and is not easy and also today it’s a very different story actually than when we started the business because we’ve got so much experience and learnings and libraries of codes and not so much design and design research and not so much about users and mobility that we are like, you know, quite, you know, what we do and we know our trade but, yeah. No, it is very hard to start, and I have to admit there’s been a lot of very hard nights this means blood, tears and amazing times. So it’s a life worth living because its intense in the right sense of the term.

Matthieu: Talking about the future of the mobile industry in China and I think that will end the China podcast soon, how do you see the next devices and next… the next platforms? We have talked about VR and AR in China, and then now not many people are talking about it. We’re talking about AI now, what will be the next platform you get ready for as you were ready for mobile in 2009?

Thomas: I think all the technologies you’ve mentioned are still in the early stage actually in terms of maturity and what it can do for people and when they can… and tools they can deliver for us. I’m not saying that AR isn’t cool today, but I think it’s going to get even cooler and it will feel the be and serve different purposes in the future than it does today, similarly with Al and with VR and with so many other technologies with mobile phones that keep on getting better.

But I think in general the concept of mobility, it’s a very long-term and forward-looking concepts in a sense that’s and we’re talking about devices, in the sense of think devices are going to get even closer to us, to our bodies, and she may be using, you know, glasses of course, implants things that get into my skin. I am absolutely not scared about any of these things because I believe they’ll help me live actually a better life, provided of course that the data and data privacy is managed properly.

But I’m an optimist; I think this world is very often doing the right things in those cases.

So mobility, to me means how an individual who’s mobile was basically urban or not urban actually living their life, and I think the personal and personality aspect of mobility is very strong. For me, mobility also means now instantly, it also means, you know, services that are super enabling and perhaps we talked about some of it philosophical, but I have no issue with the concept of a company’s name and being focused on mobility and mobile, whether it’s for apps or WeChat or mobile internet or another type of data-driven and service driven stuff in the future.

Matthieu: It’s very early, and we are still pretty much into mobile currently and on the phone.

Thomas: I think so too. I think China’s mobile industry is bound to continue to surprise us year on year. I read a lot about this and I, of course, experiment a lot about what can be done, and I just see the power of mobility as being just going beyond what could be done with books or with TV or with another type of media or concepts. And I think mobility is the style of living, it’s not just a mobile phone, and that’s what I meant. I meant that more and more technologies and devices would help us and we talk a lot about IOT in China, but, you know, we’ve also seen some successful, some less successful glasses based technologies and often meets people that already have implants and tell me about the functionalities that are brought to them and this just amazes me. And I know that so much more will happen and what’s currently happening.

Matthieu: Thanks so much for your time.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article Podcast transcript #8: How can businesses keep up with the changing mobile market in China? is the first one to appear on Daxue Consulting - Market Research China.

Matthieu David: Hi everyone. I’m interviewing today Thomas Graziani, founder of WalkTheChat, and I am happy to interview you, in this first episode of Daxue Consulting Chinese business podcast. I’ve known Thomas for some time. He has been a long time friend of mine; we met for the first time five years ago in Beijing. He was still working at a very large company, was not large yet. He was at the very beginning of WalkTheChat. I followed his entrepreneurial story and one of the things I’m very interested in knowing more is how he switched from an agency to a SAAS (software as a service) system, to a SAAS model in China. Which is what he had been doing although I think the last two years. And more about how he came up with this idea Walk The Chat which I think is the first idea he had, the first business he started, and I’d like to close this. Welcome, Thomas thanks for being with us.

Thomas Graziani: Hi Matthieu. Nice to be here.

Matthieu David: How was it, the intro?

Thomas Graziani: Pretty good, Very transparent. I like it.

Matthieu David: Okay thanks, so yes I know you, I think we met on June 14, 13. When did you think about WalkTheChat?

Thomas Graziani: Around three years ago but I think we know each other before that. I tried to start an art photography gallery in January in Beijing and that’s when I first met you. I was recommended talking to you to discuss pricing in China for my products and that was the first introduction from our friendship.

Matthieu David: Ok, I don’t remember. Ok all the things that are going on, and you have been to a very different company like Walk The Chat. Could you tell us what is Walk The Chat right now?

Thomas Graziani: Yes, today we are basically an e-commerce platform which enables merchants outside China to sell inside China via WeChat. So, it’s like a Chinese WeChat version for Shopify. You can create your store, and then your Chinese customers buy in China with a completely-China WeChat friendly interface, and you receive the money in your bank account in the US.

