Developed by American scholars, Richard Thaler and Cass Sunstein, the concept of nudge marketing has been successfully applied in both public and private sectors in the Anglo-Saxon society. The key elements of the nudge theory include the choice   (reducing the mental effort to make a decision). In a nutshell, both governments and enterprises apply nudge in China to entice people to achieve expected behavior.

In the business context, nudge tactics are all around us

Nudge theory was popularized in 2008, but we have been influenced by nudging, even in a consumption context, our whole lives. Simply observing the online and offline ecosystems exposes the abundance of nudge marketing tactics in China. Anywhere a business creates the environment in which a decision is made will inevitably include nudges.

Individuals retain the power to choose among alternatives, but the structure of their choice favors one particular outcome. Nudging affects behavior while also respecting freedom of choice of the consumer. Whether it is placing sweets or other impulse purchases near the cash register, or listing the more profitable product in front of the less profitable one online, consumer choices are influenced by the environment around them.

Photo Source: Daxue consulting, Mechanism of nudge marketing

However, Nudge theory has low academic awareness in China

Even though “nudge” is a popular concept in the western world, it has been rarely cited for academic purposes in China. The official Chinese translation of nudge is “助推理论 (nudge theory)”. Other synonyms such as “助力发展 (development aid)”, “助推器 (industrial propellers)” and “助推 (nudge)” are used in ways irrelevant to the concept proposed by Thaler. According to CNKI, a key national research and information publishing institution in China, the attention degree of nudge theory has remained very low in the Chinese academic world. Even so, mare the translation of western academic papers and analysis of the nudge application in western society. These facts reveal that nudge theory, and nudge marketing in China has yet to become popular.

Photo Source: CNKI, Subject distribution of nudge theory in Chinese literature

Nonetheless, it is interesting to notice some enterprises, including online car-hailing platforms, have utilized nudge marketing in China. On the other hand, Chinese scholars have been discussing applying nudge theory to policy making in China. If so, in which context it is most suitable?

Nudge in the business sector: Software-as-a-service industry and E-commerce platforms have applied nudge marketing in China

With the increasing household incomes, improving legal measures regarding intellectual property and development of the 4G network, the software-as-a-service industry in China is booming. While lots of market players strive for market share, how can they attract consumers in China and stimulate the purchase behavior, by applying nudge in their businesses?

Case Study of QQ Music: auto-subscription and excessive exposure of promoted products are nudges

QQ Music (similar to Spotify), one of the leading online music service providers in China, has applied nudge in promoting their core product. Green Diamond (绿钻) is the premium membership that enables music consumers to unlock premium music services such as music quality, customized themes and profile pictures, and more access to paid digital music. In addition to the premium membership, regular membership is the second promotive product, and it merely consists of the basic service, limited access to paid digital music.

Application of heuristics: information availability

Information availability is related to the observation that as people see or hear something frequently, they tend to believe its perceived credibility. QQ Music has applied information availability successfully. On the home page of the member center, QQ Music mostly promotes the premium membership by placing multiple stimuli regarding Green Diamond. The images below display pages of the QQ Music member center.

Source: QQ Music screenshot, navigating a Chinese app means immersing ones-self in a series of ‘nudges’

Four activities which are circled in blue are related to obtaining premium membership. For users that are not familiar with the platform, these stimuli are likely to entice them to get premium membership directly as they might perceive that Green Diamond is the only membership they can obtain from this online music platform. However, they might not know QQ Music has also provided regular membership as this platform does not place any stimulus to promote it frequently.

Photo source: QQ Music, member center page

Inertia and auto-subscription

Inertia is related to the tendency of people to stay committed to current situations. It is caused by the fact that people are unlikely to be proactive to change things when there is no stimulus to do so. Likewise, QQ Music has applied inertia as the stimulus. Some subscription agreements take effect after users enable the auto-subscription condition. For example, users can pay 12 RMB/month by subscribing to the successively 1-month plan. Otherwise, they cannot have 6 RMB deductions per month as a benefit. Once users enable this condition, they need to cancel the plan manually if they want to terminate the plan.

Moreover, QQ Music does not send any notification to remind users of the end of the monthly subscription. Affected by inertia, users are too passive cancel the plan when they have not been prompted to do so, and thus their subscriptions would continue automatically. QQ Music tactic regarding auto-subscription leverages the other side of nudge marketing; consumers are less likely to react to a stimulus that is not present. 

Case Study of Tmall: Reviews, discounts and particular display of information are nudges

Likewise, Tmall has driven online purchase behavior with nudge marketing in China.

Photo Source: Tmall, Nudge marketing on Tmall platform

Social proof and reviews

High amount of reviews are effective in driving purchase behavior as they give more context and personal experience to products. Reviews are technique of social proof, which states that when uncertain, individuals will look towards the behaviors of others to help them make decisions.

Anchoring and discounts

Anchoring, a psychological pricing technique, is using existing information as a baseline for new judgements. The higher price “anchors” the individual to make the discounted price seem smaller.

Autonomy in decision-making

Being able to choose from various options, such as to check out, add to the bag, or paying in installments, it gives consumers the freedom of remaining autonomous in their decision.

Pushing the sales of a particular product

Placing the most attractive product next to similar products that aren’t perceived to be as good of a deal makes that option look even better. On Xiaomi’s page, the most attractive option would be the middle with its attractive specs, which justifies its higher price.

Photo Source: Tmall, Nudge marketing on Tmall platform

Credibility and labels

Labelling as implicit nudges boosts credibility of the product to make it easier for consumers to find what they want.

Photo Source: Tmall, Nudge marketing on Tmall platform

Similar nudges are widely used in video platforms, paying-for-knowledge apps, gaming platforms

In terms of other digital content and service providers, auto-subscription is a common nudge tactic in this market. It is noticeable that the applied nudge tactic in China’s business can be found in the western context. With the growth of globalization, more and more business tactics born in the west have been adopted in China readily.

Applications of nudge from China’s government

Nudge in the policy establishment is more insightful. More and more Chinese scholars have delved into this field and discussed its feasibility in the Chinese context.

Nudge in China’s public policies: it is applicable in the pension system while focusing on different attribute   

One of the most prominent applications of nudge is in the pension system. In western countries, in order to tackle the low propensity of saving, a nudge has been applied to  trigger their saving habits for retirement. Auto-enrolment and display of selected information are the main characteristics of nudge in the western context.

By 2020, China had established the pension system for over two decades. Considering the relatively high propensity of saving, it has not been a significant issue in China’s pension system. Instead, the main issue has been the low participation rate. Because of the unequal economic development, the penetration rate of the pension system in rural areas is low. Among these nonparticipants, some of them have limited education and do not know the benefits of investment in pensions. To tackle these issues, some Chinese scholars have suggested that the government should utilize the heuristic, framing and availability, to attract more Chinese people to participate in this system. By amplifying the benefits of pensions, offering limited investment plans and using plain descriptions, people’s willingness to participate are likely to increase.

Nudge applied to prevent the spread of Covid-19

On top of strict government measures to control the spread of COVID-19, China also used some more subtle tactics to encourage citizens to follow the rules. Simply putting a hand sanitiser dispenser or a tissue nearby will increase the chances that people use them, before entering a building, even when people are carry their own tissues and sanitiser.

Source: daxue consulting, 50 measures China used to prevent the spread of COVID-19 report, tissues placed at the doors of ATMs

Standing spots also served as a subtle reminder to keep a two meter from others. Though this measure could have been implemented without labeled standing spots, the spots remove the mental effort for people to have to figure out how far to stand from each other.

Source: daxue consulting, 50 measures China used to prevent the spread of COVID-19 report, people are nudged to stand on standing spots

Nudge theory in China has yet to be widely discussed

Regarding the nudge in China’s business sector, enterprises have applied nudge marketing in China readily. Nudge amplifies the universal trait of human behavior. Since nudge works well in the western society, it can also bring similar benefits in Chinese environment.

In regard to the application of nudge in China’s government sector, scholars are questioning the effectiveness of nudge in changing people’s behavior. Influenced by Confucianism, China has been rooted in a traditionally paternalistic system that features control and power. By 2020, the legislation in China has been to affect people’s behavior directly, rather than enticing them to behave in a certain way.

In the future, mitigating the differences might facilitate nudge’s occurrence in China’s policies

Nudge for good is meant as a plea and not necessarily an expectation. Richard Thaler, Nobel Prize winner

“Although there are cultural differences between Asia and the US or Western Europe, fundamental traits of human behavior are relatively stable around the world that would allow China to use the tools to design policies.” Thaler said. He also mentioned that applying nudge in government policy would help China’s government to obtain better outcomes. In line with some Chinese scholars’ opinions, nudge is a valuable tool that cannot be neglected. However, this isn’t to say we should ignore of socio-cultural and economic differences. Hence it is worth doing more research on nudge marketing in the context of China.  

Authors: Amelia Han & Della Yuzhou Wang

Many COVID-19 prevention measures were nudges, spot them in our report

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This article Nudge marketing in China is omnipresent yet rarely discussed is the first one to appear on Daxue Consulting - Market Research China.

• Consumer research and sentiment analysis to understand consumer receptivity and perception
• Market sizing and China market entry analysis to understand your brand capabilities in China
• Benchmark to understand your brand positioning compared to that of your competitors
• The potential assessment of your vision, tagline, and statement according to the previous steps
• The development of your message house to ensure image continuity along with the deployment of your services

Brand positioning in China – crafting your China’s tailored message

Brands are viewed as the primary enduring asset of a company, outlasting the company’s specific products and facilities. In particular, in China, consumers rely much on Brand value and awareness to purchase.

Brand positioning is defined as the act of designing the company’s offering and image to occupy a distinctive place in the mind of the target market. A proper brand positioning in China will lead your company to build a prestigious and high qualitative image that can help you overtake local brands and gain a competitive edge over foreign competitors.

Developing a brand positioning in China, therefore, involves a comprehensive understanding of your targeted Chinese consumers, as well as your local and foreign competitors’ positioning on the Chinese market.

To help you create and grow your brand image in China, we are committed to leverage data-driven tools to deliver actionable recommendations.

How Daxue Consulting could help you to find a powerful brand positioning in China– three steps

Step 1: We analyze your targeted market in China

Understand what your Chinese consumers want

Brand awareness in China greatly influences consumers purchasing behaviors. By assessing the different Chinese cultural environments to learn and understand customers’ values, motives, and practices, our research teams will discover elusive trends that inform on insights to build your brand image in China.

To do so, we leverage consumer research using the following methods:

• Consumer panel in China
• Market survey
• Ethnographic research
• Sentiment analysis and social listening

Understand your brand capabilities on the Chinese market

To formulate a statement that can be delivered by your company, it is of vital importance to assess what are your capabilities on the Chinese market. To sit in the mind of your Chinese consumers, the brand message needs to highlight the rationale about why they should choose your brand. Thus, it is essential to define or redefine what are the promises and strengths of your brand in the Chinese market.

To do so, we leverage  market research and China market entry study, using the following methods:

Market sizing

Market potential in China

Feasibility study

Understand how each local or foreign competitor is positioning its brand in China

To build a unique positioning that stands out from the competition, it is essential to understand the chessboard of other brands on the Chinese market and their respective positioning. In China more than elsewhere, brands that position themselves in the same market segment are considered by consumers to be unique according to the message they convey. Thus, understanding the positioning of its competitors not only makes it stand out, but also captures the messages that appeal to Chinese consumers.

To do so, we leverage market analysis in China through the following methods:

• Competitive benchmarking
• Market report

Daxue Consulting’s data and fact-driven methods to assess the potential of your brand image in China

Step 2:  Assessing the potential of your brand image in China

Brands often come to China with their own brand message and identity. In this regard, our goal is to make sure that your brand message is fully aligned with your Chinese targeted market. By combining the review of your brand image and the analysis of your targeted market, we will be in measure to carry on the potential evaluation of your brand awareness in China.

Usually, three critical statements convey your brand message across the internal and external channels:

The vision (or mission)

A vision is a description that informs and inspires the company from within. It is a statement that gives meaning to employees about the how and why of your business. While the vision can be shared with the customers, the main objective of corporate vision is to guide the internal operations of the company. The corporate vision is often designed in collaboration with the top decision-makers of the brand.

The tagline

The tagline acts as a clever punchline to create a memorable brand image. Short and powerful, this is by what your customers would recognize you first. Widely spread in marketing and communication campaign, the tagline can often change over the years with the advent of new campaigns. The ultimate goal of the tagline is customer-to-brand association and memorability.

The statement (or brand line)

The statement should be a concise sentence to describe what your brand does in the context of a goal differentiation. However, it should be long enough to convey emotion and distinguish what the company offers.

Once your targeted market in China has been analyzed in step 1, Daxue Consulting assesses if your positioning statement fully aligns with your targeted Chinese market. According to our market analysis, your vision, tagline, and statement in China should:

• Resonate with your Chinese consumers
• Be delivered in China by your company (capabilities)
• Be different from your local and foreign competitors

Once your positioning potential in China has been ascertained, the next step is to make sure that your marketing and communication functions will convey it, according to the data previously collected.

Important notice: Daxue’s teams are fully aware that the foundation of your brand are intangible assets, which will not necessarily change because of the Chinese market. Therefore, the goal is to identify the elements of your image that have the most impact on Chinese consumers market, in order to accentuate them. To better understand how to emphasize these key elements, we are building a house message.

Step 3: Crafting your message house to deliver your China marketing message

Message houses are a simple but effective tool to ensure that your teams keep consistency in their China marketing message across different channels.

The messaging house is a format used to develop your China marketing message by focusing on your vision, as well as the core message and the proof points that support them. Building up a message house makes it easier for all marketing functions to stay on track when developing marketing materials, as it provides the underlying construct for all messaging about your product or service.

Our message house:

While the roof of the message house represents intangible statements that build your brand, the core messages and their proof points can be modified to adapt to the Chinese market.

According to our branding consultant Remi Blanchard, the foundations of a brand entering the Chinese are not expected to a radical change:

“All the upstream market analysis will identify which brand messages will most appeal to Chinese consumers. Then it will be necessary to accentuate these messages and the proof points which support them. By doing this, we maintain the brand foundations and image, while making it accessible and attractive to the Chinese market.”

Part of our brand positioning services, we identify the proof points and the core messages that will have the best resonance on the Chinese market. In doing so, we build a message house that fully transposes your vision, supporting it to penetrate your targeted market in China.

Additional step: Market your brand image in China

Your China marketing message goes hand in hand with your brand positioning in China. If the message house is a useful tool for your Chinese operations to follow your umbrella vision, it does not say more about how to market your brand image in China.

