Speech by Jasmine Sun, E-commerce & Retail Expert in SmithStreet, to help better understanding of consumer behavior in China in such a digital era and and demonstrate how brands can respond to it. Topics like e-commerce strategies to strengthen brand image, current market and consumer trends, how can the luxury industry leverage e-commerce, how and where do consumers spend their money and case studies from various industries like hospitality, retail, luxury and niche products are covered in the slides. More information on http://smithstreetchina.com/

1. Capturing the Chinese
Consumers in the
Changing Digital Era
Jasmine Sun
April 2, 2014

2. 1998

3. 2000

4. 2001

6. 6
Online consumers are evolving – so should brands
Source: SmithStreet Research and Analysis
Premium Luxury
Via official e-commerce
or omni-channel
Cheap / Counterfeit products
Via mass online market place
Accessible Luxury
Via official e-commerce
Discount / Overseas agency
Via multi-brand channels
Online Luxury Shopping Experience Curve in China
Not seeing official presence online, new
consumers are mislead by the counterfeits in
terms of brand positioning, pricing and style.
Experienced consumers at the
forefront are ready to consume
accessible luxury online. When
they can’t find official channel
online, they have to turn to the
non-official ones.

7. 7
Many luxury brands see the importance of developing official e-
commerce platforms now, for branding and expansion purposes
Source: SmithStreet Research and Analysis

8. 8
4
5
2
3
1. Tell the story of the brand and logo
2. Bigger font size
3. No need to share with a 3rd party platform
such as Weibo
4. Pattern on the sides are too loud compared
to the white background
5. A beautiful poster would be better than a
product picture on the home page
Besides, the website connection is very slow.
1
Brands need to adjust to the different need of merchandizing
and user experience demanded by local Chinese consumers
Source: SmithStreet Analysis among Shanghai luxury consumers
1
1
1. Local customers expect to have an obvious
sign on the top of the home page for
customer service, such as telephone
numbers or a chat window

9. 9
Big and mid-sized auto insurers have been active in developing
e-commerce platforms, viewing it as a key future growth point
First Purchase
• convenience of purchasing
• strict requirements by 4S dealers
Renewals
• better pricing
• relationship and service provided by the 4S Store
First Purchase and Renewals
• within personal networks (friends working in
insurance corps)
• higher levels of service and extra discounts
Renewals
• lower pricing relative to agent channels
• Telephone sales currently dominate the direct channel
due to the convenience
Renewals
• Important information resource
• not fully developed yet, more popular among tier 1 and
young consumers
• viewed as a key future growth point
Source: SmithStreet Interviews & Analysis
4S, 76%
Agent (Personal
Network), 16%
Other, 6% Tel, 2%
4S, 28%
Agent
(Personal
Network),
36%
Other, 2%
Tel, 36%
Online, 8%
Purchasing Channel for First Purchases
%, N = 50 Respondents
Purchasing Channels used for Renewals
% with past experience at each channel,
N = 50 Respondents

10. 10
More luxury spending happens overseas than in China, and
there is a trend away from Hong Kong to less crowded places
South East Asia – leisure
destination for all cities but
not for luxury purchase
Europe U.S.
Europe and US
SH
Priority destination due to
cheaper price, more options
and better service
BJ/CD Not an important destination
KoreaMainland
China
Hong Kong
Korea
SH/CD Not an important destination
BJ
First option for overseas purchases due
to geographic proximity, and cheaper
price and smaller crowds than HK
Mainland China
SH
Only for accessories and small jewelry
items under RMB 10K
BJ /CD
Buy a broader selection of items
domestically as are less sensitive to
price differences
Hong Kong
SH
Only a destination for some
fashionistas; most consumers have
‘upgraded’ to shopping the EU or US
BJ
Switching to Korea for cheaper prices
and no crowds
CD
Complain about the crowds but HK is
still the top overseas option for buying
luxury
Source: SmithStreet Interviews & Analysis
Key Overseas Destinations for Buying Luxury

11. 11
Independent travelers to Europe who buy a lot luxury typically
researched online and based on word of mouth to choose hotels
• Among different groups of different consumption level, hotel
spending doesn’t follow tight while luxury consumption goes up
• Booking.com is the most mentioned as the typical channel for
reservations, on the wheels of travel agency
• Key factors for hotel selection on comparison websites: price,
number of stars and convenience to key destinations to ensure
value for money
Source: SmithStreet In-depth Interviews and Analysis

12. 12
Internet connection has been fast moving from only PC based to
mobile based - people are no longer offline
Smartphone Penetration # of Smartphone Users
Source: CNNIC; KPCB; CLSA
In Less than 5 years, the number of smartphone
users has grown by over 33MM, accounting for
72.2% of total web users
38,825
35,558
30,274
23,344
11,760
5,040
72.2%
69.3%
66.2%
60.8%
39.5%
24.0%
2012 Jun
2011 Dec
2010 Dec
2009 Dec
2008 Dec
2007 Dec
Total internet users Percent of internet users
The growth rate of smartphone penetration in China
started to exceed that in US from 2012. This trend is
expected to continue in the next few years
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012 2013e 2014e 2015e 2016e
China USA
Accelerating Smartphone Penetration in China
Smartphones as Percent of Mobile Users
Smartphone Users in China
Thousand