Matthieu David: I see. So to sum up, you are providing the kind of plug-in solution for Shopify shops for any platform?

Thomas Graziani: And it plugs into other e-commerce platforms. So, you can work by itself without any third party but let’s say you have a shop. If you want to run all your orders all using the inventory to Shopify then you can just use a platform to provide a storefront and maybe some kind of specific CRM and targeting ad campaign capabilities, but you manage your actual orders on Shopify. So, as you are really healthy two options, you can really do every single platform. You can just use it for the front-end commercial side and use your magneto Shopify store.

Matthieu David: Okay, so if one person who is listening to us and has a Shopify shop, he can take your plugin and immediately be visible on the Chinese market. Does it mean that it would get traffic immediately? It will have to bring traffic maybe, but that’s not which is actually the purpose, which is to connect like I guess a bit like Lengow in Europe. Do you know about it?

Thomas Graziani: Yeah I do, kind of similar and with differences. I believe I’m not an expert of what they do, but they enable to basically have a centralized way of listing your colors in different E-commerce platforms in China. What we do maybe is a bit more specific to each other. It’s also more customized for WeChat. But to answer your earlier question, yes you’re right. Once our merchants set up on WeChat, they don’t get instant traffic, so we don’t make the promise of merchants that just by listing on a platform will get sales. When they use our platform basically it’s just like if you created your Shopify store and then you need to drive traffic to it.

So, we do have clients who get sales very fast, but it’s because they already have an interest in their products in China. And then with the launch on widgets, some of the customers find it more convenient and start buying. So, we do notice there are some cases of time to launch and without any special promotion. Because they had some kind of existing presence in China they were already selling on other marketplaces when they started launching on Wechat and which items are provided to collect to be cheaper because it was their own channels that even have to pay the fees to all these platforms then kind started buying to it directly. But that’s as a minority of the cases or clients which they have to earn campaigns so that we can get it.

Matthieu David: Ok, ok I understand. So can you tell us about WalkTheChat now besides of the company, number of people working or number of clients, anything you can disclose to give a sense of this science and momentum that you’re having now for the audience?

Thomas Graziani: So, today we work with about 100 paying customers, so the way we work is basically mostly recurring revenue. So, clients pay every month to be able to use our platform and then the fee is about between 200 and 1000 USD for that reserve software. But some of our clients are more than that, so you are asking earlier if we were handling the part about traffic. The answer is sometimes. So for some or all of our clients, we provide this kind of half basic e-commerce layer where we charge between as I said 200 and 1000 USD. This is how basically works a SaaS product model. And then on top of that, we have some sold services which can include customer service, marketing content. But we don’t do that with all our clients we actually do that with a small percentage of all clients, with whom we really want to do the washing the full stack approach so that we really understand how to market to China and we stay connected to the market. I put some of our clients, also agencies then, we’re selling the platform to their clients, in that case, they would handle everything. So, yes as I was saying about a hundred clients, wh can bring between two hundred to ten thousand USD or above of revenue depending on the size and on the services that they purchase from us.

Matthieu David: Ok, among the clients you are getting now, what’s a typical client, what do they sell? Like I guess it is an only physical product? Or services like traveling?

Thomas Graziani: It can only be physical products because we’re doing 12 audit payments with WeChat and we have to basically make sure the platform is not being used to funnel money out of China. So, you know the floor seems to be clean when a transaction takes place it must be associated with a Chinese customer ID, and with a shipping number so that then the Chinese government’s if they want, can track and make sure that we’re not using the platform to take revenue out of China. Because converting from local Chinese currency to USD is actually a very regulated thing. So, we have to operate in this framework which is set by WeChat. And to answer your previous question, a typical client very often will be either in fashion like cosmetics FMV industry. Usually, we’re talking about client well not super famous things within the niche.

So, very often like mid and niche fashion brands which are maybe famous in New York might have some do it in New York or Italy in the local market. But they are not LVMH level, and they want to get started in China so not selling here yet and they want to get visibility. Very often our clients would already have some kind of disability in China. Maybe some borders already identified the brand start talking about the brand because they don’t have the official channel yet to sell. So, that’s when we come into play, and we help them set up this official channel to cause border. And they don’t want to have like fruit flies like beat teams in China at this stage, they just want to basically be able to sell to this market, and that’s why we help.

Matthieu David: So, when do you think a company should contact you? When do you think company stuff so breaking WalkTheChat before you say mid-sized when you are reaching the mid-size? Do you have any metrics?