Strengthening one’s brand image requires acutely targeted communication campaigns and the need to pick the right channels to deliver your China marketing message.  Daxue Consulting’s marketing strategy in China helps you get the best insights to market your brand image in China.

See also:

Brand naming in China

Brand equity in China

Brand health check in China

This article Brand Positioning in China is the first one to appear on Daxue Consulting - Market Research China.

1. Creating a Chinese business name

Finding an appropriate Chinese name for your company is a requirement. Once you have registered a Business Name, you may go a step ahead to getting a logo for your new business. All these three should be unique and not like any other registered business. This will be the trademark of your business and if in doubt over the name, logo or domain selected, there are sites that can help you know if the one you select or create has already been taken. By failing to do so, you may end up registering using either a business that closed or one that never took off, eventually bringing confusion to prospective customers who search for your business.

When starting a business in China, there are certain research strategies to find a solid business or brand name. Unless you are a native Chinese speaker, it is not advised to choose a name yourself. There are many underlying factors to maneuver. For one, dialects; something that sounds nice in Mandarin may translate to something unappealing in Cantonese or Shanghainese. Secondly is tones. Although a translation of a brand name might accurately describe the brand, Chinese speakers are sensitive to how tones of syllables fit together. Hence certain phrases may sound poetic and charming, while other phrases may sound unappealing. Third is meaning. Some brands choose to transcribe the sound of their brand in English to Chinese without considering the meaning. This can be disastrous if the characters used have a conflicting meaning with the brand purpose.   

2. Have a business plan backed with market research

Failing to have an established business plan is like planning to fail. One thing that a new start-up again may confuse is a Business Plan and a Business Structure. These are two different things. First, doing some research and deciding whether to be a Sole Proprietor, venture into a Partnership or register a company, should be the first step into knowing what business plan to have. Once you have decided on the type of business, you can then lay down the plan. Contained in a Business Plan are aspects of funding as well as what type of business venture to undertake. It will also entail how you plan on spending, so as not to over or underspend.

When starting a business in China, market research is an important part of a business plan. Consumer research like social listening or focus groups can help brands understand their target consumer preferences. Feasibility research and market sizing help companies understand the practical steps to take the capture their share of the market.

3. Create a business structure that supports flexibility

A business structure is different from the business plan. While new startups confuse this, they eventually lack a management scheme and gradually finish to poor management. So, a Business Structure is what entails what every employee in the business is to do. From the executives, accountants, superintendents, junior staff to all other working employees. When deciding on what structure to have, it is advised to seek the knowledge of professionals and experts in the field as such, professionals such as lawyers, accountants, and even some business people may help you understand and decide on the best business structure for your business.

Adapting to a more Chinese business structure can be quite demanding. Higher ups in Chinese companies demand a lot from inferiors, but in turn, treat them like family. Although often being very hierarchical, Chinese companies tend to be more nimble than their western counterparts. Companies that aim to compete in the rapidly changing Chinese market must also have a business structure that supports flexibility.

4. Finding the right business location

This is a vital element. For those looking to register a business in China, failing to understand the laws of the land could lead to problems. Again, this is among the biggest problems faced by startups. You will need to understand laws relating to taxes, registering the business as well as the many different laws within the country. So, to avoid legal when starting a business in China, it is similarly advised to seek the counsel of those experienced in the field or do thorough research.

Many foreigners who are starting a business in China flock to cities like Shanghai and Beijing. However, although China’s megacities are well-connected and have a lot to offer, it is worth considering smaller cities where prices may be lower. For example, setting up a business in Hangzhou is great for online companies.

5. Finding your competitive edge

The nature of the business is an essential aspect in determining how things will be run. In other words, this is a sure way to set yourself apart from other ventures depending on the type of business you carry on. Note that, this is also an aspect in the Business Plan, and because of that it should be a well-researched type of business to avoid huge competition. Though competition is good, you will need to offer something new to the competitive edge so as to keep the light on.

Without a competitive edge, in the competitive Chinese market, brands are forced to compete by price, which means taking slim profit margins. In the food and beverage industry, a competitive edge could be health and safety. Chinese consumers are growing more health conscious, and especially since the COVID-19 outbreak, consumer have health on their mid.

Never stop learning

So, considering these factors carefully, you will be on the way to having a fruitful business. It is also recommended to do more research over the matter of opening a business to have enough knowledge when you do so.

For those seriously considering starting a business in China, learn from those who have succeeded before you. The China Paradigms podcast series has over 100 stories from entrepreneurs in China, from a wide range of backgrounds and industries. You can find the podcast on Apple Podcasts, Spotify, Soundcloud and Youtube.

Listen to China Paradigm on iTunes

This article 5 Things everyone gets wrong when starting a business in China is the first one to appear on Daxue Consulting - Market Research China.

Astrology is defined as “The study of the movements and relative positions of celestial bodies interpreted as having an influence on human affairs and the natural world.” It originated from the western society. Nevertheless, astrology is popular in China and has affected Chinese people’s daily lives and consumption. Astrology has even made its way into China marketing campaigns targeting young consumers.

The popularity of Astrology in China: western Astrology is more popular with Chinese people

Internet activity reveal the popularity of western Astrology in China. According to Baidu Index, during the period of 2012- 2020  Astrology was searched 16 times more on Baidu than Chinese zodiac. According to Zhihu, 474 topics that are related to Astrology are discussed by Zhihu users in China.

[Photo source: Baidu Index, ‘Search index of Astrology VS Chinese Zodiac’]

The history of Astrology in China

Even though Astrology has been widely discussed by Chinese people in the last decade, it has existed in Chinese society for more than 1000 years. In Sui Dynasty (581-618), Indian monks firstly introduced Astrology to Chinese society. During Qing Dynasty (1636-1912), Kang Youwei, the famous Chinese philosopher and politician standardized the translation of Astrology in China, which has been used in the following years until now.  In the 1990s, Western astrology began to seep into Chinese people’s daily lives. The internet has fostered and spread the popularity of Astrology in China.

Some Chinese consider astrology in who to date and who to hire

During social occasions, Chinese people discuss the latest gossip and tidbits about their astrological profiles. According to The New York Times, social media accounts with millions of followers share weekly horoscope forecasts. On dating APPS, users show their zodiac signs alongside their age, salary, car and home ownership status. More and more Chinese consider astrology  during all kinds of major life decisions including relationship advice, making friends, having babies, and even hiring employees.

Profile of Chinese Astrology fans: dominated by females and youth

Chinese people with different backgrounds hold diverse attitudes and perceptions towards Astrology.

According to a survey conducted by woshipm, 82% of the responders believe in Astrology and females tend to believe it more. Additionally, people aged below 25 are more likely to be Chinese Astrology fans. 47% of the responders read articles related to Astrology occasionally while merely 9% of them read them every day.

[Data source: Research Center of Cheetah Mobile, ‘Chinese people’s attitudes towards Astrology (2019)’]

[Data source: Research Center of Cheetah Mobile, ‘Frequency of browsing content of Astrology (2019)’]

Regarding to content, Chinese Astrology fans are likely to know about personality analysis, lucky numbers/dates/items and relationship insightsadvice.

[Data source: Research Center of Cheetah Mobile, ‘Popularity of Astrology in China’]

In terms of the channels, Chinese Astrology fans access the information regarding Astrology, websites, Astrology apps and influencers’ social media accounts are the common platforms.

[Data source: Research Center of Cheetah Mobile, ‘How Chinese access Astrology related content’]

Rationales for the popularity of Astrology in China: obtaining psychological comfort matters 

Gaining psychological comfort, self-recognition and entertainment, and socializing with others explain Chinese Astrology fans’ obsession with it. Many responders indicate that they turn to astrology for clarity during tough times, which can provide psychological comfort. Chinese Astrology fans feel their lives are out of their control, and reading articles related to Astrology would ease their mind as they can understand the forces behind their destiny. For those who responded gaining self-recognition, they believe that people from different zodiac signs has specific talents. By discovering and  amplifying the talent, these people can maximize their success.

Some answers from Zhihu users have verified these reasons and they are in favor of Astrology. Psychological comfort or related terms is a common  reasons put forth by Chinese astrology fans. Many of them feel that the description of their zodiac signs are accurate as these match their personalities. Some of them mentioned that their belief in Astrology is related to their relationships.

[Photo source: Zhihu, Chinese netizens explaining why Astrology is popular in China]

From the academic perspective, an author from The Outlook Magazine argues that Astrology has been prevalent since ancient China as it was a mean of forecasting national incidents, wars and harvest. Thus this has been a tradition in China, anticipating one’s fate based on Astrology. Nowadays Chinese people prefer the western Astrology instead of Chinese horoscope is due to the fact that the west Astrology is more complex and supported by art works and literature, while Chinese horoscope is relatively abstract and hard to understand.

Astrology market in China: fostered by social media behavior

Social media has been an incubator that has fostered the Astrology market in China as astrology features low barrier to entry, entertainment-orientation and socialization. According to WeChat official accounts, 313 results are tagged as “Astrology” and Uncle Tongdao is the most popular with the search index of 974.1. On Weibo, Jin Li Da Wang (Koi) and Tao Bai Bai have 20.78 million followers and 7.95 million followers respectively. 

Some companies have developed Astrology apps in Astrology market in China. In comparison with Astrology promoted on social media accounts, Astrology apps provide diversified services such as paid Q&A, paid anticipation and Astrology lessons. Moreover, their services are not limited to Astrology but also dice, luck tests and personality tests.

[Photo source: woshipm, ‘Astrology apps in China’]

Case study: the success of Uncle Tongdao

[Photo source: meihua.info, ‘Uncle Tongdao’]

Uncle Tongdao is a successful Astrology brand in China. In 2014, Uncle Tongdao went viral on the Internet as its cartoons and images fitted Chinese netizens’ appetite. By combining Astrology related culture and the 2-dimention culture, Uncle Tongdao is able to win the heart of Chinese Astrology fans. By the end of 2018, Uncle Tongdao had more than 60 million followers on social media and become the representative in Astrology in China. 

The business model of Uncle Tongdao is innovated in China as it combines IP operation, IP authorization, IP E-commerce, IP community and IP crossover marketing. As a result, the company generates its business eco-system and keeps producing business value for its partners. Uncle Tongdao has become one of the most valuable Intellectual Property entities in China.

Astrology co-branding in China

Apart from the online sector, Uncle Tongdao also expands its business area to offline sector by establishing subsidiaries that carry on publishing, souvenir and dramas, etc. On May 20th, Along with many other co-branding ventures, Uncle Tongdao alongside with I-ORANGE, an advertising company set up pop-up wedding dress stores. It was an event for single people and encouraged them to face their relationship status regardless of people’s judgments. It turned out to be a successful campaign as the societal pressures of singles is quite a headache for Chinese young adults.  

[Photo source: meihua.info, ‘Pop-up wedding dress store, an Astrology marketing campaign in China’]

Astrology in the hospitality industry

Uncle Tongdao also collaborated with Atour and established a hotel that features Astrology culture in Chengdu. The business vision is providing a comfort zone for young people to alleviate stress.

[Photo source: meihua.info, ‘Uncle Tongdao x Atour Hotel, an Astrology marketing campaign in China’]

Ride your start sign to work

In 2017, Uncle Tongdao collaborated with ofo, a bike-sharing company in China and launched some Astrology-themed shared bikes in China. Uncle Tongdao claimed that,  riding the personal zodiac signbrings luck to commuters in China. 

[Photo source: meihua.info, ‘Uncle Tongdao x ofo bikes’]

Future trend of the Astrology market in China: focusing on platforms, core values and big data

In the foreseeable future, the development of Astrology market in China ought to innovate its channels and content of products. Finding the right platform

Chinese Astrology fans cannot bother downloading apps to access Astrology information. Instead, WeChat official accounts or mini programs are the more convenient platforms.

Focusing on mainstream culture

Secondly, brands should focus on mainstream culture and subculture that are popular with youth in China so that they can alter their products and tailor to different needs. Astrology is a trend to watch for marketing to millennial and gen Z consumers.

Providing comfort

Furthermore, Astrology companies in China should always maintain the core value of satisfying users’ needs by including psychological comfort, positive energy and stress relief in their messages. Considering the fact that Chinese Astrology fans turn to the art for clarity during tough times.

Getting technical

Last but not least, AI and big data will be applicable in Astrology market in China since they are able to make Astrology more convincing. Since 2018, some Astrology APPs have been developing and testing the feasibility of this application and the result is yet to be known.

Popular Astrology topic: How Chinese people from different zodiac signs behave in the relationship?

Speaking of relationships, Chinese youth, especially girls, like to relate personalities to zodiac signs. Undoubtedly, Astrology serves as a reference when they make decisions on their relationships. The table listed below is the summary of characteristics of different zodiac signs. Whether it is reliable or not, it varies case by case!

Author: Amelia Han

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This article Why Astrology is popular in China is the first one to appear on Daxue Consulting - Market Research China.

The diabetes treatment market in China is about to experience a boom, and this piece will explain why. For some background, Diabetes is a disorder of metabolism that impairs one’s ability to process blood glucose or blood sugar. The pancreas  releases insulin to help body store and use the sugar and fat from the food eaten. Diabetes occurs when pancreas produces little or no insulin or when body does not respond appropriately to insulin. There are two most prevalent types of diabetes: Type 1 diabetes (T1D) and Type 2 diabetes (T2D). As there is currently no cure for diabetes, patients are required to actively manage their conditions to slow down the progression of such disease and stay healthy.

Type 1 diabetes in China (T1D):

Type 1 diabetes refers to the situation of deficient insulin production by the pancreas. Insulin is a type of hormone that allows sugar to enter cells to produce energy. The exact cause of Type 1 diabetes in China is unknown. Different factors, such as genetics and some viruses may contribute to type 1 diabetes. Type 1 diabetes usually appears at a younger age. However, it can also develop in adults. It is more common among boys than girls in China and accounts for less than approximately 5% of the total diabetes incidences in China.

Type 2 diabetes in China (T2D):

Type 2 diabetes is the most common form of diabetes. It’s characterized by body’s ineffective use of insulin. 90% of the diabetes patients around the world are diagnosed with Type 2 diabetes. In most cases, it is the result of excess body weight and physical inactivity. The incidence of type 2 diabetes in China has been rising rapidly over the past few decades.

