China is the second-largest direct selling market after the United States. In 2019, approximately 24 billion U.S. dollars of the direct selling industry’s retail sales were generated in China. Companies that wish to open their direct selling in China must be really careful to avoid non-compliance with government regulators.
What is direct selling?
Direct selling is selling products directly to consumers in a non-retail environment. Instead, sales occur at home, work, online, or other non-store locations.
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Instead, MLM (Multi-level marketing)a type of direct selling system, is a marketing strategy where the company’s sales force is highly dependent on the salespersons they have hired in different tiers of selling. The sales force is compensated not only for sales they generate but also for the sales of the other salespeople that they recruit in this marketing strategy.
How does direct selling work in China?
In 2005, the Chinese government enacted a law called Regulation of Direct Sales and Regulation on Prohibition of Chuanxiao (Chuanxiao stands for MLM).
With this regulation, China makes clear that while Direct Sales are permitted in the mainland, MLM is not.
Even if it is permitted, Direct sales must follow some rules. The company is required to:
- have a business license;
- only pay out one level of commission;
- offer an advanced training course to sellers, where they have to get a license by the end of the course; and
- direct sellers must wear a badge to prove their status.
To better understand the regulations that are in force in China, contact Gma.
In China don’t Neglect Online Marketing even when Doing Direct Selling
In recent years, direct sales models have moved away from their traditional formats. Previously, brand representatives would go door to door selling the brand’s goods.
Increasingly, direct selling models are instead using the social power of the Internet to maximize reach and minimize obstacles.
This is especially true in China, where the population spends on average 5 hours and 50 minutes per day using the internet. (Statista)
To enter the Chinese market, direct selling businesses must consider e-commerce platforms
The e-commerce panorama in China
As for the other digital sectors, the Chinese scenario is completely different from the Western one for e-commerce. Forget Amazon or eBay, which has a limited weight. In China, local platforms have the upper hand.
E-commerce in China is quite varied. In fact, there is a lot of generalist or specialized platforms that are used every day by Chinese users to finalize online purchases. Alongside a few big players, such as Tmall which holds 61.4% of queries, and JD.com 24%, there are a number of smaller but equally important platforms.
Investing only in one platform could be rather limiting unless you chose the right one to begin and use marketing to support your eCommerce effort in China. There is a risk of being hidden from the myriad of brands and brands available on the web. To ensure greater visibility, it is advisable, instead, to be present on multiple platforms in an integrated way.
In the first half of 2020, the total turnover of online sales in the country reached 5.15 trillion RMB (approximately 627.9 billion euros).
In China, Cross-border e-commerce is a huge thing
Relying on cross-border e-commerce allows you to avoid several bureaucratic procedures to sell on local marketplaces. These include the opening of a local bank account, the Chinese legal entity, the opening of a warehouse in China, and payments in local currency.
The cross-border e-commerce landscape is much more fragmented than the local one: the main players are Koala.com, which holds 26% of queries, followed by Tmall Global (22%) and JD Worldwide (13%) and by dozens of minority platforms specialized in specific sectors.
Cross-border shopping is proving to be very popular in China. It is considered very reliable and capable of guaranteeing the highest quality levels. The downside, however, lies in the fact that shipments are significantly longer than local ones and the Chinese are used to receiving the goods within a maximum of 24 hours.
Tmall: the undisputable leader Chinese of e-commerce
Tmall is the leading B2C e-commerce platform in China. It is owned by Alibaba – China’s leading e-commerce group – and has 80.2 million monthly active users.
It is a generalist marketplace, focused on the sale of products of all kinds, from beauty to electronics, to food and home products. Due to its wide offer, it has established itself as the most popular online shopping site for Chinese users.
The brands are present on Tmall in the form of customizable flagship stores. Each profile, in fact, can be created on the needs of the individual brand and can be designed in line with the company’s brand identity.
The peculiarity of sales on Tmall lies in the mechanism that guides purchases: storytelling. Due to this characteristic, the products on Tmall are illustrated as well as being described for their characteristics and functionality.
Since it is quite expensive, if you are a small brand, with a small budget, better go for another option such as a WeChat store and Xiaohongshu.