Thomas Graziani: Yes usually there should be like somewhere above 20 million USD of sales in the home market. Because getting into China is not necessarily cheap, we don’t want to promise in any way to our clients. We don’t tell them ‘Well you’re gonna spend like a few hundred bucks on the platform and then you would get sales.’ We try to be transparent about the fact that there is very often marketing expense to get started in China. So, very often it would be at least dozens of thousands of US dollars spent on paying some key opinion leaders so that they start promoting the brand. So, we have some good cases of companies spending less and sass, or recently we had a fashion brand which feels like a thousand US dollars of investment in checking and meters got about just below sixty thousand US dollars of sales for a company which is basically just getting started in the Chinese market.

So, we are getting good results sometimes with low investment, but is not first still an investment and very often we would advise having at least an envelope of fifty thousand US dollars to put in this marketing. So, we’re talking about brands which are already established in the local market and who can spend a bit on the acquisition to get that initial momentum. Because otherwise, we don’t want clients who just basically present a list of products and they don’t get any sales. We try to discourage this. Of course, there are some cases where clients could get to some results without some big investments.

As we said if they have existing visibility in the Chinese market or in some other ways to get customers. So, it’s all about acquisition right. If you have a store in the US in France where you have a lot of Chinese tourists who will come to your store, then you could actually tell them ‘okay scan this QR code’ because as you know, QR Codes in China are essential for offline to the online acquisition. And then tell them ‘okay know that you follow this QR Code you can keep buying the product when you go to China’.

So, you can have other ways if you already have some kind of audience. If you already have offline traffic from Chinese customers, then you can actually manage to do this without having to pay too much on the acquisition, but it needs to be a solution to the acquisition problem. And it can be buying the traffic, or it can be offline to online.

Matthieu David: I understand. So if I summarize for the audience to make sure everyone understand: you’re providing a solution which can be the software itself you plug, you put your product on your platform, or the plug-in which is getting the products from Shopify, and making it possible to displace them on specific pages on WeChat where the Chinese clients can buy easily because that’s the way they buy China. Is it correct?

Thomas Graziani: Yes and basically as you said for the Chinese customers, it’s a completely local experience. Very familiar user experience: local logging message, local payments messages, local sharing messages. And then the money, of course, is upon purchase is committed to finding currencies. So, the Chinese customer is paying in local currency, and the merchant gets the money in a currency they used to sell. So, it’s a very seamless experience on both sides.

Matthieu David: I think on both side there is no hard work to change currency, to display the product on your platform, it’s seamless. It’s just translation you can provide the way or they do on their own but your focus is to offer a SaaS system in China which is helping to put the products on the platform which is easy to use by Chinese. And this you charge 200 to 500 dollars a month.

Thomas Graziani: Yeah I mean it’s 200 to 500 for this part of the offer he’s gonna move to two thousand to one thousand within like also as we are now we are going to classic Software a service system evolution, or we’re increasing the pricing as a collection to get more features. So, some of the new premium features we’re going to add which includes CRM and some advanced targeting capabilities we’re gonna move create a one thousand US dollars’ plan. And I guess next year we also have two yearly pricing instead of monthly pricing. Today most of our customers are on monthly pricing. Some of them like the platform and then because they know they gonna keep using, it converts to yearly. But soon we’re gonna make everything to pay for a year because that’s a good way to get front cash for us. And as we get more comfortable with our solution we can see more success cases, we are more comfortable with clients paying for the service.

Matthieu David: So, we talked about it before the interview. You are not charging for the transaction, right? Don’t you take a commission on the transaction?

Thomas Graziani: Not really. So the transaction parts: it’s like the end customer usually would pay first like a middleman amount of Tencent official owner of Tencent in each country. To be more accurate: my merchant sign up they don’t sign up directly with Tencent. They sign up with a middleman of Tencent,  he aggregates all the merchants for WeChat. Because WeChat does not want to create accounts for every single merchant. So, they have some partners in each country. So, when the transaction happens, the customer pays via WeChat payment the money goes to Wechat, Wechat sends it to the payment partner, and then the payment partner we send it to the merchants. So, the total Commission is gonna be around 2.5 percent and usually is percent which is taken by WeChat more or less. In 1.5 percent by the payment partner so some of these payment partners have agreements with us and they will give us a very small fraction of a percentage.

But, we don’t really take it on top of that we take it from the fraction they get by the payment partner basically. Like if you recommend a client to someone and then the client will pay the normal price, but you will get an affiliate Commission where we get an affiliate Commission from some other payment partners.