Diabetes in China: A public health crisis that should not be overlooked

China is currently the country with the largest number of diabetes patients, which is around 109.6 million adults. The total Chinese population effected by diabetes is around 11%, not to mention a significant proportion remained undiagnosed. 415 million adults suffer from diabetes globally according to the latest finding of International Diabetes Federation Diabetes Atlas. This means China accounts for around 26% or over one-fifth of the total number of diabetes incidences globally. The prevalence of diabetes in China has increased drastically over the past few decades from less than 1% in 1980 to over 10% in 2013. The number is expected to continue grow to 150 million by 2040 if lack of action is taken to treat diabetes in China. Such high diabetes occurrence will result in many major social, health and economic consequences.

Prediabetes in China: affecting half of the population

Prediabetes is characterized by impaired fasting glucose or impaired glucose tolerance. The estimated prevalence of prediabetes in China doubled from 15.5% in a 2008 survey to 35.7% in a 2013 survey. Almost half of all adults in China, around 500 million, have prediabetes in 2016. Although prediabets was more prevalent among senior population, especially men and overweight individuals, the prevalence of diabetes among younger generation was also relatively high and increasing.

While the prevalence of diabetes increased by 2.7% from 2008 to 2013 for the 20 to 39-year age group, the prevalence of prediabetes of the same population group had also increased from 9% in 2008 to 28.8 % in 2013. Moreover, across major ethnic groups in China, the prevalence of diabetes in the Manchu group was equal to that in the Chinese Han group, and the prevalence of prediabetes was even higher. The prevalence of diabetes and prediabetes is the lowest among Tibetan. Note not all minority ethnic group in China is included and Chinese Han is the majority ethnic group in China.

[Epidemiology and Genetic Risk Factors and Their Clinical Utility in Personalized Medication Prevalence of diabetes and prediabetes in China]

[Epidemiology of diabetes and diabetic complications in China Prevalence of diabetes in China over recent decades]

Type two diabetes in China: Rising with obesity

It is estimated that Type 2 accounts for more than 95% of all diabetes cases in China. The dramatic increase in diabetes prevalence is also largely attributable to Type 2 diabetes. The rapid increase of Type 2 diabetes should be considered in accordance with the increase of over-weight and obesity cases in China that may be driven by economic development as well as lifestyle and diet change.

Although Type 1 diabetes is not as common in China, the prevalence of such type of diabetes has been gradually increasing over the past decades. Notably, type 1 diabetes among Chinese children below 15 years has been increasing by 4.4% each year between 1995 and 2010. Although, the explosive prevalence rates of both Type 1 diabetes in China and Type 2 Diabetes in China suggest that urgent actions should be taken, many factors still post challenges on the effectiveness of Chinese diabetes treatment market.

Challenges to effectively treat diabetes in China

The fact that 63.5% of diabetes in China still remain undiagnosed and that over 60 million patients have not yet received any diabetes treatments suggest in many ways that the diagnose and treatment of such disease faces great challenge.

Challenge in the diagnosis of T2D in China

The probability of diagnosing diabetes decreases as both fasting plasma glucose and oral glucose tolerance tests require the patients to fast for at least 8 hours. Moreover, no Chinese-specific diagnostic value for HbA_1c has been established. In general, HbA_1c cutoff points vary according to ethnic groups, age, sex and the prevalence of diabetes. The wide use of HbA_1c as a diagnostic tool has been limited as significant difference in availability and standardization of HbA_1c assay methods exist across Chinese laboratories. Not to mention that T1D in China is also fairly difficult to be accurately diagnosed due the variation in access to and delivery of care for T1D patients.

Increasing obesity and overweight population

The rapid increase in the prevalence of T2D in China can not be considered without its linkage with obesity and overweight. The prevalence of overweight increased from 37.4% in 2000 to 41.2% in 2014 among Chinese adults aged 20-59 years. The estimate increase is 0.27% per year. On the other hand, the prevalence of obesity, with an estimate increase of 0.32% per year, had increased from 8.6% in 2000 to 12.9% in 2014 for the same Chinese age group. The continuous and rapid expansion of overweight and obesity population will likely put more pressure and burden on the prevention and treatment of diabetes as both are direct causes of T2D diabetes.

[Source: Diabetes in China: Epidemiology and Genetic Risk Factors and Their Clinical Utility in Personalized Medication Prevalence of overweight and obesity in China]

China’s population develops diabetes at a much lower BMI compared to westerners

One big challenge of the Chinese diabetes treatment market is attributable to the finding that Chinese people are more likely to develop T2D at a considerably lower BMI compared to Western populations. BMI, or in another word Body Mass Index, is a measure of healthy weight using one’s height and weight.

A healthy BMI for most adults is between 18.5 and 24.9. However, according to a recent national survey, diabetes and prevalence of diabetes for participants with an ideal BMI less than 23 kg/m² was 6.4% and 30.7%. The mean BMI of T2D diabetes patients in China are around 25 kg/m². Both suggest that BMI and adiposity relationship differs between different populations. The relatively higher risk of T2D at a lower BMI for the Chinese population may be partly explained by Asians having a higher percentage of body fat than those of Europeans at the same BMI and by the tendency toward visceral adiposity in East Asian population which includes Chinese people.

In addition, East Asian population, when compared to European or African populations, have also been found to have a higher insulin sensitivity with a much lower insulin response. This suggests a -cell dysfunction, which has been proven a major determinant of T2D diabetes in China. Furthermore, diabetic nephropathy was also more common among Chinese population than Europeans. Therefore, more specific and urgent strategies are required to prevent and diagnose diabetes and associated diabetic complications as Chinese population are exposed to a much higher risk.

The increasing prevalence of early-onset diabetes in China

The increase of early-onset diabetes in China should not be overlooked. Now, approximately 20% of diabetes patients in China are diagnosed before the age of 40. Individuals suffering from diabetes from a young age will have a higher risk of chronic complications, which will lead to mortality and morbidity in diabetes. Young-onset diabetes patients often had worse glycaemic control and higher prevalence of retinopathy. They were also less likely to be effectively treated with HbA_1c and LDL, and to receive organ-protective drugs, such as statins and renin–angiotensin system inhibitors than late-onset diabetes. Moreover, Chinese early-onset diabetes patients had a higher risk of nonfatal cardiovascular disease. This tendency of early-onset diabetes in China should be alarming as it is becoming increasingly prevalent.

Chinese diabetes treatment market: An overview of the diabetes treatment products in China

A significant gap still remains in the Chinese diabetes treatment market as only 5.6% of diabetes patients are achieving optimal control of blood glycose, blood pressure and lipid targets concurrently. Optimal diabetes control requires good medical care, patient empowerment, health literacy and self-discipline.

Non-Insulin medicines used in Type 2 diabetes treatment market in China

First-line oral anti-diabetes agents in China

Metformin

Metformin is used along with other medications to control high blood sugar or down regulate gluconegenesis in the liver. As metformin does not increase weight, it is often the first choice of medication for T2D. However, metformin cannot be used if the patients have kidney or liver problems, heart failure or is very sick. Low blood sugar may be seen if metformin is taken with insulin on Secretagogues.

[Source: 302hospital.com Metformin pills available in the Chinese market]

Secondary oral antidiabetes agents in China

Secondary oral medications, such as sulfonylureas, glinides, thiazolidinediones and DPP-4 insulin are normally taken if metformin monotherapy fails to work.

Secretagogue

Due to the postprandial hyperglycemia in Chinese patients, insulin secretagogue or -glucosidase inhibitor is recommended over metformin for patients who would experience diarrhea or stomach cramping as side effect of metformin. Secretagogue or insulin releasing pills include sulfonylureas and glinides. The most common types of sulfonylureas are glyburide, glipizide and glimepiride. Sulfonylureas lowers blood sugar by releasing insulin through beta cell stimulating. However, it only works if pancreas has beta cells. Glinide works the same as sulfonylureas. However, it’s effectiveness duration is not as long as sulfonylureas and must be taken up to 30 mins before each meal. The side effects of secretagogues are low blood sugar and weight gain, and again may not be used if the patient has live or kidney problem.

Thiazolidinediones

Thiazolidinediones lowers blood sugar by increasing the sensitivity to insulin of muscle, fat and liver. It is also known as the insulin sensitizer as it can normalize blood sugar level without the risk of low blood sugar. This type of drug usually takes a several weeks before it can start working. The side effects include weight gain, fluid retention, and anemia. Moreover, women taking thiazolidinediones have a greater chance of bone fracture as it increases fat particles (LDL).

DPP-4 Inhibitors

T2D patients usually suffer from high blood sugar due to glucagon levels after meals. Incretin based treatments such as DPP-4 inhibitors and GLP-1 analogs in China are used as post-meal glucagon to reduce post meal blood sugar level. Both medicines are blood sugar normalizing medications and euglycemics. Sitagliptin, saxagliptin, and linagliptin are all pill types of DPP-4 inhibitors. They can block DPP-4 enzyme from breaking down GLP-1 quickly. DPP-4 inhibitors are normally used along with other diabetes medicines to control sugar level further.

GLP-1 Analogs

Exenatide and liraglutide are injection types of GLP-1 analogs in China to regulate blood sugar levels from rising after fasting. GLP-1 analogs are incretin hormones and act like natural hormone. They are released in the gut when eating and quickly broken down in the bloodstream by DPP-4. It is developed to resist breakdown by the enzyme DPP-4. However, it will create a feeling of satiety.

Insulin and Insulin Analogs used in Type 2 diabetes treatment market in China

Insulin is often categorized by the differences in onset, peak, duration, concentration and route of delivery. It is usually injected into fatty tissue right under the skin. Human insulin and insulin analogs are used for replacement therapy. Regular human insulin usually has an onset of 0.5-1 hour, peak effect of 4 hours and a duration of action of 6-8 hours. Generally, the larger the dosage, the faster the onset of action and longer peak and duration effect. NPH human insulin and pre-mixed other types of human insulin.

Insulin analogs in China have been developed as human insulin in China retains many limitations when injected into the skin. Human insulin clumps together with high concentration, which will cause slow and unpredictable absorption from subcutaneous tissue and a prolonged action duration. However, the action duration of insulin analogs in China can be predicted and it works quicker with an even effect. Insulin analogs includes rapid acting insulin analogs and long acting insulin analogs.

[Source: Diabetes Teaching Centre at UCSF Insulin properties]

Type 1 diabetes treatment market in China

As T1D does not produce enough insulin, it has to be replaced. Therefore, insulin therapy and non-insulin treatments such as amylin analogs and insulin pump therapy is used. Insulin therapy is normally prescribed by doctors and is an injection type of diabetes treatment in China. Intensive insulin may sometimes by used to mimic the body’s normal pattern of insulin secretion and it will require multiple daily injection of insulin or insulin pump therapy.

Pramlintide in China

Pramlintide in China is an injection type of diabetes medicine for both T1D and T2D patients to control blood sugar levels after eating. It resembles amylin, which is the hormone that is released with insulin from the pancreas beta cells. It is a more common type of treatment for T1D as amylin levels are absents due to pancreatic beta cell dysfunction for T1D.

Insulin pump therapy in China

Insulin pump therapy  is becoming increasingly popular as a method of insulin replacement therapy in China. As it mimics what body does naturally, it can improve blood sugar control of patients more effectively. T2D in China also uses such method.

Overall, insulin products account for 42.5% of all diabetes medicines available in the Chinese market and traditional oral diabetic medicines account for 51.1%. 3^rd generation insulin occupies 34.4% of the insulin products market and 2^nd generation insulin products are becoming more mature and stable in its price. New blood glucose regulating medicines such as DPP-4, GLP-1 and SGLT-2 occupy less than 7% of the market share each. However, they are considered the main medicines that will expend the diabetes treatment market in China.

The Chinese diabetes treatment market lags behind other countries as traditional oral diabetic medicines are still the main forms. In 2017, 5 types of DPP-4 inhibitors were included in medical care, and 3 new types of SGLT-2 inhibitors entered the Chinese market. It was expected that these new forms of diabetic treatment drugs will expend in market size as more generic drugs become available in the market that will lower the cost.

Monitoring devices available in the Chinese diabetes treatment market

In order to maintain a normal blood sugar level and prevent tissue damage caused by high blood sugar among diabetes patients, many devices are used to achieve such goals. The normal blood sugar level is around 60 – 100 mg/dl overnight and before meals, as well as < 140 mg/dl after meals.

Blood Monitoring

Blood glucose should be checked throughout different times of the day. The good times to check are after meals or whenever nor feeling the best. People that takes medications to insulin secretion from pancreas will need to check more often.

Glucose meters

Using a drop of blood, glucose can effectively measure the blood sugar level of an individual. There are fingerstick testing glucose meters and alternative site testing glucose meters. There are various brands and models for fingerstick testing glucose meters and it is a more common types of device. Both meters only provide a similar result if one’s blood sugar is stable. Fingerstick testing is till the most accurate type of meter. Glucose meters are readily accessible in the Chinese market. Diabetes patients can purchase the devices through various online and offline channels. However, multiple brands sale such devices at various costs, which makes it difficult for patients to choose the rightful one.

[Source: zhizhizhi.com Glucose meter]

Continuous glucose monitors (CGM)

Continuous glucose monitor measure glucose in body fluids between cells. It does not measure blood glucose level directly. It is usually changed every few days to weeks. Sensors are taped to the skin and will continuously collect glucose reading. This device adopts an alarm function for high and low blood sugar level and trend alarm for early intervention. It also allows 24-hour trend data and improves blood glucose control more effectively.

Domestic and foreign brands in the Chinese diabetes treatment market

Foreign brands still dominate the diabetes treatment market in China. They remain as the major contributors of new diabetic drug innovations. Although some domestic brands are among the top players in the market, their presence are normally stronger in the generic drugs field. Generally, foreign brands compete upon new innovation and new product development, while domestic brands compete upon cost leadership。

Novo Nordisk^®’s Ozempic^® (semaglutide) injection for T2D patients

Ozempic^® is an injection type of GLP-1 receptor agonist. Novo Nordisk ^® had submitted 5 clinical applications for Ozempic according to CDE as at end of 2019 with an intention to launch this product as soon as possible in the Chinese diabetes treatment market. The successful launch of Ozempic in China by Novo Nordisk will accelerate the research process and increase the availability of semaglutide in the Chinese market. The market for GLP-1 receptor agonist continues to expend as it carries great blood glucose regulation ability and protects beta cell at no risk of weight gain or hypoglycemia. The global market size of GLP-1 receptor was around 8.827 billion usd with a compound annual growth rate of 35.7% in 2018, which was far higher than overall growth rate of diabetes medicines market. Therefore, GLP-1 will definitely become the core contributor to the future growth and expansion of the Chinese diabetes treatment market. Although the advantage of Liraglutide will continue to be seen as it is the only GLP-1 Ra product included in the National medical care, Semaglutide will gradually replace Liraglutide in the long term. As both Semaglutide and Liraglutide are produced by Novo Nordisk, its major position within the Chinese diabetes treatment market will continue to be supported.

