It’s no secret that China’s e-commerce landscape is cut-throat. Of the many large e-commerce platforms, only 10% of stores make serious money. This is due to slower smartphone user growth and a growing number of e-commerce platforms which continuously increase customer acquisition costs. Against this backdrop, big and small players alike are looking to WeChat’s ecosystem for growth.
For e-commerce in China, the “80/20” rule is a bit more of a “90/10 rule”. On Tmall, only 10% of online stores generate enough traffic to make more than RMB 5 million. On Taobao, earnings are even slimmer, with only 6% of shops making more than RMB 240k/year.
Around 75% of China’s use up to 35 apps on their smartphones. Between 2016 and 2017, we see a general upward trend, an increase in smartphones apps to 45 and above. This means more competition for attention leading to an increase in cost to retain the same attention that was easier to attain in the past.
Consumers are moving from one primary e-commerce channel on their smartphone to multiple e-commerce apps. Whereas many netizens just have one e-commerce app on their smartphone, others have 5 or more. As competitors proliferate, current players need a strong strategy if they are to survive and win the coming never-ending battle of attrition.
With the cost of new customers close to or exceeding the average revenue per user, e-commerce channels will need to find new ways to increase revenue or face greater and greater losses in proportion to the new customers they acquire. However, as the primary reason customers use e-commerce channels is that they offer cheaper prices than rivals, growth with profit becomes a tricky catch-22.
On the brighter side, WeChat Shop estimated sales have grown by leaps and bounds. This gives e-commerce giants a new channel to explore as previous channels become hyper-competitive.
While Taobao receives all of its traffic from its app, other e-commerce giants show significant amounts of traffic from WeChat mini-programs. By leveraging WeChat’s mini-program platform, e-commerce players have significantly increased their traffic, which may have also decreased their cost of customer acquisition.