Matthieu David: I understand so WeChat system, WeChat pay, is partnering with a middleman, do you have some names of middleman you can unveil to the audience of this China marketing podcast?

Thomas Graziani: Ni Hao Pay, ‘Ni hao’ like hello, Royal Pay so this is a partner for us in Europe, is a partner from Australia but we integrate to like a dozen different providers today. Even more than that because we keep integrating when we have a client using a provider, using new terms you’ll be providing new terms we will just add them to a platform. And now, so that keeps expanding over time.

Matthieu David: Okay, so 2.5% percent is what Wechat pay?

Thomas Graziani: In total, that was a merchant has to pay in total, taking into account all the stakeholders both in traffic and the middlemen. And easily sign up with Wechat pay directly we should possibility then we still pay all the same percentage because basically Wechat Pay is giving a discount to these middlemen and then they get the difference. So, for merchants, it makes more sense to use this middleman because they actually provide better API and Wechat Payments and that’s much easier to speak with and much more reactive if there is a question if there isn’t an issue that the customers want to discuss. So, we don’t really recommend going directly with WeChat. Although it’s just a possibility, we also have this integration of course, but in practice, we find more problems.

Matthieu David: Ok, ok basically 2.5% is very little, I mean, compared to, if I remember, Pay Pal and Stripe are about 5%, 4% to 5% when it’s cross-border.

Thomas Graziani: For cross-border payment transaction it’s very reasonable. We never had any merchants being bothered by the 2.5% definitely. I mean for the merchants the biggest question is on marketing and how to get returns right. So, that’s the real expense of the merchant, the whole set up of our platform is quite fast, I mean it’s quite smooth, the costs are not outrageous. The real cost comes when you have to start paying influencers to drive traffic. So, that’s where we have to maybe do a bit more calling, to explain to our clients how to do this and as we get more and more success, it’s getting easier because we can point to other customers who manage to do it. And it’s getting easier over time.

Matthieu David: You talked about what you imagine as a success story for one of the clients spending 8 thousand dollars, so they sold around 60 thousand US dollars.

Thomas Graziani: Yes, I think it is just below sixty thousand US dollars.

Matthieu David: Okay eight thousand spendings, 60,000 as revenues. So if I do the math, I’m around I guess twelve percent. Twelve.

Thomas Graziani: This is what you can expect for like successful campaigns, I would say like between five to seven times your investment. Of course, it varies. It’s social so there is a lot of uncertainty, and also this cost goes down over time because when you do your first campaign, you completely rely on the meters. So you don’t have your own asset, you don’t have your own traffic right because when we have our clients, we first time help them to set up this WeChat official account which is like a Facebook page right for WeChat, they’re going to be able to send notifications. And this account will be linked to the shop. So it’s like a Facebook page linked to a Shopify store. When you get started you don’t have any following so you have to pay for each view and for each sale and as you expand and as you keep doing campaigns, when you run a campaign you don’t take people directly to the store you ask people to follow your account, so you are accumulating followers on this account, this asset and your cost of sale gets down over time and becomes more predictable.

So as a beginning you are gonna has a bit more to spend, to acquire sales and also you’re gonna have much more variability because people don’t know you and some other influencers are gonna be a great fit, and then as time goes by and you can get more visibility on ourselves. You’re gonna get on WeChat and run your weekly, or monthly campaigns on your account and you will get some sales coming which is a bit more predictable a bit more return.

Matthieu David: Okay so these 8000 dollars include your fees?

Thomas Graziani: No, only marketing. This is without including some initial investment through maybe a bit of design and also an office, but I think for this store that’s a few hundred USD per month right, so our fees are not really changing the equation of the ROI. I mean we look at our ROI as a campaign level, because once you have a good ROI campaign, you can reproduce it and scale it and hopefully our fees with because our flat, gets more and more as a part of this.

Matthieu David: I’m trying to understand so that the audience can have something in mind and project some business idea into the Chinese market. So 50,000 USD with no fame initially, the product is unknown. So two questions how much does it cost, total, I mean to spend with your fees and so on, and so the question behind this is how long did it take? Because if it took a year that means they had to spend for one every month for one year to give you something – some payments. So could you give us an understanding of this?