[Source: Yaofangwang.com Victoza® produced by Novo Nordisk®]

The total sales generated in the Chinese market for Q3 2019 by Novo Nordisk was around 10.14 billion rmb. Its Chinese market sales accounted for around 10.96% of its total global sales with a growth rate reaching 15%. Diabetic medicines and injections produced by Novo Nordisk currently occupies more than 27% of the total diabetes treatment market in China. Notably, liraglutide injection Victoza^® produced by Novo Nordisk accounts for more than 92% of the total GLP-1 Ra market in China. Moreover, Novo Nordisk had successfully launched san evolutional pill type semaglutide Rybelsus^® in the U.S, which is expected to enter the Chinese market in the near future.

Yabao Pharmaceutical launching the generic drug “Alogliptin benzoate tablets”

Yabao pharmaceutical is a domestic research and development based company for innovative and generic drugs, traditional Chinese medicine and big health products. By launching such type of generic drug, the firm will adopt a more competitiveness position and a more profitable prospect. Generic drugs can usually reduce health care costs for and increase the availability of medicines to the general public. Alogliptin is one type of DPP-4 inhibitor that was first invented and produced by a Japanese firm named Takeda pharmaceutical. The original drug was named Nesina^® and was designed especially for T2D patients. Alogliptin benzoate contains active ingredient alogliptin that can slow the inactivation of incretin hormones, and hence can increase blood stream concentrations well as reduce glucose concentrations post meal for T2D patients. It encourages beta cells to release insulin, while inhibits glucagon released by alpha cells.

[Source: jd.com Nesina® Alogliptin benzoate tablets produced by foreign firm Takeda pharmaceutical]

There are currently 3 types of domestically produced DPP-4 inhibitors. The first two types of DPP-4 inhibitors launched were Shagliptin and Vigliptin by Aosaikang Pharm, Hansoh pharma and Qilu Pharmaceutical. Yabao will become the first to launch a generic drug for alogliptin and the third to launch a domestic DPP-4 inhibitor in the Chinese diabetes treatment market if it is successfully launched into the market. Although insulin is still the main product used for diabetes treatment, new forms of medicines such as DPP-4, GLP-1 and SGLT-2 are becoming more popular. DPP-4 inhibitors occupy around 25.5% market share. Despite GLP-1 is experiencing high growth, the importance and popularity of DPP-4 will not be easily shaken.

Opportunities in the diabetes treatment market in China

In 2017, the market size of diabetes treatment market in China was 5.76 billion rmb with annual growth rate of 3.69%. China’s health care costs associated with diabetes were around 200 billion rmb in 2007, and is expected to exceed 360 billion rmb by 2030. The large number of people affected by diabetes, the large proportion of undiagnosed diabetes, and ineffective control of risk factors of diabetes patients who are actively taking treatment suggests the burden on the healthcare system in China both at present and in the near future.

The current management of T2D in China is not optimist, despite various treatment patterns for diabetes are present. According to the survey of China noncommunicable chronic diseases, diabetes treatment for urban residents was 41.8% and for rural residents was 27.6%. Optimal glycemic control was only achieved by half of treated patients. China currently encourages the “3B study”, which aims to investigating blood glucose, blood pressure, and blood lipid control among T2D patients in China. The amount of patients who have achieved individual target goals are 47.7%, 28.8% and 36.1% respectively. However, only 5.6% of all patients have successfully managed all three target goals.

Increase education on diabetes prevention and treatment

Diabetes treatment not only requires active medical care, but also self-discipline and self-management by patients. Therefore, information on diabetes should be more readily accessible and educations upon the prevention and treatment of diabetes should be valued. This creates market opportunity in nursing and health education in China.

Information technology that improves the management of blood glucose levels among diabetes patients

A symptom that greatly increases the risk of T2D is metabolic syndrome. More innovative methods are required to improve the management of cardiovascular risks associated with prediabetes or diabetes patients. Many health information technologies (HIT) have been developed and proofed to be effective tool to control blood pressure and blood glucose levels among diabetes patients. Generally, the role of HIT is to manage diabetes via supporting provider decision-making through electronic risk assessment, guidelines and prescribing etc. Patients can also self-manage through risk communication, web portals and telemedicine etc. HIT exerts significant effect on glycemic control and on risk factor monitoring and measurement. Therefore, HIT is useful to achieve more optimal diabetes care. However,  future studies are required to investigate more in depth, the adoptability and feasibility of different types of HITs to each risk factors.

Noninvasive diabetes monitoring devices

Glucose monitoring devices are becoming much more popular along with the prevalence of diabetes. However, most monitoring devices that are available in the diabetes treatment market in China requires invasive blood glucose monitoring. However, new forms of blood glucose monitoring devices requires no finger sticks anymore. This means glucose levels can be tested pain-free, blood-free and needle-free, and most importantly unlimited and continuous testing are readily accessible whenever and wherever as user requires. Although such product is not receiving positive feedback currently as it has not yet received permit from CFDA, it will become a future trend nonetheless.

[Source: GlucoTrack® GlucoTrack invented the first noninvasive glucose monitoring device]

Market opportunity for foreign diabetes treatment companies

Overall, the diabetes treatment market in China is experiencing high growth due to the explosive rate of diabetes in China. However, more weight and attention should be placed on the Chinese diabetes market in order to effectively control the incremental rate of diabetes patients. By achieving such target, government support on health care system and new innovative methods to provide more convenient monitoring and diagnosing of diabetes patients will be required.

Due to the high demand for treatment and the government support, now is the right time to enter the market. Start your China market research project on diabetes in China by emailing dx@daxueconsulting.com

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This article The Diabetes Treatment market in China is the first one to appear on Daxue Consulting - Market Research China.

An expert interview is when we interview an expert in his or her field for the purpose of understanding the industry. An expert interview can be a group interview or a one-on-one. It can be conducted formally or informally over the telephone, by email, or in person. An expert interview can also be an in-depth interview (IDI).

For market research, an expert interview is an exploratory research technique used to gather specific information in order to solve a particular problem. Such information is also known as primary data.

Conducting an expert interview will facilitate the research with more specific information about a particular area of study. By determining who the experts are, preparing both interviewer and the interviewee, and following a set of instructional guidelines, the interviews will be more effective and return greater results.

As a researcher, it is crucial to determine who, in the area you are researching, is an expert. An expert should have an extensive amount of knowledge, experience, and ability in his or her particular area of study or professional field. An expert can be determined by identifying certain characteristics, such as credibility and credentials. Credibility is the reliability of the person and his or her information, and credentials are tangible evidence that proves the experts’ skills.

The purpose of expert interviews in China

Expert interviews in China is only an initial part of a market research project. Expert interviews in China can be used as a solution proposal and guide for our clients’ problems. For example, if we were to prepare for a competitor analysis for our client, we will pursue to understand from industrial experts on how the competitors resolve similar cases and valuable experience they have gained. Expert interviews in China can also be used to gain knowledge on a specific area such as online and offline distribution assessment. Through in-depth expert interview, we can help our clients tap into experts’ knowledge and experience to guide clients on certain issues such as operational strategy and resource allocation issues.

How to conduct expert interviews in China?

For an expert interview in China, the interviewer will prepare the questionnaire for the selected experts to answer. It usually will allow time for the experts to prepare accordingly before the actual interview. The actual in-depth interviews will last for about 60 minutes to address all queries the interviewer wants to know.

There are two ways to find the experts for in-depth interview: either market researcher will search for reliable candidates through personal reference or network, social media network platforms such as LinkedIn or through a third party agency such as guidepoint, capvision, GLG. In both ways, market researcher will screen through the potential candidates diligently and selectively for the most productive in-depth interview.

Challenges to conducting expert interviews in China

Sometimes the selected expert might not be willing to share specific knowledge. In such cases, the market researcher will need to differentiate the true from the false information using knowledge from research done prior to the interviews.

The market researcher will also conduct live interviews from time to time. It can be challenging when the interviewees strongly disagree or have a strong curiosity to our client’s product. Occasionally,  experts will start to ask questions about our client’s product, transforming an interview into a two-way discussion. It would also be challenging for researchers to include such on-site feedback and body language into the project report. Daxue consulting’s project managers and researchers have are prepared to professionally handle the challenges that may arise during expert interview. Client information will be protected during the process.

Expert interviews can be conducted all over China, including Shanghai, Beijing, Tianjin, Hong Kong, Shenzhen, and even smaller cities around China. Daxue consulting will gladly incorporate expert interviews into your China market research project; contact our project team at dx@daxueconsulting.com  

This article Expert interviews in China for market research is the first one to appear on Daxue Consulting - Market Research China.

Matthieu David:  Hello, everyone. I’m Matthieu David, the founder of Daxue Consulting, a strategic market research company in China and this is the China paradigm podcast. Today I am with Fabian Ouwehand. You are the founder and CEO of UPLAB. UPLAB is a professional agency in influencer marketing in China.

You are working with brands in order to connect them and work with influencers. So we are going to go more in-depth from this. I think they are doing more than this and it’s actually a bit reduction of what you do, what I’m saying right now. You do more as well in terms of companies. You’re involved in other two companies, one is LivelyCare and one is LHBS. You are going to tell me if I’m correct that you are involved in three different companies with three very, very different objectives and scope of business.

Thanks for being with me, Fabian. Correct me with what I say, don’t hesitate, because you seem very active and I feel UPLAB was very clear for me on what it is. I was a bit less clear about the tools involved that you have and you listed on LinkedIn. Thanks, Fabian, for being with us. What are your three functions today?

Fabian Ouwehand:  Yes, I’ve been always doing a little different kind of stuff. I’ve kind of always hustled around. That’s partly because I’m still pretty young. I never went to university or something like that. So I’ve always had kind of my own stuff and my own company over the last couple of years. I’ve been always doing different things and I also had a lot of different interests. I’m working with a lot of different clients.

I started my company, UPLAB, about two years ago, when I just moved to China at that time. Myself, I have a marketing background, more into marketing technology, growth marketing, growth hacking. And when I moved to China, it was like a totally different type of environment. I wasn’t very familiar with China, so I’ve learned a lot by doing things, a lot by learning meeting different people and stuff like that. I’ve been doing all that for the last couple of years and actually a lot by learning by doing, which is more like the growth mindset too and headed that more into influencer marketing in China, and that’s what we’re doing today.

On the side, in the last couple of years, I have a nonprofit in mental health, where we basically build a community of people who have been suffering from depression, anxiety, panic attacks, etc. in Asia. I have been developing that actually into a platform where Asian people can easily find the right professional health based on how they feel, based on their symptoms, but also finding the right treatments. So if you’re in need, you don’t know if you need to have a psychologist, psychotherapist, etc. That’s mainly what I’m doing actually on the sides right now, just because out of our personal interest.

I’m involved in LHBS – correct – for a couple of months where I do pro-marketing consultancy for European companies, where I take a lot of my experiences which I had from the Asian market, and helping some European companies here. I’ve been kind of involved in different things, but at the end of the day everything comes together again too, so they all benefit each other.

Matthieu David:  Where are you based?

Fabian Ouwehand:  I’m currently in Berlin but I’m traveling all over the place. I’ve lived in Estonia before a couple of months and before that in Shenzhen in China for about a year, Singapore before that. But still, my home base is in Berlin, but I’m regularly in Asia. Almost every month I’m back in Asia, going around, and across Europe.

Matthieu David:  Tell us more about UPLAB. I believe UPLAB is what you spend most of your time on, isn’t it?

Fabian Ouwehand:  Yes, correct.

Matthieu David:  If you can tell us more about how many cases you have worked on, how many clients you had, how many influencers you are working with, a bit of number, a bit of the idea of the size of what you have done to give a bit more substance.

Fabian Ouwehand:  Yes, sure. We started about two years ago, what I mentioned, in 2017. We started actually with the basic things. We started doing marketing for WeChat and Weibo, content marketing, etc. and it worked actually pretty well. We grew fast to about 10 people in just a couple of months when I started out there. But then, yes, it didn’t excite me that much.

Then from that moment we pivoted, we started doing more with influencer marketing in China. We actually have been involved with the growth of Douyin from the early days and I started actively learning how to leverage Douyin for marketing. My girlfriend who’s involved also in our company has been one of the first contracted influencers on ByteDance, for Douyin’s new project at that time. From there, we have been building an influencer community on Douyin. Currently, there are about 500 influencers in our network which we like/know personally and have a close relationship with.

After some time, the content marketing for WeChat and Weibo didn’t excite us that much anymore, so we kind of downscaled our company. We’re now with about four people that are more involved in the strategy and we execute a lot of content marketing on Chinese social media through influencers. So basically, our influencers in our network are our content marketers, to say it like that. We have influencers where we run promotions to influencers themselves. But we also use influencers to do content marketing on Chinese social media for brands accounts.

We’ve been keeping it small. We have been working actually with a lot of SMEs, small-medium companies from the U.S., from Canada, from Europe, from Australia, and from China itself. I’ve been working with different clients, but because we want to have a lot of focus on our clients, we’ve been working only with maybe four or five a month. We’re at the same time to really give a lot of focus. We’re a very small company and we do a lot of trade ventures.

So that’s the current state of our company and it’s very exciting right now, which allows us to also do different things. We’re doing our conference at the end of this year. We’re helping Chinese influencers expanding throughout China. We’re actually doing a lot of things on the sides which excite us a lot and then benefit the brand back to that too.

Matthieu David:  You say “we” – do you have the co-founder or you’re the only founder?

Fabian Ouwehand:  I started this, I’m the only founder, and then I got my partner from Singapore. He’s still a partner in the company. So yes, that’s “we,” the two of us. But we have a small team around that.

We’re a remote-first company, so we’re kind of all over the place. We’re traveling all over the place. But depending on the projects which are coming in, sometimes we’re based at one location for a longer period of time.

We’re actually working with a lot of young people. So I’ve been working with quite some interns or fresh grads from Chinese universities, mainly from Hong Kong University, because their English was pretty good, which helped us a lot, and some of them have lived abroad for a while and came back to China. So I’ve been really focused on having a young, very agile team, very lean, doing things for the new generation, basically.