13. 13
Digital world in China is a localized market and new internet-
based communication tools constantly emerge
2006 2010 20112000
PC Based
(Imitation)
Blogging Real-name Based Microblogging
Mobile Based
(Innovation)
China
Global
IM
Source: SmithStreet Analysis

14. 14
Strong
Presence
China US, Europe
Active Users
(per month) 272MM 350MM
Price
Free
• $0.99 (iOS)
• $0.99/year for other devices
Social
Leisure
Entertainment
WeChat and WhatsApp dominate different markets, but WeChat
is more of a lifestyle than social media app like WhatsApp
Source: SmithStreet Analysis; Hongkiat.com; Theverge.com
WeChat WhatsApp
Text Picture VideoVoice ChatLocationPicture Video Group ChatText
Meet strangers
(Shake, Drift Bottle)
LocationLive Chat
(Walkie-talkie)
Video Calls Moments
Feed
Web Chat Public
Accounts
Group ChatVoice Chat
Translation Taxi
Reservation
Event
Organization
Price-Check ShoppingNews Feed
Music Player & Identification Game

15. 15
Mobile Apps are becoming more popular among Chinese users but ROI for brands is
low
• Retention rate of apps remains very low while the required investment is high
• Consumers need to find the APPs useful or fun to actively use it – information
promotion will not attract them for long
Although digital landscape changes fast, best choices are clear
Emails was once regarded as the most effective way to drive traffic to e-
commerce sites in foreign countries, but this strategy failed in the Chinese
market as consumers only use emails for work
Source: SmithStreet Interview and Analysis
Weibo was once very popular among Chinese netizens, but gradually losing market share
to WeChat
• Most brands have a Weibo account to engage consumers
• International brands do not perform well on Weibo as their content is not localized
and strongly restricted by MKT team in domestic countries
Online ads is the most popular way to drive traffic to e-commerce sites
• Most important places are search engines, commercial ads before videos as well as
pop-up ads on popular sites
• Requires large marketing investment
WeChat is the most popular social media platform in China
Currently offers “Public Subscription Account” and “Service Account” for retail brands to
engage consumers and develop e-commerce

16. 16
Case: Liberty Insurance – make it easier via mobile APP
Liberty insurance is making efforts to shorten the claims process by omitting paper materials for certain accidents
and launching an iTunes app.
Source: iTunes; Sina
iTunes APP
Traditionally, the claims process requires the insurance company to be on site right after the accident happens,
which leads to low efficiency and requires a large service team on call. Liberty has published an APP on iTunes in
May 2011 which allows iPhone users to send photos before Liberty will decide if an on-site evaluation is needed.

17. 17
Case: Burberry – target young through digital marketing
• Burberry keeps a very consistent presence across all channels: Baidu BrandLink, Weibo Account, Douban Site,
and Youku. These platforms provide links to each other, as well as e-commerce sites and WeChat QR code
• Its current video applies Chinese factors such as horse-shaped fireworks (also match with Burberry’s own
logo), Shanghai night view, and New Year Greeting in Chinese, showing the special efforts the brand makes
for Chinese customers
“The Chinese consumers usually have 20, 10 or even
only 5 years of luxury brand exposure (as opposed
to 3 to 4 generations of luxury brand heritage in the
west), and average age of luxury consumers is 25
years old who are digital-savvy in China (while in
Europe it is 40, in the US it is 50).”
-- Chief Strategy Officer at MEC China
Source: SmithStreet Interview and Analysis

18. 18
Case: Bestseller - m-commerce via WeChat
1. E-commerce accounts on Wechat 2. Brick-and-mortar-led Model
• Online supplements the missing elements offline
o Scan codes in-store to browse product information online
o Choose to pick-up at stores or delivery back home
o Customers who scan and put products under wish list can have
priority to reserve products and receive order free of postal
charge
• WeChat account can direct traffic to offline
Events on the platform to direct consumers shopping at brick-and-
mortar
3. Challenges
• SA training: application of online technology
and online marketing skills, etc.
• System safety and stability
• Technology development
4. Outlook: One-on-one Service
• Private service
Once the relationship is established, SA can be client’s personal
contact, offering periodic updates and recommendations
• Less time-consuming
o Consumers can proactively ask opinions from SAs
o Consumers can declare purchase purpose, book try-on section
in-advance through WeChat. By an App (under development)
designed for SAs, they can receive customer demand at anytime
to give immediate feedbacks
4 main tabs
• All products
• New arrivals
• Recommendations
• Fashion trend
Source: SmithStreet Analysis; Fashiontrenddigest.com

20. Jasmine Sun 孙雅珏
E-commerce and Retail Expert
Office: +86 (21) 6565-6533*8017
Mobile: +86 139 1618 6537
Email: jasmine.sun@smithstreetsolutions.com
www.smithstreetchina.com
info@smithstreetsolutions.com
@SmithStreetCN SmithStreet
SmithStreet @斯密街中国SmithStreet