Thomas Graziani: For this campaign that you’re talking about if I think the campaign happened like a month or so after the client launched his store. So usually it takes a bit more time in total but usually, we have like the 1000USD fee to just create a WeChat account so when our clients start working with us sometimes they just pay this 1000 USD, and they don’t pay any recurrent fees because we need two-three months to get the approval from WeChat.  So we started working with them a few months back, with just paying this one-time fee, to create the account and then we designed it and then after this campaign happened like about two months after launch so it’s quite fast.

It took four or five months after first contact and maybe a couple of months one or two months after they actually launched the store including all the steps and they didn’t have to pay big amounts in the initial step for the first three months. I think we are just focusing on creating the accounts, so we were basically waiting for approval from WeChat and then the next two months, we’re more focused on really preparing the store, running the first campaigns and getting results, so it is quite fast.

Matthieu David: So it was 8000 USD, in marketing money. And your fees is like ten to a twelve?

Thomas Graziani: Just a bit less than that I think. It was like 3000 USD design, one thousand with the account creation. Maybe like a 1000USD of fees for a couple of months for content but the content was not really what increased the sales, the content is more flattering on the long term, so I think it was actually spent on design, creation, icon creation and campaign in total was around 15-20 thousand USD but I think that’s a lucky case in the sense that as I said I would recommend trying to have an envelope of over 50,000 USD to get started so that they can some returns.

Managing to do it without a total envelope of 15,000 USD, is rather unusual. This client was willing to spend more, it’s just the return came quickly, but I think you need to be ready to invest a bit in seeing returns if you spend like two thousand USD of online campaigns and you lose. I mean this is quite likely the first or second campaign some of the markets be big hits right away because when you find time to find the right influencers, and it takes a bit of luck too because it’s social media.

Matthieu David:  Basically you are on an ROI which is between 25 to 30 percent, which is actually when we compared to like Google AdWords or Facebook AdWords, it is pretty good because I remember the e-commerce conversion is about one to two percent in the West and if you have the click on AdWords together with one euro, you may have to pay up 250 to a 100 euros before you can sell.

Thomas Graziani: I mean you can get really good results via Wechat, and that makes the platform attractive. You can get results fast, of course, it suggests that the product is good. It’s not the kind of product results you can get with any product, and the product must have some kind of fit with the Chinese market and have potential in China. So that’s why I was saying with some kind of fashion, cosmetics items some FMD products, we get really good results there is an element of with a local market and if your product is good and if wink investigate to find the right influencer for your brand then the results can be extremely positive and extremely fast which is I think the impressive part, because entering the Chinese market for most brands can sometimes take years.

If you go to the traditional way and you go like setting up a branch in China, a company in China, you know as well as I do that a lot of foreign companies might take a year just to get their legal structure created before even talking about creating sales and being profitable. So the idea is that you would start on a phone call and that four or five months later, you will be profitable on your Chinese market strategy. It’s quite exciting and without such an insane expense. Once again as I said we don’t want to make people believe they can do that with just a few hundred bucks but for large SME’s investing like twenty, thirty, fifty thousand US dollars in initial campaigns or more if they want of course is not such a crazy expense.

Now, of course, they can elaborate on this, we can suggest WeChat, once they get their ad they can start looking for distributors and other things. But WeChat will always be part of the strategy.

Matthieu David: How do you identify the Kols in China? How do you identify them and how do you work with them? I mean work for money or?

Thomas Graziani: Very often we find them through personal contacts or using the network we are starting to build, and that’s what I’m saying we are mostly focused on like this element of like of fashion, cosmetics and FMV because that’s when we start to know bit more KOLs and being a bit more used to doing this kind of promotions. If we are in other areas where we don’t have anybody in our networks, then we might recommend other companies which are doing KOLs full-time. You know you have a company like Parklu which are just KOL’s companies. Their job is just to source KOLs. So if they want a specific influencer, we don’t have in our networks for specific products we might just introduce these companies. We don’t want to be like influencer management companies, we’re really focusing on the e-commerce layer, we have a Saas product model.

We just believe that it’s important for us to get a first-hand approach experience of everything that happens for our clients. So we are now building a small network of very high quality KOLs on some areas like cosmetics, fashion and FMV where we get a lot of clients and then when a client’s reach out to us we just try to see what is the best between what our client is offering and  what is your customer personnel of the client and what are these different KOLs in terms of gender and age and location, different size of cities in China.

So we can find a good match in the general tone out of the Influenster as opposed to the general messaging of the brand. So it’s kind of a manual process, and we can meet well because we keep it small scale. As I said we don’t work with all of our clients on the kind of campaigns, a lot of our clients might go to other agencies, and we do it when we believe we can really get good results because we have in house the capability to do his town campaigns. And we don’t try to do that for our clients, some of our client’s most specific needs and we just recommend some.