Matthieu David:  You said you began with WeChat, Weibo, practically traditional digital agency, and I think you moved to influencer marketing in China. I went on your website and I found that you have a product with a directory of influencers where you can see the name of influencers. I don’t know if it’s a key or price for you. Could you tell us more about what you do for influencers? It could be in terms of selection, it can be in terms of the product. Could you go a bit deeper?

Fabian Ouwehand:  What I mentioned earlier, we pivoted a little bit more to influencer marketing in China. In terms of that, I’m basically, actually helping influencers themselves too. Because we’ve been working with influencers very close, we’re actually looking from their perspective more than we do from an enterprise perspective and see how we can bring as much value as possible to the influencers.

The brand usually already knows what kind of campaign they want to run or they have products, etc. The influencer, however, is a person who’s usually lost, kind of. They know how to create content. They know how to build this audience, engage with his audience, but they’re not always real business people. They don’t know how to monetize or start their own brand or even work with brands and companies.

That’s where we saw a bigger need. So we’ve been doing more from an influencer side and see how we can help them do better brand collaborations or start their own brands or become sustainable for a longer period of time and help them grow in different channels, see different types of content marketing on Chinese social media, and how to make a positive impact with that reach they have instead of creating similar types of content for years. So we tried to have them innovate.

We’ve mentioned the platform we have. Actually, we’ve had a lot of companies coming to us and said, “Hey, we want to work with influencers. Can you propose a list of interesting influencers we can work with?” So we basically built more of this platform for ourselves where we can go quickly to our influencers and directly send that to our potential clients, for example. We use it more as a resource for ourselves. We don’t use it as a competitive product really as a tech, as a product itself. We’re more of the strategy, creative side of that, but we’re using tools more as a support to reduce our time spent finding the right influencers for the brands.

Matthieu David:  You mentioned before that in the traditional agency you build, you scaled up to 10 people very quickly in your team. How do you find your clients to start quickly and to get to have the need of 10 people in your team? Was it through the Internet? Was it through your network? How did you find them?

 Fabian Ouwehand:  That’s kind of a surprise for me too. I was a young guy moving for the first time to China. I didn’t do a lot when I was in Singapore, my time with China itself. So it was all kind of very new to me. Usually what I do when I go to a new place is I start organizing an event just to get to know people and kind of challenge myself to see like, “Can I challenge my knowledge with other people around me?” I’ve been doing first the event in Singapore then I did in Hong Kong right before I moved to China, and through that I actually get to know a lot of people.

It’s really putting myself out there first under my personal name as much as possible. So I started doing things on LinkedIn quite a bit. I started posting quite a bit on LinkedIn and I took it very much of a niche.

I started being very much involved in Douyin when Douyin still had 20 million users or something like that. I have been covering Douyin from the start since they were so small because I saw the potential of them scaling very fast in a very short amount of time, by a shorter period of time. So I’ve been covering that. People all started to know me as the Douyin guy, the guy who’s covering Douyin. And from there, it has been going pretty quick. So we have been starting to leverage Douyin for marketing a little bit, but then these companies also required Weibo or WeChat because they’re already there, and Douyin was something totally uncomfortable and new for them.

So we took the approach of repurposing content for different channels, then build the growth mindset, see what works and what doesn’t work, and then actually put more investment in the channels, for example, which work. In some cases, that was Douyin. In some cases, that was Weibo, basically, depending on the goal and the objectives and KPIs of the company.

I’ve been really putting myself out there, trying to write more, talk more about a certain topic, and try to cover that as much as possible. We didn’t have any marketing budget or something like that and never spent much money on leveraging Douyin for marketing. If we do that, we did, for example, through a conference. That was also the challenge of ours.

We did an influencer marketing conference last year in Shanghai where we secured one of the most exclusive venues, with 30 of our influencers in our network who got brands there. What we did was that we got speakers in the same industry to put ourselves out there, people who’ve already been in the industry for years like PARKLU, for example. We were no one, right? We were around for just a couple of months. But that really brings you on the stage with people who are already very well known in the industry, which helped us a lot in building credibility for our brand.

So instead of running advertisements or whatever we’re doing, we’re doing it through more experience-based things like a conference, to put ourselves out there. So we directly learned from that too when we directly connect with the right people. This is how we’ve been doing that.

Matthieu David:  Indeed, through your website and through what you wrote or the way you have been quoted or the way you have been brought into the conferences, there is a pattern, it’s ByteDance, it’s Douyin. You’re talking a lot about Douyin, which is the Chinese name of TikTok, which in this app where you can share 10- to 15-second video and which has been very big in China, challenging the big tech companies like Alibaba and Tencent. Could you tell us what caught your eyes with Douyin, when it was only 20 million people using Douyin in China?

Fabian Ouwehand:  Could you repeat it, the last part?

Matthieu David:  What caught your eyes when actually very few people were looking at Douyin as a major app, basically, wherein only 20 million people were using it?

Fabian Ouwehand:  Partly, what I mentioned before, my girlfriend has been one of the first contracted KOLs under Douyin. She basically got paid to do content marketing on Chinese social media, like Douyin, which is a very common strategy for the social media platforms in China where they take small or large influencers from other channels. So for Douyin that time, that meant like they got people from Meipai or Weibo, or even Musical.ly from the U.S. where they took Chinese content creators. They paid them the sum of money and they only could leverage Douyin for marketing, but basically it meant people were moving over to Douyin and it was really much in the early days. What they did, they took people from first tier cities where other Chinese people look up to. Because these people are creating content, so it could be, for example, Chinese living in the U.S. or Australia creating the content of their daily life. That’s where a lot of Chinese are looking up to.

Then I realized a lot of growth for Douyin. I started seeing the way of how they ran their marketing, which was totally different from what the usual companies are doing, they had a totally different approach where they actually use influencers to realize their growth in combination with offline marketing. So I knew in some way – or kind of not knowing – but I was predicting it will blow out sometime soon. Because of the way how the content was created, the way how ByteDance worked together with their content creators at that time, they were very close. They were working very close together and these influencers supported a lot of the product development and from their learnings, from all these different types of channels, what didn’t work well. And they wanted that Douyin was doing that well.

They had an influencer community on Douyin. And because my girlfriend was a part of that, I got a lot of insights from what was happening, what they were developing, etc. So I put all my efforts on Douyin. I was like, “Hey, this is the next big thing or the big app in China,” and that was when they were still small.

A couple of months later, it actually started blowing up. Douyin was featured in some TV shows in China, and then people started downloading the app and different types of content. Because it’s very short content, it’s very easy to consume. I’m not sure if you’re using it, but it’s a very addictive app. The UI, UX, it’s very easy to use. There’s a very low learning curve, which attracts a lot of Gen Z users through that.

That’s why I was starting to cover and actually featuring new futures, which were not announced even yet because I knew that from that community, at first when I started actually covering that, people were like, “Hey, how do you know these things already?” We’ve been working closely with Douyin team at that time, the influencer community on Douyin, and then ourselves which had more of the marketing side and providing that directly back to the companies.

Matthieu David:  When was it? 2018?

Fabian Ouwehand:  Mid-2017. Douyin has been around for one year at that time. They just started going abroad with TikTok to South Korea, Indonesia, and Japan. Mid-2017, they were still very small and they started blowing up in the first quarter of 2018. Our company started growing at that time too.

Matthieu David:  Are you using ByteDance? Are you using Douyin yourself?

Fabian Ouwehand:  I’m using Douyin. Not that much. When I live in China, I use it a lot because I’m still new in China. I’ve been living there only for a year. I am still learning every single day. Actually, through Douyin, I started to learn a lot about the culture and the way how they approach things, like definitely this young generation because it was a specific type of content on Douyin which is very localized to the Chinese market and very unique to the Chinese market. So I’ve been using it a lot, now less because the content changed a little bit. It’s very addictive. The moment you start doing these things, you get very much sucked into that. But yes, I’m using occasionally Douyin.

Matthieu David:  What are the main functions of Douyin that brands can leverage for marketing? The challenges that a lot of brands had and I think still have, is that they know a lot of people are using Douyin but they don’t really know how to leverage Douyin for marketing. That was the same issue with WeChat at the beginning, then it became easier and easier. The path was very clear with WeChat but at some point, you will have ads in the moment, at some point you will have official accounts. It was pretty obvious that it would happen. For Douyin, it’s less obvious, except maybe advertising like YouTube is doing advertising with the insertion of videos, and so on. Could you tell us more about how brands can leverage Douyin for marketing and maybe share some cases of successful companies?

Fabian Ouwehand:  I think the biggest challenge with Douyin and why still not a lot of brands or at least Western brands because there are hundreds of thousands of Chinese brands already using Douyin, but definitely Western brands, what they find very toughest is content marketing on Chinese social media. I don’t think that that differs from trading video content on Instagram or on YouTube. How many brands are actually creating content on YouTube? There are not many brands who are doing that. And the same is how many brands are creating Instagram TV content? Still not many brands.

I think it’s very tough for brands to tell their stories to people like what we feel. I don’t even know what type of content to create or I don’t have the budget to create high-level commercials or something like that. So that’s a very big challenge for brands that I’ve been seeing. It’s not only tied to Douyin. It’s very short video or every video platform actually out there, it’s very tough for brands.

Then for Douyin specifically, it’s very much user-generated content. People are actually consuming a lot of content created by individuals. So if you go there as a brand account, it’s really tough to create interesting content, probably partly because Douyin will directly push you out with their algorithms because it’s not relevant for the users who are consuming that type of content. But on the other hand, it’s really basically boring to consume brand content on an ad that is all created by users.

I see actually a lot of potential for brands. They built their own influencer community on Douyin from scratch and leveraged our platform with just Douyin or they started using influencers, content marketing on Chinese social media for their accounts because people already enjoy that type of content, just leverage on the people who are really big on the platform and use it for your own channels, or create a different type of content.

I think what you see, for example on YouTube, what brands are doing is that they create more web series or short shows or something like that. I think you can= leverage Douyin for marketing way more. Then a specific type of industry like in the educational industry, ByteDance is putting a lot of effort on Douyin to invest more in educational type of content.

I think there are a lot of different opportunities. But the same is for repurposing existing content you already have in 10-15 seconds and use it in different parts. The same is the idea when you record a podcast for an hour, cut that in different parts and post these things on Facebook or whatever to at least get traction and then different types of content. Gary V is doing that a lot. He published something on YouTube and then he’s cutting these things in small parts.

So I think there’s a big opportunity still for brands to at least get started to leverage Douyin for marketing. But it’s also how far you want to go as a brand in terms of your type of content, what you’re creating on the platform. Do you want to have that in the terms of the type of content which is consumed on Douyin? It’s very down to earth, sometimes stupid content, and not all brands want to associate their brand with this type of content. So it’s really tough.

I think a good case study is what Alipay did is they started editing Jack Ma in a funny way from conferences he’d been back to 15 seconds with a funny song under that, and then they posted in the description like, “I hope my boss doesn’t see this. Otherwise, this might be our last post on the channel.” This is actually the type of content a big company like Alipay is basically publishing on the platform.

For brands that are like, “What type of content is interesting for us? And how can we make that in 10 to 15 seconds?” I think that’s a very big challenge for content marketing on Chinese social media, but I think that counts for more platforms than just Douyin. I definitely believe you can repurpose that for different channels but just leverage on what’s popular right now on Douyin. And can we do something in 10 to 15 seconds? Because that new generation, the younger generation, you have to trigger in 1 or 2 seconds because they can swipe you up and you’re gone. It’s really important to execute good content marketing on Chinese social media in 10 to 15 seconds.

Matthieu David:  Besides getting more views or getting more people watching your content or your name or your logo, is there a way that you have found that you can convert in sales, you can convert in subscribers, you can convert in something more tangible from Douyin to Tmall, to Yihaodian, to followers on some channel to create a stronger community? Because I’m not totally sure that is easy to actually build an influencer community on Douyin compared to WeChat and all the other platforms which are built actually to get followers.

Fabian Ouwehand:  This is the China ecosystem. You have this Tencent ecosystem. They have this Alibaba ecosystem. And now you start getting this ByteDance ecosystem too, right? Because ByteDance is a very new company, it doesn’t have a lot of different types of platforms where they can benefit each other. I think WeChat does it very well. Also, Tencent does it very well. Alibaba does that very well, too. But ByteDance doesn’t really have that. And Tencent is like, “We’re not providing you anything because you’re a competitor on some areas of ours.”

So I think that’s what was very tough for Douyin at the beginning. I think it really depends on what type of company you are and what is the story you want to tell to see if Douyin is actually the right channel for you. I think if you’re selling products like beauty or fashion or even F&B, then Douyin is, I believe, a great channel to do that because there’s a lot of content, a lot of products from content which is consumed on the app.

Then Douyin integrates for e-commerce purposes with Taobao, JD, and Tmall. Basically, it can connect your store to Douyin and sell directly without basically leaving Douyin itself. Or sometimes you get referred to Taobao, but even that the steps are very easy. That could be interesting. In terms of if you’re selling a product, it’s very interesting to leverage Douyin for marketing. Or if you’re, let’s say, the educational industry and you have an English school or whatever then I think it’s very interesting too because you can generate a lot of traction.

Douyin has these short videos of 10 to 15 seconds, which is basically their core feature. But they also have live streaming, they also have stories, they also can post pictures and all these different types of things.

I think for product companies, Douyin is the right channel in a way like you can convert to sales because it’s relatively easy compared with, let’s say, WeChat to generate traction because it’s a very random app. ByteDance is a very strong AI machine learning but basically filters out the right people for your type of content. That’s why you see a lot of influencers grew very fast in a short amount of time because they directly got the right audience proposed to them.

I’ve been seeing influencers who are selling hundreds of thousands of lipsticks with just a couple of videos because they have that right audience and directly the e-commerce integration is great. But I think if you want to get more subscribers on whatever then it’s enough because it doesn’t integrate with anything yet in that sense. It only stays in that ByteDance ecosystem.

Matthieu David:  You mentioned several times education as a sector that could leverage Douyin. I understand that one of the concepts could be within 10 to 15 seconds to teach something very efficiently, very directly, let’s say for instance, how to use your iPhone, how to increase the light on your iPhone, how to put a new password on your iPhone, and to learn a lot from it. Do you have some examples that had been successful in the educational sector? And it’s successful for what? Because they may have got a lot of views but then what for?

Fabian Ouwehand:  I haven’t seen many brands out there. There were a couple of English teaching apps out there on Douyin or even English schools who are trying to promote their brand for Douyin through that very short time of content. But the most successful still have been influencer marketing in China. I think that’s what a lot of brands forget because they don’t know how Douyin could scale that fast and they created that influencer community on Douyin from the start which basically has been the main reason of growth, at least how I see it, in terms of the growth of Douyin. I think you have to leverage Douyin for marketing, especially on these people who understand the app and basically realize that whole growth for Douyin and the reason why Douyin is as big as today.