Jd.com: a good alternative for direct selling businesses
In addition to Tmall, another of China’s local e-commerce giants is JD.com, which holds 24% of queries. Like the first, it is a generalist platform that boasts the sale of products of all kinds, from food to beauty, even from international brands. Its core business, however, is linked to the market for technological products, which are the driving force behind turnover.
JD.com enjoys an excellent reputation and popularity in China, especially thanks to the efficiency of its logistics system. It is in fact the e-commerce platform that offers the most accurate delivery system, with guaranteed shipments in 1-2 days throughout all the country. In addition to deliveries, another trump card of JD.com is the competitive prices of the products and the wide offer.
Xiaohongshu: a good option for beauty direct selling brands
There is a new trend in China that has revolutionized the local digital landscape: social commerce. Social commerce is platforms that present the characteristics of social networks and marketplaces, allowing users to purchase products directly from social media pages.
An example of social commerce is Little Red Book. Little Red Book, or Xiaohongshu in Chinese, is a perfect mix between social media and a marketplace. This hybrid nature is what makes it unique compared to other apps on the web in China.
Little Red Book is considered a “Guide to fashion” in China. It collects luxury and premium products of mostly international brands. On Little Red Book, in addition to creating networks of contacts and publishing content, it is in fact possible to buy products directly shown on the screen through the practical “link-to-buy”. This innovative business model has given the platform an extra boost, making it one of the most popular apps for online shopping.
Pinduoduo: a group buying platform that fits the needs of direct selling businesses
Pinduoduo (拼 多多) is a social commerce platform, that is, it combines social elements with features of e-commerce. It was born only in 2015, but it is already the fifth company on the Chinese e-commerce market, after the Alibaba Group, Tencent, Meituan, and JD.com.
In most cases, users are young Chinese boys and girls. In fact, Pinduoduo is the e-commerce platform with the highest growth rate of users between 19 and 35 years in China.
One of the strong points of Pinduoduo is the advantageous price of the products and discounts. In fact, generally, the products on the platform have very low prices, within the reach of all families. Furthermore, users can take advantage of the group buying function to further reduce prices.
For this reason, Pinduoduo is particularly appreciated by the most attentive consumer groups, usually living in small and medium-sized centers. In general, the platform provides its users with the most social experience possible thanks to various gimmicks. Among them, we can find not only group purchases but also rewards systems and interactive games. These solutions help to keep the users’ engagement high and stimulate both their stay on the platform and they’re willing to shop.
WeChat mini-program: a trend that does not slow
Speaking of e-commerce, we cannot leave out the WeChat mini-programs.
Mini-programs are small apps within the WeChat platform that do not need to be downloaded to the smartphone to be used. I can respond to various user needs, one of these is precisely to shop online. This type of mini-program looks like a mini-marketplace within WeChat where you can purchase the brand’s products or services. Alternatively, they can also offer discount coupons or gift cards to subscribers.
There are more than a million mini-programs and they are used by around 170 million Chinese users every day. This popularity makes them a valuable business tool. In fact, they make it possible to improve the relationship between the brand and the consumer and increase the latter’s loyalty towards the company thanks to discounts and coupons available directly in-App.
Reputation means everything especially in China, your business can succeed or fail based on your reputation in the digital era. So, it’s essential to take time and think about your online reputation management strategy.
Zhihu is a great platform where direct selling business can work on e-reputation & credibility
E-reputation and Credibility are vital for any company that desires to make it in China. Zhihu is a Chinese Q&A platform launched in 2011, it is similar in the west to Quora and Yahoo answers. It has never stopped growing and evolving to suit its users. The platforms have developed many tools such as Zhihu Class which are a kind of ted talk. Zhihu is only one out of many Q&A platforms (Zhidao, Soso wen wen) but seems to be one of the most trusted and reliable out there.
Contact GMA and Find Out if your Direct Selling Business Model can work in China
At the GMA, we can help you to optimize your E-commerce business, optimize the launch of a new product. We can:
- Choose the right online platform for your brand
- Launch and develop your e-commerce platform
- Build the best customer experience
- Improve customer service
- Develop a strong digital marketing strategy on Chinese social media