Matthieu David: Yeah, I understand basically it will help them to get good use of your software. Like because they could do it themselves, but they may not know how to do it because they are far away so in order to be successful on digital platforms you may help them doing marketing, but that’s not your core business.

Thomas Graziani: I mean a lot of clients need help, and it can come from us. Also, it can come from other agencies. We have some clients in China savvies but it’s a very small percentage of our clients who know a lot about China. So for a small number, we help them. And for a large number, we introduce them to agencies which are helping them to do this more like PR/a promotion part of- the launch. So no matter what we make sure that our clients have the right kind of support. The question is, do they have it to start with? Do we provide it? Or how do we introduce them to people and provide that for them?

Matthieu David: Okay what do you think about I think Galeries Lafayette is using now QR code in Paris because that’s very close to your idea right to help local businesses being able to connect with Chinese, tourists or Chinese clients and getting sales from that platform. What do you think about it?

Thomas Graziani: What you’re describing for Galeries Lafayette, they simply providing the payments right. So payment inside Galeries Lafayette. What we are looking into is now we are trying to partner with this kind of providers who helped to provide offline payments in Europe in particular — and providing them with e-commerce on top of that. So today you go Galeries Lafayette, you purchase, but you don’t necessarily keep buying when you go out. What we provide and what we are starting to partner with the offline payment provider, is providing this kind of offline e-commerce which is adding to that. So basically you’re going to this tour in Europe in France, in Germany in the UK where you’re paying with Wechat payments. And as you’re paying like you’re invited to follow the account and then once you go back to China you can keep buying products on the platform.

So it’s a step further I think from what’s happening today, all of the merchants in Europe are now still at the stage of simply setting offline payment. What we’re providing, through our Saas product model in China, is to stay in touch with the customer and that’s something we look into right now. Once again I think that’s something which first place perspective, we are simply like in the discussion which these offline paying providers are trying to find ways to collaborate. It’s not we’re all traffic most of our traffic comes today our lines as I said are mostly brought through influencers. What we discussed the beginning of the conversation when we said what matters at the end of the day is traffic, one way to get it is by influencers and Kols. That’s what we do today. Another way to do it is to get it from offline traffic which is what you’re describing with Galeries Fayette, and that’s also something we’ll look into.

Matthieu David: Okay I see. So you have this boot system where you are building a SaaS product model in China, and you are also providing other services. That’s about, and I feel that’s coming back from your origins, you create Walk The Chat as an agency. Could you tell us more about how it began? How you evolved it? I saw a lot of agencies who fail and a few of them being able to do it, which did very well actually like UpAnny, I think came out from kind of agency at the beginning. So could you tell us more about how you did the conversion?

Thomas Graziani: Well we’re just very frugal, as an agency. So this was a tough choice back in the days, now it is getting a bit easier to live with this because we see some real growth on the software side and we’re seeing success stories and getting momentum. But basically, I chose to not take so many agency projects and to keep the agency small because I was afraid, I mean I didn’t look like the agency worked so much, we still do a bit of it we have a few agency clients. But like that’s a good client, like we just started a small project with Cisco which we renewed because we helped Cisco give you some Wechat processes and they are a quite smart, quite sophisticated client.

So they’re easy to work with. So we sealed in a bit of it but I didn’t want to do that long term, and I didn’t want to be dependent on this to run the business. I didn’t want to out because having clients as an agency’s bravery, can be very crushing because basically, you’re kind of the slave of the client. When you’re running a software as a service system business in China we are today, of course, we have to be good for the clients we have to provide good service, but at the end of the day, there’s like now about hundred clients.

We don’t really depend on each client, and we keep growing, and the weight of each client gets smaller and smaller, and we give them some peace of mind, and it makes it much easier to run than running a business where you’re up in five or ten active clients. And then if you use one, it’s like a very big blow for your moral and for your company finance. So yes I just decided not to get into that and to kind of stay very low key until we found a model which works which stumbled into a year and a half ago. And which is gaining more momentum today but it was mostly restraint. There was not a lot of genius moves we just tried some things.

Matthieu David: So I told before I know you for some time and always felt that it could have been painful to do it and to refuse clients with maybe nice budgets as an agency. I know the focus on the product because one of the thing I find really amazing among the expat community in China: You are the one who about Wechat, WeChat gets a lot of press coverage lot of shares, a lot of likes and so on. So for you getting quite big on agency should have been possible but it was not part of your path, you saw it. And that’s very rare to see an entrepreneur to commit to one product and get rid of all the other business you could get which could make money.