I think influencers have been very successful in it and they have been doing a lot of different brand collaborations because they already have that audience. But I think if you’re, let’s say, the school, just get an influencer to start creating content for you. Hire them as content marketers and start growing your own channel on Douyin. But yes, again, this doesn’t directly convert immediately to new clients or something like that.

I think that’s something, in general, that’s missing in China. I think growth marketing and growth hacking, being more analytical in that sense, and to follow building and customer journeys. That’s still very tough in China. There’s not a clear funnel. You cannot see a conversion rate at every funnel stage was this and that. So I think that’s something that I’m generally missing a lot in China. But yes, I think that counts the same for WeChat sometimes, or Weibo. It’s still very tough to create a clear funnel at the end of the day to conversion.

You can create a lot of awareness, which will probably lead to indirect sales. But if you want to sell and you want to get immediate results then you have to start selling products like in the beauty/fashion industry, for example. Otherwise, probably Douyin is not the right channel, but I think Douyin could be a nice challenge for your brand to see, “Can we actually make sense in 10 to 15 seconds to our friends or our consumers or something like that?” You can use it as a channel to challenge yourself if you can provide a lot of value in these couple of seconds.

Matthieu David:  I feel Douyin could be equivalent to billboards when you buy space in airports or in a metro station to gain awareness, for your message to be seen, even if you cannot convert immediately. You mentioned that you know about Douyin because you are close to the influencer community on Douyin. But aside from that, how do you stay informed? How do you stay up to date? Because it’s a very Chinese ecosystem? A lot of things are in Chinese? How do you stay up to date to know all the stories and how it works?

Fabian Ouwehand:  We started building our own influencer community on Douyin. We have a WeChat group and different influencers are in it. So if we have new brand collaborations, we will post it there. But we will also discuss certain things. Besides that, there are a lot of different influencer communities on Douyin, categorized per industry, where also Douyin is involved. A couple of people from the Douyin team are in that group, some MCNs (multi-channel networks) are involved, and then you have influencers who are involved.

Because we have that close relationship with influencers community on Douyin, we hear a lot from them very fast but also because we still have strong ties with some people at Douyin itself, we can just send them messages like, “Hey, does this work? Does that work? Hey, this and that.” They can see how we stay involved, so we can trigger ourselves basically on the database because this app is developing so quickly. They have all the time new features and stuff like that which they don’t even announce. So we try to stay ahead of the curve when talking to these different stakeholders basically involved in the whole product development and who are using the app every single day.

Matthieu David:  One last topic I’d like to talk with you is something you mentioned at the beginning actually, is that you want to help or you’re already helping Chinese influencers to go outside of China. What does it mean? Because most of them speak Chinese, I believe most of them don’t have very good English. How do you want to help them to go out of China? Is it to influence Chinese travelers? Is it to actually give them feasibility with foreign brands to go outside? What did you mean by saying helping them to go overseas?

Fabian Ouwehand:  We work with a couple of influencers very close, where we work on a daily basis with them. Some of them want to work with more foreign brands so they want to get their presence out of China. Just to get more these opportunities, but also see what they can learn from the Western social media, their behavior, etc. and apply that back to the content marketing on Chinese social media, but also more for their personal experience and personal development. They’re very Chinese, most of them indeed don’t speak English at all, but they’re still very interested in what’s happening in the U.S., what’s happening in Southeast Asia, and what’s happening in Europe.

We’re actually helping them to grow on these different channels. We’re helping, for example, one influencer right now on Instagram, and in a couple of months time, she grew from zero to – I think she’s now on 70,000 fans on Instagram, just in a few months by repurposing her Chinese content and putting English descriptions on the posts and stuff like that. We’re helping her with that.

But what we’re also doing is we’re creating journeys for influencers right now and actually focus on Western brands focusing on Chinese tourism. In a couple of weeks, we’re flying two influencers over to Europe and have a two-week trip around Europe or even different brand collaborations where they can learn from Western brands and how to work with them but directly create content for their Chinese channels. We’re doing these journeys now. We’re planning different types of journeys for them. So that is the other way around. We’re helping them grow in these Western channels and we’re helping them with YouTube, Instagram, TikTok, but we’re also doing these journeys and actually leveraging more their Chinese channels but working with Western brands out of China.

Matthieu David:  With your client, is it the influencer who is paying you or is it the city for tourism who’s paying you?

Fabian Ouwehand:  The clients are paying, not the influencers. What we basically do with the influencers – because we have this influencer community on Douyin and other social media, we have the luxury to see who has the most potential in our opinion. We’ve been working with influencers for the last couple of years, so we know who has the potential to also grow out of China. Because I’ve been doing some marketing in Southeast Asia, so we know different markets. I’m from Europe myself, so that makes things also easier. We do get commission-based.

For example, now with the trip, we’re doing a trip to Europe for about two weeks, right? Usually, brands don’t want to spend all their budgets on flying someone over, paying for a couple of days to create maybe one or two pieces of content. But what we’re doing now is we fly people over for two weeks and we’re working with 20 different brands and create 20 different pieces of content, then the brand doesn’t have to take all their budget out. They basically just pay for the content that is created, because we can cover it because we’re working with multiple brands at the same time. That basically lowers directly the costs and the budgets the brands require.

Plus, at the same time, you’re giving a great experience to the influencers. It’s their first time in Europe, they’ve never been to Europe. They work with luxury brands across Europe. They have nice experiences. They will visit the castles in Germany, all these different types of experiences, which influencers value a lot in terms of it’s not always about the money, it’s sometimes also about the experiences. And if you can offer both, it’s basically the perfect solution for that. Then they’re way more willing to collaborate with you but also with the brand. We are trying to create experiences around basically our collaborations.

Matthieu David:  Congratulations on everything you achieved. I feel that you have achieved a lot for influencer marketing in China within a very short time, like two years, two years and a half.

Fabian Ouwehand:  It goes really fast. It really goes fast. It’s really cool. I think it gives us so much opportunity definitely when we work very closely with these influencers. We actually have now very big influencers from the West contacting us like, “Hey, I want to get into China. Can we do something together?” So it’s super interesting to actually see also these Westerners who want to get into China. We’re going to do these collaborations now.

As I mentioned earlier, we’re doing that conference. We’re actually doing three conferences, one in Hong Kong, one in Amsterdam, and one in Toronto. We basically localize it, but we get influencer marketing in China to every city, but also Western influencers, we get them together with the brands too. Basically, talk about how to become a better influencer and how do we want to work with brands, and what do brands expect from influencer marketing in China. It’s really cool to see how this is developing, also with more influencers who pay instead of just content marketing on Chinese social media and running promotions through them. How can we get way more out of them instead of just these advertisements through them or something?

Matthieu David:  Very interesting. I feel especially interesting, Fabian, is that you have been able to understand Douyin people and influencer community on Douyin, and that’s a very unique positioning you have, unique access. It’s very impressive. Thanks, Fabian, for your time. Thanks for taking part of your Sunday to talk to us, and I hope you enjoyed. I hope everyone also enjoyed listening to talk. Bye-bye.

Fabian Ouwehand:  Awesome.

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This article Podcast transcript #60: The best advice you can hear about leveraging Douyin for marketing is the first one to appear on Daxue Consulting - Market Research China.

Matthieu David: Hello everyone today I am happy to work with Peng Li, founder of Merger Link, an investment company in China, on the show China Paradigm, our China business podcast where we interview entrepreneurs in China. Hello Peng Li.

Peng Li: Hi Matthieu, thank you very much for inviting me to this China podcast.

Matthieu David: Should I call you Peng.

Peng Li: Yes of course.

Matthieu David: It’s okay. Good. So, I am very happy to work with you because I knew you, I thought 4 or 5 years ago, and you were introduced to me as a person who sold a business 140 million dollars and each restaurant being valued at 2 or 3 million dollars and I was amazed by how you could do that.

You were working in finance at that time, 13 years you are working in finance in China, so you have a lot of insights on how to work in finance in China and how to value companies in China, and you have been now in another business, in a SaaS in China, providing information about non-companies to investors. So, it could be private equity companies it could be corporations wanting to buy in China, and I look at your platform, you showed to me, it’s only Chinese, so I couldn’t read everything, but I looked at one company I saw everywhere, actually the coffee shop chain and I was amazed by the information you provided.

I didn’t know they were so small actually, and I saw they very big I saw them everywhere. So, it gave me a very good understanding of the brand equities they had and how powerful they were. So, at the same time I would be interested in the audience to understand your software how it works, also the situation of MNA and so on. Thank you very much. Should we hear!

Peng Li:           Thank you, Matthieu, for the very detailed introduction. Just to make it short my name is Peng Li to all the audience. I am a Chinese native and a French national. You are very flattering in your introduction saying that I sold a company. Actually, that was when I was working as an investment banker at my previous firm called William Blaire which is a US American investment bank. That’s when we sold a retail restaurant chain to another cross-border buyer. So, I am a little bit familiar enough with this type of transactions. So, after 10 years of doing investment banking in London and then investment in China, I moved to the buy side and worked for a large Chinese investment company called Fosun, and then I also worked for as a strategy and business development person in Yum China which is large… I mean you probably you are client yourself. They own brands such as KFC and Pizza Hut.

So now I am on my own, I am starting to work as a managing director and a partner for a business intelligence firm called Merger-Link, and we are not similar to… we are a little bit similar to investment banks in China, but we are more a business intelligence provider. So, it is in the form of a SaaS but the essence of our business and the value that we create is to basically generate and collect and structure proprietary information and intelligence, and we sell that information to private equity funds and investment banks and other MNCs who are doing investments in China. 

Matthieu David:         So, for everyone listening to us, SaaS is a service, a software, so it is basically providing service on a monthly repeat bill, and you can access to it by basically paying every month for the service. Could you give us an idea of the size? It could be client; it could be revenues, it could be a number of people in your team… just an idea.

Peng Li:           Sure. As you just mentioned we charge our clients, not every month but an annual basis, and we have our own over 50 clients… institutional clients. So, most of them are private equity funds they are global USD private equity funds or Chinese venture capital funds. We also have MNCs etc. So, we are on 50 right now, so we only launched our SaaS platform for over a year, the momentum has been pretty good, and in terms of staffing, we are around 20 people by now. 

Matthieu David:         So good progress!

Peng Li:           Thank you very much, we try to continue to grow and it’s actually… we have a very, very unique service offering and because… I think no one else, to my knowledge no one else in China is doing this type of business. So, in terms of size, we are still small, but we hope that we can change this industry by basically providing the services to all the private equity funds and all the investment banks in China and hopefully most of the companies who are trying to invest in China in the future.

Matthieu David:         What’s the difference between you, the solution you are offering like Wind  Bloomberg, Capital IQ all those companies of business intelligence in China and the world because I feel there are… not a ton but several software, several companies are providing financial information so could you explain to us why those 50 clients chose your solution.

Peng Li:           Absolutely, a very good question. I think all the names you mentioned are great names in the industry. They are business information or sort of database provider for all the companies or investors in China etc., but I think Wind and Bloomberg they are mainly providing information on the secondary market, so stock market so if you… yourself you want to invest in some companies or if you are an asset manager in an asset management company investing in the secondary market than I think Bloomberg and Wind are great platforms. Capital IQ is more of a tool you can check and search potential private companies etc.

The main difference between us and all those types of businesses, all those other types of names is that we are only focusing on the Chinese market and secondly, we are only focusing on proprietary intelligence.

So, what it means is that we gather the intelligence we have on our platform you cannot find it anywhere else on Bloomberg, on Baidu, on Google, on Wind or Capital IQ. It’s every type, every single piece of information is proprietary so, and that information is actionable by our client… 

Matthieu:        That means on your solution, I cannot get listed companies’ information, and I will get the basically more medium size to small size companies that people don’t cover in Wind Bloomberg Capital IQ or even in the press. Am I correct?

Peng Li:           You are partly correct. I think exactly we only provide information that is not anywhere else, but we also have information about some listed companies. For example, we talk to them, we talk to the CEO of certain listed companies, and they will tell us what type of assets you would like to acquire in China. So that information is proprietary because it’s in his head or the policy of the company. So, we get that information.

Matthieu David:         Okay, I saw you were as buy side, but literally, you can be used as sell side as well.

Peng Li:           Exactly, we can be used a sell side and buy side. So right now, our entry point, our focus is on the investment in China. But we see more and more clients, actually demands from companies from abroad asking us to sign business partners or licenses for their brands or distributors for their brands, etc.… so I think in 5 years, I think our business we can evolve into a more of a business finder sort of, because we have access to the companies and we have a lot of those… they’re information if they want to sell if they want to buy… and what type of if they want to raise money in China etc.. so, it’s basically business intelligence in China and access to those firms, and we provide that intelligence to the companies and then if our clients are interested in them, we access, we make the connection basically between our clients and the company they are interested in.

Matthieu David:         Okay. What is the pricing of your software?

Peng Li:           The pricing depends. So, it depends on its two structures: the upfront and the backend. On the upfront as a SaaS in China we have the subscription fee on an annual basis, and once if we make the connection… if the client sees an interesting investment opportunity or the acquisition opportunity, we will connect them, and if we make the connection and they do the deal successfully, we will charge a referral fee or finder fee. So, it’s a basically a subscription fee and financial sort of a referral fee. 

Matthieu David:         What is the cost of the subscription? Could you disclose the…

Peng Li:           The cost it depends… again it depends. So, if some clients want to pay lower for an example referral fee, then the upfront fee is much higher, and if they can pay a much higher referral fee, then the upfront fee is lower. But again, we need to charge a subscription fee because we want to make sure our client is serious and they really want to do investments in China. 

Matthieu David:         I see, so every client you are going to have a different contract. You are going to kind of negotiate, and it may depend as well on how you feel about their having to acquire…

Peng Li:           Exactly, exactly so our clients are almost partners because when we talk to them, I ask the private equity funds or ask what do you want to invest in? What kind of ideal investment do you want to do in China? What type of companies do you want to acquire? And they will tell me okay, I want to acquire in the most difficult sector possible with the lowest valuation possible. Then I will tell myself, okay maybe they will do one deal every two years or three years. Then we will probably have a little bit higher upfront fee than you know… so it’s a balance between the two.

Matthieu David:         Okay, so are you not afraid that they will connect directly to that person in the article…? I mean they could skip you right?