Thomas Graziani: Yeah there are some different difficult calls like we turn down some products, rejecting Morgan, with Boss also work with them but then we refused to quote on some bigger projects. So it was not easy, but in the end, today that was what it helps me because I’m a bit weird, I don’t really have a very philosophical approach to life. It’s not really about money, I don’t care too much about money. I care about doing these things the way I want them to be done. And if it makes less money, it makes less money.

I mean if it is getting money to do the wrong thing just not brain interesting. So that’s easier for me to turn on these projects although they were bringing money they weren’t they were not what I wanted to do so. And I still sometimes do today to refuse to quote for things which are quite large, but I’m not too good to fit for what we do interesting.

Matthieu David: Yes an agency is a never-ending fight, and you always have new products with different requirements.

Thomas Graziani: No I am always on this never-ending fight but so just in these days the fight I won’t certify it was one of building a Saas in China. So it’s also a never-ending fight you’re fighting against potential bugs or putting on the architecture of your business to bring stability, in putting out transparency, inputting features but one personal standpoint that fighting is finding more and more satisfying.

Matthieu David: I understand. How did you begin? I know that you have to begin in very different fields. I mean picture, photography and how did Walk The Chat begin, you are not a developer, obviously not Chinese, you are not in e-commerce. And how did it begin and how did you decide to create an agency focusing on WeChat. What was the start?

Thomas Graziani: A long story. So my background is in engineering but not in programming as you mentioned. I’ve been training mathematics from engineering in France and business in the UK. Then I went for a short time in measurement consulting which I didn’t quite like. So I quickly left to go to China. Where I worked for a French automation company for three years before starting Walk The Chat, this is like a personal side as you said it’s nothing neither with e-commerce, no is programming. As I was at Schneider I get interested in entrepreneurship started a few companies. One is a fashion business, one in the photography business and the fashion company, when I started it I started using WeChat as a marketing tool to promote it because back in the days Wechat was just getting started.

And then I realized a lot of companies didn’t know how to use WeChat, and I started to give services to companies, but it is expected that was building. As you mentioned, I started blogging about it that was the first person to write about Wechat in English. Now we have quite a very active blog which gets a lot of traffic which we have been maintaining for the last 3 years. It’s changed since I started Walk The Chat.

And that’s how it started, and briefly, I realized Wechat was making much more money. So I gave up the photography project and started focusing on WeChat, and then we were just taking some agency projects it’s not really finding out past just looking for what we wanted to do and for the last year and a half we have been focusing on this e-commerce product and it has been much more satisfying because we have great results, month over month, of course, it’s pretty nice to see that we are really building something.

Matthieu David: Okay I see. So you build WeChat initially because people were asking you to do the same as you having yourself for the initial business that you stopped and after you build a blog, we talked about it. And you did a lot of common marketing, and I have talked about it before about how to build common marketing. What is the situation now about your system process if I go and see in web and checking a website, you get I guess love from such google and a bit of social media, but that’s very little actually.

Thomas Graziani: Aas you mentioned we also you know about this because you’re the one who first told me to go into SEO about three years ago and who also supported me and supported us. At the beginning some of your teammates at Daxue Consulting were really helpful back in the days it was Thibaud who helped and but if you taught us how to do SEO. So SEO is a big thing for us we are if you write any Wechat keywords if you type Wechat shop, so I think we are number one and two or number one two three on the first page of Google.

Anyway, on all these keywords, we are really crushing it usually is only WeChat which is good for us for the vast majority of these keywords and most of the time we are number one. And sometimes our field refers to first places for which are advertising, which has killed many years of auditions. So this really helps definitely we getting more client referrals, it’s bringing great qualified traffic. I have liked I think 30 views per month on my profile, talk answer for WeChat. And people who ask questions like how it like latest on WeChat are very qualified and didn’t convert to our website some very qualified traffic.

And we are realizing now also all the forums about Shopify, people discussing how to create a store from Wechat to the Shopify website, Wechat friendly, China-friendly people. We will drive some answers, and that would drive some qualified traffic. These foreign channels are quite efficient driving very qualified lead, and this lead converts very high.

Matthieu David: I see. Another question for our China marketing podcast: What do you think about Quora because I feel that people ask a lot of very pretty naive questions, it’s working?