Peng Li:           Yes, it’s actually again a great question. We have been trying to test… actually, we have almost ten daily proprietary investment or acquisition opportunities per day. So, on a daily basis. So, we have clients from the venture side, smaller business, smaller investments to the buyout side. So large MNA and much bigger deal size. That means that there are so many deals and investments in China, in the Chinese middle market, with all different type of sectors… it’s very hard for them to go and find the deals and their contact themselves. So, if you want to do a really systematic approach and trying to find as many as potential deals possible, they can do it, but efficiency is not that high because they have maybe ten people on the ground… they are all very, very busy.

They need to do auditing, and they also do cold calls or do market research. So, their job… I mean I did… I was an investment banker myself, so we had to do a lot of advisory to the clients, we had to do a lot of presentation, internal discussion, evaluation and negotiation and drafting, etc.… so all those take a lot of time, and if you ask these people… very highly qualified people and very smart people to do searching companies in the Chinese middle market and do cold calls, it’s not an efficient use of your time.

So what we are trying to be positioned is… that we are the outsource service for them because the initial part of the investment process which is sourcing deals, screening… looking for potential targets, finding the contact and getting connected, all those can be outsourced and we believe that we are a businesses development tool as well, using business intelligence in China so we can help them free their time, empower their time or empower them to do more things that are value add which is actually what they are paid to do by their limited partners or their investment banks in China, etc.

So, what we are trying to do it again… we are not afraid that they are they skip us, we actually welcome that because if they do once or they do twice, they will know that we have more and more deals and more and more value because they simply cannot go to every deal. It’s too many because we have thousands of deals a year, so that’s… literally, you need a huge team to do that.

Matthieu David:         When you say thousands of deals, you have thousands of companies you interview or you have thousands of deals which are closed that you are seeing? It seems a lot like thousands.

Peng Li:           That’s also a good question. It’s actually a lot and at the same, it’s not a lot because when you look at Chinese economy the Chinese middle market is huge and the Chinese middle market contrary to European or more developed countries, there is a lack of transparency, and there is a lack of information.

Matthieu David:         What do you call Chinese middle-market?

Peng Li:           Middle-market I would call it from anything… any revenue from 5 million US dollars to 500 million US dollars. The middle market and you know you are right to be surprised, but still in the US middle market would be 10 million US dollars or 20 million US dollars to a billion US dollars. So, it’s already much smaller than in the western or more developed market… because the Chinese economy is still an emerging economy.

So the Chinese middle market is huge, and there is a massive very, very difficult massive problem for information, and then some companies have three accounts…they have business activities that are opaque, and it’s very difficult to find their real owner. So, all those types of problems all those types of information we try to resolve them and try to give clarity and basically access to our client. When you say two thousand it’s actually not that much, I think in China we did a statistic; there are around 30 thousand to 40 thousand companies’ private companies that have around 10 million of net income.

So, you will see it’s not that much, but we have two thousand or three thousand a year, so we need three years if we don’t hire more consultants, we need ten years to cover them all. So, it’s not that much… we believe that after 5 years because we are growing as well in terms of employees etc.… after 5 years or 3 or maybe 4 years we can cover all the Chinese middle market companies and then I think it will make sense to open this SaaS platform to everyone, to yourself, to consultants, to lawyers to every company basically because we will have access to all the founders of those companies and the CEOs of those companies.

Matthieu David:         How do you screen the companies on your platform? Is it by size, is it by sector, I guess size- sector? What are the criteria you are putting in your platform? 

Peng Li:           Yes, I think its a very good question again. The way to find companies in our platform is basically five or six factors. You have size; you have their intentions to sell… so if they don’t have intentions to sell, you will eliminate all those who are not willing to talk to you or the private equity funds. You have of course their sector, that is important. We have over 200 sectors that we cover, two niche sectors. So, for example, if we go into healthcare in China, we will have services, we will have pharma, we will have CRO, etc. etc. so we have many, many niche markets. We will also have USD and RNB sort of currency, because some private companies prefer to raise a fund with USD private equity funds and some prefer to work with local investors. We also have for example… forward-looking or currently doing the transactions. So, it’s basically all the features of the transaction. You can look through all of them, and there are many, many ways to find what you want in the platform.

Matthieu David:         Okay, because I felt when I looked at your platform that there was a kind of article where you have qualitative information, but you put a quantitative also with six criteria.

Peng Li:           It’s more than six, but it’s six big criteria. Six directions.

Matthieu David:         Okay.

Peng Li:           Yes, and you are right it’s basically an article… but that article will have some information about the intention to sell or their intention to partner with what type of investors. There is revenue; there is profit, there is the business model, of course, products, etc., their structure and their fund-raising history, etc. etc.

So, it depends, some have a very complete profile, some have not as complete because we have to interview. We get that information through interview, and through a basic interview with the top management or the real owner. So sometimes if they have less motive to raise money in China, they will tell you less of information obviously. So, it’s not a fixed rule, but most of the time we can get a lot of the proprietary information without signing an NDA because our consultants they are trained to get information and especially to get that proprietary sort of non-public information. 

Matthieu David:         So, it’s not only the interview right; you collect information through your fund. Where have you made it elsewhere and you write a full article on this specific company, which actually can go in a very different direction right, depending on the sector? You may talk about the location if it’s a coffee shop company, you may talk about the quality of infrastructure if it’s a production so that it can adjust to every kind of company.

Peng Li:           Correct, absolutely… the way we work is we have 30-40 databases or sources of information… some are public; some are proprietary like for example Daxue consulting, we can go to some very competent research company. So, we ask them, we gather all those information, we structure them and then we have an article, and after we have all the information, we call we identify of course the owner, and we access them through our own connections, and then we get the final confirmation through an interview. So, it’s both an interview and gathering of all the information from the various types of databases.

Matthieu David:         Since you started, did you have any client hold with your board, through service?

Peng Li:           Yes absolutely. So, we have around now 50 clients a year to date, so since we launched our SaaS in September of 2017 last year, we have closed… I mean we have received success on around 7 transactions. So most of the transactions are done by private equity funds, clients, so they basically read our news…

Matthieu David:         7 transactions?

Peng Li:           Yes. 7 transactions that are correct! They basically read our platform…

Matthieu David:         7 transactions that are like…

Peng Li:           Yes, that’s a lot more than I used to have when I was a banker myself. Yeah, correct it’s actually very high, and we are trying to increase our success rate because the more clients we have, the more we are going to have closed deals. So basically, all those deals, they go through our platform, they look at it, and they are like wow! Okay I like this company, I like this sector, and then they ask us to connect them to this company that who wants to raise money in China, so we connect them. They do their diligence, of course, they meet they sign NDA, they negotiate, etc. and then they basically invest in the company and then we get as I mentioned before the referral fee.

Matthieu David:         So, once you have the client who is looking at the database is not. I mean you don’t leave them alone right you keep connecting with them because you may actually show up some opportunities… I don’t know on a monthly basis and so on, because you have an interest that is happening right

Peng Li:           Of course.

Matthieu David:         You have direct interest that something is happening, so you are not only providing information, and people and the clients are using the leads as they want, actually not using in some cases… you are actually pushing them to look at some articles; some information even adapts the search for them so they can actually find the right target because you have an aligned interest, at least you want them to close the deal.

Peng Li:           Absolutely, our incentive is to… I was a banker, and our incentive is to make our client close deals because they are all private equity funds or MNA department of MNCs and their job is to close deals because they have dry powder, capital to invest and they need to invest. Usually, private equity funds have funds to invest for a certain period and they need to invest in China, in the best deals they can during that time frame.

So that’s why we try to generate as much deal flow and as much business intelligence in China for them daily. So now we have around ten per day. So, you know you will find… once you are on that platform you will find the ideal deal eventually and the one advantage of our platform is that we don’t need to…. most of the deals that are in our deal, don’t have financial advisors or investment bankers, so for example when I was selling this restaurant chain as an investment banker…. It’s already in the market basically the asset and me was basically selling it to many, many different private equity funds. We probably contacted over a hundred funds or strategic buyers etc.

So, all the market… it’s an auction process. So, for the buyer, if there is less advantage… if it’s an auction process because at the end of the day there is competitive friction and the highest bidder will get the asset. Here on our platform, because it’s  proprietary and only have 50 clients right now, and they are all looking for different type of deals, usually they look at the deal they are the only investor our only potential interested party for that deal and that is very, very interesting because that gives them more time for diligence more time to establish the relationship with the founder and basically get the evaluation the entry evaluation down, so that’s the massive advantage they have using our platform  

Matthieu David:         Wait, I’m not sure I understand… does it mean that if you have a client in the automotive industry, you will refuse the older ones in the automotive industry?

Peng Li:           No, no we don’t. We usually… right now for MNCs, it’s okay because we have people in the healthcare industry, we have people in the consumer industry and the industry or the manufacturing industry. So, we don’t have so many conflicts, but on the private equity side we have around 45 of those private equity funds. They are overlooking… it’s actually quite impressive and quite interesting that they are overlooking different deals. There are those who are looking for early venture deal; there are those who are looking for large buyout deals, there are those who look only for gross capital or consumer or those who only look for healthcare. So actually, right now we don’t have many conflicts but once… of course, now we have an increasing number of clients they are looking for more… some clients are looking for more of the same thing.

So, for now, we give them a sort of exclusivity. So, the first one who acts on business intelligence in China that we wrote, they will have exclusivity for a certain short period of time. So, it’s actually quite… I would say it works right now because sometimes there are some interests and they are busy on some deals, and they are not looking for new deals, and so it really happens like this. We are also trying to make it work and to understand how we make sure everyone is happy and everyone is getting the information from us.

Matthieu David:         I think the barrier to entry on your finance company in China is that you have to invest a lot at the beginning in terms of getting a lot of articles. Could you give us an idea on the size of investment of how many articles you had to pour into this business or did you maybe select some verticals some segments some strategy? How did you deal with the initial investment because I feel that is the biggest barrier to entry?

Peng Li:           Yes, again I think you don’t work for consulting for anything. It’s a very, very good question. First of all, there is a number of the deal leads, and there is the quality. So, quantity and quality. So, if you have thousands of useless deals leads that no investor would be interested in. Still, that doesn’t form a barrier to entry.

So, you would suppose quality and quantity. Actually, I would say the quality is more important, because if you know what your client wants… for example, if a middle market buyer wants to see facilities management companies, for example, pest control or catering companies or cleaning companies. So, those who go to hotels and clean the uniform, etc. It’s a very, very niche and specific sort of market right.

So, you need to know that these clients, they want this type of asset. So, we are actually talking a lot to our clients. It’s not only that we wake up this morning and like okay I am going to look or I am going to ask our team to find deals in the automotive segment. No, we actually talk a lot to our client and listen to what he wants. And then when they say okay, I want to see this sector, I will direct our team to look for deals in those sectors. So, it’s actually… that, anyone who is not a banker or who has never done investments in China or the world, it’s difficult for them to get the right direction, where to find those business leads.

So then, of course, the more deals you have, the easier for you to sell your services. So right now, it’s a very, very… I won’t say easy, but the people can see the value straight away because you just go into the platform and they say wow! You have so many potential deals leads etc. That we don’t have a problem, but for sure yes for the last two years…  the first two years you have to work with clients that trust you. So, based on relationship, etc., and you cannot go to people who don’t know you.

So now we have that basis to show our new clients the value of our business intelligence in China, and now they can see it straight away and now the barriers are already here because it’s very difficult for another one who come in and say okay, I can show you ten per day… you know you already have them. The Chinese market is only that big, so how many private equity funds do you have? The quality ones? You have many hundreds, and how many MNCs you have, you have the fortune 500 and so we from that side we are pretty confident that it’s difficult for any new entrants to compete with us.

Matthieu David:         Yes, because I feel you are in the same industry as market places, so the finance industry in China and valuation in China. You have clients to look at information and you input information, but I feel that you have adjusted a little bit by getting your first clients and then adjusting segments to get more information to segments and then because you build upon those segments, you are able to get all the clients interested in this segment. ICC, you have this Groff which is intellectual in the begging and then extrapolating towards the sector. What about development? Because you are not a developer, you are not an IT developer; I don’t think your partner is an IT developer, Nasser…is there anyone who is from IT in your team, I mean from the beginning of funding partners?

Peng Li:           From the beginning, to be honest, we are using Excel.

Matthieu David:         Okay. It’s a very good tool.

Peng Li:           Yes, it’s a good tool but to become a SaaS in China; you really need to be a little bit more than that. So, we did use an IT company to build us… it’s a customized solution, so we have basically a very unique one. I don’t think there is any other software like this, it’s purely based on the needs of a basically private equity investors or MNA department of MNCs, and it’s very easy they look at the intelligence and then once they, they just need to click on it and they can request on meeting them or having a call or having more information etc. and they can also do request for customized search.

So, for example, if you are a client of mine and you say Okay, I want to look for all the business or potential targets that are in my sector. Basically consulting, that is that big for example from 10 million to 50 million US dollars. That is only located in Shanghai, So all type of criteria’s you give it to me and we will find those targets for you and we will clear or qualify the market for you, and it’s a massive city, you will save a lot of time, and it will be almost 90% coverage because we have all the sources that are out there that are available. I am not saying that you cannot do it, our client and yourself can do it yourself as well, you can do it probably as good as us, but you will take for you much much longer time and you people normally, they should be focused on your real business, core business and not on looking for targets, etc. So sometimes investment banks they do that, and they even outsource these jobs to us when they have clients who want to do investments in China or look for targets in China. 

Matthieu David:         I think that you have segmented different steps of value creation of investment bankers and you have found out that sourcing of acquisitions was actually the one you could outsource and actually you could replace someone in the company actually. You may have thought about pricing based on the salary of someone. Was it your thinking?

Peng Li:           Yes absolutely, I think you are spot on there. You asked for the price, our pricing for every client it depends of course on their need and on their capability to close deals. But I can tell you; I can guarantee you that for him buying our services is much cheaper than hiring one analyst or one associate or two analysts to do this job. It’s much cheaper, and at the same time, one analyst or two analysts they cannot have the coverage we have because we have 200 people and all we do is looking for targets, looking for information, looking for contact and getting access to them.

Matthieu David:         I see. Talking about the sponsor that you are consulting, because this China marketing podcast is about consulting… so have you had sometime used research for yourself I mean… from your fund, have you used to research that helps actually to value your company in China? In which cases? Could you give us an idea of how research can be useful or…?

Peng Li:           Absolutely, I think for example we use research basically on a daily basis. For example, if a client asks us to look at everything that is all the potential opportunities, investment opportunities in the pet food area, we, of course, we will go into the internet.