Thomas Graziani: If you are just browsing the most answered questions on Quora, of course, it would be a lot of things about American politics, updating stuff which is not really relevant to business. But as you said it’s very well referenced on Google. So most of the time if you have a question about Wechat you would find our website, and then you would find a core answer, and the answer would be my answer right. So at the end of the day when people look for information on Google being whatever reasons in on Quora. And make sure that people find it where is it and also Quora is very often seen as a trustworthy source of information because you get an opinion from different people about the questions you’re asking.

So being there is really a good way to provide expertise and very often we don’t directly promote the business, but we provide very good expertise, and then people go on our website and ask themselves questions about which items and then they convert to some of our lead magnets.

Then we also have very good lead magnets on the website, so once you go on the website we have magnets which are working from you. One is about entering the Chinese market, and one is posting about WeChat marketing. So people will sign up to that and then they would receive five emails.

First one about Wechat account, one about shops, third about traffic, fourth about content and fifth about case studies which basically would tell them everything about how to market on WeChat. And because what we do is so complex, having this content is very important because it enables us first to convert some of this traffic to email collection. And also it enables us to kind of start educating these customers so that when they get to us another zero level of knowledge, they got maybe 5 or 10%. And they are going to be all the way to experts but at least we are speaking from common, and they already know that they have to create an account. There are all different types of accounts, and they know maybe different ways you can drive traffic. So that’s what we helped.

Matthieu David: I understand. So how does it work, people could like email as they receive some training?

Thomas Graziani: They send their email, and it submits to a help platform which then sends their email. It’s quite simple. Especially you can see also the engagement of users, the difference between having an eBook and an email post is if you send people an e-book people you have no idea. You just know if they open the email and that’s it. But if you send an email, then you can see people actually open Gmail every day which two things in sizes that can see which things were clicked. So you can really have some very serious metrics of engagement and I know I’m converting this into Facebook messenger reports, which is even more visibility and engagement of users.

This is very new we started doing that a few days ago, but I just put 30 buck’s investment on promoting this messenger course and generated 150 conversations on Messenger. So very interesting.  So this is retargeting. There are people who were visiting our website, and then I retarget them with ads and tell them what they want to learn about Wechat marketing. It’s not all of them working in big companies but that’s the beauty of Messenger. As they get inside the course, I can ask questions like you’re registered in, which country they visit and then I can find a way to basically use it and avoid the ones which can’t invest and focus on the ones which are actually very qualified.

So this is a new experiment I started three days ago, and I’ve actually done that myself. Because I really enjoy discovering new ways to engage people with messaging. This is a personal experiment. We are not scared at all, and just discovering how it was a good way to provide the kind of courses for messaging.

Matthieu David: I’m seeing that you get a lot of traffic from the US. Is it correct?

Thomas Graziani: This might also be some people using VPN in China. So like this all of this traffic might be Chinese traffic like our main draw graph is US, Canada, Europe, Germany, UK, Holland, Italy, and Australia, New Zealand. This could be the main domains. I think it’s always difficult because the US always tends to be over-represented because of the role of the VPN. If you look at the way to evolve on Google is like really Wechat payment, Wechat store, Wechat advertising.

Matthieu David: Still concerning marketing in China, I feel that we are now trying a lot of ways to get new clients but at the end of the day, what’s retraining the most of the client is called marketing stealing.

Thomas Graziani: As I said we haven’t been very good to leverage other channels that’s also why content marketing it’s so strong for us. Now I haven’t been very good at leveraging offline traffic. I mean like conferences and business trips and basically going out to meet clients, we should. Because I’m not this type of person, I’m a very extreme introvert.

So next year we’re gonna start doing more of this. Indeed I’m gonna go into like the entire European tour to get a bunch of talks in France, in the UK, in the Netherlands. So we can start leveraging a bit of this capability and I think online marketing is still quite strong, when it comes to online conversions especially for all kind of like niche B2B business in China is hard to just run a Facebook campaign and do very well, except as I mentioned retargeting then you have qualified audience. But if you’re starting from scratch finding high people intend to start selling their products in China, it’s not very easy.

Matthieu David: I understand. Thanks, Thomas Graziani, thanks for the time. How did you like it?

Thomas Graziani: It was good, good questions, a good interview for Walk The Chat.

Matthieu David: Okay good. Thank you very much, Thomas Graziani, for explaining to us how you built your Saas model in China and thank you all for listening to this China business podcast.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article Podcast transcript #1: How to switch from an agency to SaaS model in China is the first one to appear on Daxue Consulting - Market Research China.