Pet food in China, so I am going very specific…  or pet care or something about the pet industry, which is very hot actually right now in China. So, we will look for all the research we can on this industry and try to understand the different segments of this industry. Whether it’s pet healthcare or veterinary services, whether it’s food, whether it’s… you know all these different types of niche, and then we will go to find these opportunities according to the research. So, basically, we use those research on a daily basis, we need to… otherwise… and again it’s specialization it’s a space, it’s an invisible hand, you are specialized in your business, it takes too much time for us to research on our own, so we have to use professional research people and output and then use them to do our own work.

Matthieu David:         Yes, I see with my client that actually was lacking information, the right information to make the right decisions. I think we are in a very similar situation with our similar businesses.

The second part of the talk I wanted to have with you is about MNA evaluation, the current situation of valuation in China. I feel something is happening in NHA. Didn’t pay well I think in Australian media, RMB. Could you tell us a bit more about how… first, how do you value companies in China? I mean do you use the same sources? Do you use the same ritual? We can be a bit technical like work and so on if you could give some directions to the people, who are listening to us. It would be very interesting!

Peng Li:           Sure, I work with many, many private equity funds, so they make investments in China for a living, so we know how they do a valuation. I mean I used to be an investor myself working for private equity funds so, I think in China the main difference in the valuation in China and abroad is that in China the valuation is typical… relatively speaking is much higher than in the US or in Europe.

Matthieu David:         Why so?

Peng Li:           I think there are a few reasons for that. I think first of all you have, if you look at the structure of the economy you have many, many state-owned companies and those state-owned companies in China, SOE’s, as we call them, you cannot invest in them obviously. They are state assets; they are managed by the government. So what else do you have? You have listed companies and private companies. You can make investment on them, but the listed companies, unfortunately, you only have a few thousand, you have 4000 of listed companies in China and they are all very young because if you look at the history, China has only been opened for 40 years to market economy, and those companies are very young, and they are very young meaning that they are growing very, very fast and once you grow very fast, the growth is actually a factor of high valuation.

So, if you’re growing very fast, obviously you’ll get a very, very high valuation, and that’s one massive, big reason of why Chinese companies are much higher value, and the second reason I think is that the Chinese retailers… sorry the Chinese retail investors, so people like me and you and our neighbors, if they have some money, they’ll put it in the stock market.

Usually, in China, they don’t have many choices of investment, not like in the US. Here, you either buy a flat or you put the money in the stock market. So, a lot of people would just put a lot of money into the stock market and just… it’s a very retail-oriented market. So also, here, once you have the institution and the retail putting all their money into the stock market then obviously the valuation goes up also very high. So, I think it’s a lack of investment vehicles or investment options because the Chinese cannot go abroad and buy US stocks or European stocks, it’s purely Chinese stocks.

So, I think that’s also another reason, and the third reason is the massive amount of liquidity that has been created by the government in the market. So, you had the crisis in 2008-2009, and I think the Chinese government just did quantitative easing of I don’t know how many thousands or millions or billions… I don’t even remember it… a huge amount of money that had been poured into the market, meaning that those market either they will be invested into infrastructures or factories, etc., and a lot of them are directed into real estate, into companies. Into the stock market.

So, all those reasons will basically affect the valuation in China and make the companies really highly, highly valued. I believe that its very overvalued and I can see on our clients, our private equity clients, they feel that it’s just very difficult to be an investor in China, a proper investor a professional investor because you have to be careful with the inter-valuation and if you invest at a very, very high valuation and you only can make money when its even higher at the exit. Right. So now there is some doubt about… if that valuation will come down because of the economies. Not as hot as before. But yeah, I am also one that believes that it has to come down at some stage and it will certainly be sooner than later.

Matthieu David:         Do you think it’s difficult for professional investors to invest in China because we don’t use the same tools, like comparable DCF equity value and that basically, you are more market-oriented, it’s a peer ratio, on the stock exchange it is very high, actually its more comparable than DCF based on cash flow than it is in business? That’s what you mean by saying it’s difficult for professional investors?

Peng Li:           No, I think you’re right. I think all the DCF, the comps, the MNA transactions, MNA comps, etc. all those tools to do valuations, it is based on the market. For example, if some companies want to buy Daxue consulting and you are ready to sell it for a certain price, but if you see the market is… all your peers, the other consulting companies are valued really, really high, so you are very likely to accept the high price, similar price as your peers.

So I think in that way, the market is always influencing the mind of the entrepreneurs, so that’s why they have very, very high expectation in terms of valuations, so that makes the life of professional investors in China more difficult, especially if they don’t have access to a lot of leverage in China because that’s another problem or another issue, that we can talk about, because the way to make money on your own investment, there are three different ways, you have the leverage, you have of course growing the business, and you have the arbitrage between the entry and exit multiple. Here in the US or the West, a lot of LBO funds they use leverage to increase their return, but in China, they don’t have access to that. Anyway, that’s deviating from our subject, but I think the main message is that you cannot… the entrepreneurs have very, the very high expectation on their valuation, so they will only change their mindset if the market goes down or the valuation in the market goes down.

Matthieu David:         I see. Good, thank you. Thank you very much. I think we closed to 40 – 45 minutes. It’s the end of our China vlog where we have interviewed another fierce entrepreneur in China.

Peng Li:           A bit quick.

Matthieu David:         Good, glad you enjoyed it. Thank you for your time. I enjoyed it. And this episode of China Paradigm will be published I guess in a few weeks. You will see on our China podcast youtube channel. Thank you, everyone, for listening.

This article Podcast transcript 7#: Valuation in China, what differences and specificities? 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.

Historical reasons explain the rejection of cheese by Chinese consumers

Traditionally, dairy products were associated with the nomadic tribes who lived on the fringes of China and who were regarded as barbarians. So back then, eating cheese was associated with an unsavory lifestyle.

Also, the majority of Chinese people avoided the consumption of dairy products, including cheese, because so many of them are lactose intolerant. In fact, many East Asians are lactose intolerant because of a lack of exposure to cheese. It’s a vicious cycle.

Cheese currently becomes trendy in China: Booming cheese market

Daily dairy intake is consistently an important theme in China, however, cheese consumption, while growing still remains low. Chinese dairy consumption of fresh & UHT milk, yogurt, and milk powder account for 95% total cheese market share. Cheese, butter and other dairy products share the remaining 5%. Cheese consumption in China recorded 0.1kg per capita in 2016. Looking at the neighbor countries, Japan and South Korea, both were over 20 times higher than China (2.4kg and 2.6kg respectively), which implies a significant opportunity for cheese in China in the future.

The market has seen a surprising growth, revenue in the Cheese segment amounts to US$1,056m in 2019. The Chinese cheese market is expected to grow annually by 5.3% (CAGR 2019-2021). Between 2009 and 2017, the volumes of cheese demand, as well as supply, see continued growth, thanks to emerging diverse formats, acceptable flavors, and textures catering to Chinese palates. Domestic suppliers of cheese still account for less than half of the whole demand, meaning cheese consumption in China relies heavily on imported cheese.

By 2019 the cheese currently becomes trendy in China particularly Shanghai and other 1-tire cities. This may be preceded by the following reasons. First, Increasing upper-middle-class and affluent households. Second, a new generation of freer-spending, sophisticated consumers, born since 1980. Third, the growing power and ease of e-commerce delivering cheese to China’s doors. Forth, the rapidly accelerating Western culinary influences have introduced cheese to these cultures. Last but not least, an increasing number of expats requiring Western goods and, as a result, the active growth of imported stores.

Cheese consumption in China: What’s the image of the cheese?

The Chinese Nutrition Society issued updated dietary guidelines for Chinese consumers in 2016, recommending that each adult should consume 300 grams of dairy products per day – current consumption is 100 grams.

Most of the time, protein and calcium intakes are presented to Chinese consumers. “Good for pregnant women and the elderly” states Baidu Baike (the Chinese Wikipedia). The nutritional side is explained and the description highlights that the cheese is a concentrate of milk, from 10 kilograms of milk only 1 kilogram of cheese is producing.

Moreover, amidst increasing awareness of children’s diets, cheese snacks have been well-received by parents, especially in tier1 and tier2 cities. Kids cheese market dominates 55% of the retail cheese market (Kantar 2017) and sees positive growth in the near future. Therefore, many processed kinds of cheese can be seen as more common in supermarkets and convenience stores due to light flavors.

[Source: Yili]

“Cheeses do not only attract expatriates any more. We can see a lot of Chinese customers coming to buy cheeses,” said an experienced dairy salesperson in Ole, an upscale supermarket in Shanghai.

The landscape has changed a lot recently compared with the situation in 2015.  Before 2016, it was nearly impossible to find cheese in small stores, and 94% of the imported cheese market was sold through large international supermarkets and hypermarkets.

The Chinese cheese market should overcome cultural barriers

The cheese consumption mix in China is dominated by processed cheeses, which are more suited to the local palate. Chinese consumers, in general, do not favor the strong tastes and scents of many natural cheese varieties. Furthermore, processed cheese is easier to handle when used in hamburger and pizza preparation.

The attractiveness of the Chinese cheese market as a large consumer of cheese is enforced by the lack of Chinese cheese producers, enabling international companies to shape the market. Despite France being the largest producer of cheese in the world, France only accounts for 4% of the current market share. New Zealand, Australia, and the U.S. are the largest exporters of cheese in China.

[Source: OEC]

Shanghai is for many years the leading power of China economic and trade development. International trade of goods is facilitated in Shanghai, enabling the city to discover new products at an earlier stage; it includes the cheese market implementation.

Therefore, the deep analysis of the Chinese taste and cheese preferences will help to study this market and the audience and in the future easily predict acceptation from customers. Shanghai Roria, a European food importer offered tastings of various French, Italian and Spanish cheeses in Shanghai. As a result, the rate of satisfaction toward the strong blue cheese was extremely low, as only 30% said it was amazingly good. Unlike in western countries, a lot of Chinese consumers have never tried Cheese and have an image of a bad smell concerning to this good; this is illustrated very well by the Chinese word for cheese “nailao” (奶酪), meaning “milk jelly”. Whereas Cheese has another Chinese name: “zhishi”(芝士, a buzz word now in China ), is mostly being used in the context indicating cheese.

Why the Cheese market in Shanghai can lead the way

In Shanghai, people enjoy experiencing new products and discovering new tastes from imported products. For foreign companies, educating and changing consumer tastes represents a real challenge. That’s why firms such as Bongrain Food preferred other strategies to enter into the Chinese market by adapting to the market and introducing tailored products according to Chinese tastes. Thus their products have already seen 50 new varieties. In Shanghai, the most famous cheese brands are cheese snacks for children such as Stick Cheese, Kiddy Cheese and Small Triangle Cheese. Those may represent the beginning of the Chinese adaptation to the taste of cheese; especially by going through new Chinese youth.

According to Euromonitor, cheese is being added to school lunch menus in many primary schools in Shanghai.

In the nearly past, Cheese was strictly considered as a luxury food. But with the rise of consumer awareness of the nutritious benefits of the product due to exposure to western culture and style in large international cities such as Shanghai, parents have started to buy cheese snacks for their children. Typical families believe that the presence of calcium in cheese will support vital functions in the growth of children.

Another sign of the increasing popularity of the cheese market in Shanghai is the recent apparition of traditional cheese makers in the streets. La Parisienne and La Formaggeria, for example, offer both a decent array of cheese right in the center of Shanghai. A wide range of cheese can be found on the Internet and deliver high-quality cheese in China quickly.

Also, there is an increasing amount of tasting events held in Shanghai and will get more Chinese consumers to try cheese for the first.

A variety of cheese-related foods sparks the wave of “cheese lover”

Western-style cuisine began to enter into the Chinese market a decade ago, and now it has been widely accepted by Chinese people, no matter the burgers from McDonalds or KFC, or pizza from Pizza Hut, or creative popular dishes all having options for cheese flavors. But still, Cheese’s development in China is at an early stage with low per capita consumption and novelty driving sales.

1. Cheese has emerged thick and fast in many recipes

Nowadays, Chinese netizens are favor of sharing everything about their daily lives through social media, such as LRB, short for Little Red Book(小红书), a social network for Chinese users. If we search “芝士”(Cheese)on LRB, more than 220,000 posts are shown in the results, teaching you how to cook “Tomato cheese rice”, “Cheesecake”  or other dishes receipts of each include cheese.

[Source: Little Red Book]

2. Cheese milk cap (奶盖) becomes ridiculously popular amongst the young generation

With the rise of Wanghong drinks (网红饮品)，for example, HEYTEA and Lelecha among famous cheese tea brands, young milky tea lovers are obsessed with the type of tea with cheese on the top. According to HEYTEA’s official website, this type of topping is made of salty cheese imported from New Zealand. Cheese tea lovers are willing to queue up for several hours only to order one cup of drinks.

[Source: HEYTEA]

3. Cheese snacks are gaining more popularity in Shanghai

Cheese snacks in retail performed well in 2018, and most of them are processed cheese which is trendy at the moment.

How to select proper cheeses for kids?

• 4 critical contents: protein, fat, calcium, sodium;
• Cheese is the concentration of milk, ready for kids supplementing protein and calcium;
• Cheese can be categorized into “natural cheese” and “processed cheese”, most kids cheeses are processed one. In terms of nutrition, these two types of cheese are almost the same.

Similar to kids cheeses, normal cheese snacks are majorly processed and have a variety of shapes, including stick, mini cup portion, cube, ball, triangle, bar shape and so forth. Considering user-friendly, convenience-in-use and easy-to-carry is a crucial factor for snacking consumption. On the other hand, innovative appearance is leading consumer trends. It’s very likely that in the near future, traditional original flavor cheese snacks can hardly meet the varied demands of sophisticated Chinese consumers. Compared to slight taste improvement by foreign brands, some Chinese brands provide very unique offerings, such as potato, date, peanut, and pizza flavor.

Shanghai given its unique attributes about open to new things and large disposable income of citizens, is expected to lead the cheese evolution in China. Lactose intolerance, according to studies, can be less of a problem if people begin to have cheese and milk in a younger age. It is reasonable to believe that exponential cheese consumption is expected to grow continuously in the foreseeable future.

Daxue Consulting helps you get the best of the Chinese market

Daxue Consulting can provide you with support in discovering the Cheese Market in Shanghai. We conduct all the market research and consulting services you may need, such as potential analysis, cost analysis, implementation feasibility etc. To know more about the Chinese cheese market, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

This article The cheese market in Shanghai: Cheese evolution | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.