Asia Distribution and Retail

C2B

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Countdown to Alibaba’s 2016 11.11 Global Shopping Festival: What To Expect –

Consumer-to-business (C2B) model will be a key highlight

October 2016

Last year’s Alibaba 11.11 Global Shopping Festival (also known as Singles’ Day shopping festival) focused on several themes, including globalization, mobile e-commerce, O2O, rural e-commerce, cross-border e-commerce. These themes will continue into this year’s event.

Meanwhile, we believe 2016 Singles’ Day shopping festival will be more consumer-focused.

Consumer-to-business (C2B) model and live streaming* will be some new trends.

This report looks specifically into the thriving C2B market, with reference to the case of Alibaba’s Singles’ Day initiative.

C2B LIVE

STREAMING

M-commerce GLOBALIZATION

RURAL

CBEC O2O

Introduction

* Please stay tuned for our upcoming report on live streaming.

Alibaba’s 11.11 Global Shopping Festival

3 Source: * http://www.alibabagroup.com/en/news/article?news=p151112 ** http://www.businesswire.com/news/home/20150908005689/en/Alibaba-Group-Kicks-2015-11.11-Global-Shopping

• Every year on 11 November, Alibaba Group holds the world's largest 24-hour online shopping event.

• It started in 2009 with only 27 merchants took part in the event. At that time, Alibaba hoped to raiseawareness of online shopping in China*.

• In recent years, Alibaba has rebranded its Singles’ Day event. It has been extended from an one-dayshopping event on 11 November to a shopping festival that covers a period of over one month. It has also

turned from a local event into a global event, known as “11.11 Global Shopping Festival”.

• Alibaba generated Rmb 91.2 billion in gross merchandise volume (GMV), up 60% yoy.

• Total mobile GMV settled through Alipay was RMB 62.6 billion, accounted for 68.7% oftotal GMV.

• More than 16,000 international brands registered transactions in the festival.

• 33% of buyers purchased from international brands or merchants.

• Buyers and sellers from 232 countries and regions.

• 467 million logistics orders were generated in the 24-hour period, up 68% yoy**.

Key facts about the 11.11 Global Shopping Festival in 2015

Over the past seven years, the 11.11 Global Shopping Festival has seen tremendous growth…

4

0.9 0.1

Source: Alibaba Group Official Website; Alizila *http://online.yszx7i.com/m/xgls/5219.html

Alibaba’s GMV on Singles’ Day from 2009 to 2015 (in Rmb Bn)

In 2015, pre-orders made up a large part of the GMV on Singles’ Day. Approximately 20 million consumers put the products into their shopping cart during the pre-sale period*.

5

In 2014, Jack Ma

declared the

opening of the

C2B era*.

*In his speech at Softbank World 2014 event. Photo source: Getty Images

The Opening of the C2B Era in China

Now, a new customer-driven disruption is underway…

• Advanced Internet technologies allow seamless connections between consumers and business, making it easier for consumers to articulate their needs and opinions to business.

• More and more Internet companies now adopt a Consumer-to-business (C2B) model, with an aim to provide customized

products and services to meet the needs of discerning Chinese consumers.

• Internet giants such as Alibaba have placed increasing focus on this new game-changing business model.

6

The e-commerce

landscape in China is

increasingly

consumer-driven.

The concept of “C2B” has been mentioned by Chinese Premier Li Keqiang twice in

January 2016*…

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“Under the C2B model, designers, producers, and consumers are directly connected on the Internet.”

– on 25th January 2016

“C2B means that business design and produce according to what the consumers request…this is revolutionary…business should be closely connected with the market and communicate with consumers flexibly via the Internet.”

– on 27th January 2016

**Source: www.english.gov.cn/premier Photo source: http://www.CRNTT.com

What is C2B E-commerce?

• In contrast with the business-to-consumer (B2C) model, the C2B model allows businesses to extract value from consumers. Consumers come up with personalized needs or product requirements, then businesses produce the

products or services based on the needs of consumers.

• The C2B model is a reversal of the B2C model; the whole process is driven by consumers.

• Under such model, businesses optimize their supply chains with flexible production lines. Products are produced in

smaller batches and delivered to customers in a timely manner.

8

Consumer Business

• Co-create ideas, products/services concepts and solutions with business

• Involve and participate in design of products/services

• Decide how much they will pay for the products/services

• Determine what to produce, how much to produce, when to produce based on consumers’ requirement

• Customization of products/services based on customers’ requirements

• Quick response to the market with flexible production line and fast delivery

Generally speaking, C2B is about consumer-driven production…

3 Types of C2B Products

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Apparel, accessories, furniture Travel, Home, Clubs, Car rental,

Wedding 3D Printing

Ex

am

ple

s

Technology Services Physical goods

4 Major Types of C2B Model

Types Features Examples

Group-Buying Model

• Consumers join together based on common interests to request or initiate group-buying deals with merchants, and ultimately obtain the desired product or service at lower prices.

• Another form of group-buying model is through accumulating customers’ orders, business produce the products based on the actual number of orders.

• Customers have to pay for products before they are put into production, eliminating the risk of excess inventory. Thus, discounts are usually available.

• Juhuasuan (by Alibaba), China’s most popular group buying marketplace.

https://ju.taobao.com/

• “Pre-sale activities” at Alibaba’s Singles’ Day

10 *Source: http://www.sersc.org/journals/IJUNESST/vol7_no3/17.pdf

4 Major Types of C2B Model (cont’d)

Types Features Examples

Mass customization

• Business offers a base package with plethora of options that customers can add to, subtract from or alter to suit their needs or tastes.

• Menu-style customization is offered and customers can only customize certain features of a product/service.

• Business will not change its production plan. It can flexibly produce the customized products with lower unit costs as a result of mass production.

• Consumers have to adapt to the existing supply chain.

• Mass-customized products are also regarded as made-to-order or built-to-order products.

• Haier Group – a consumer electronics and home appliances company in China, implemented a scheme named “my refrigerator, my design”. Within one month, Haier received more than one million orders from customers. Nowadays, more than half of Haier’s refrigerator orders are based on the customized designs by consumers.

http://www.ehaier.com/

11 Source: http://column.iresearch.cn/b/201512/755502.shtml

4 Major Types of C2B Model (cont’d)

Types Features Examples

Deep customization • Also known as participatory customization. Products are customized entirely based on customer needs.

• Customers participate in the whole process of customization.

• Each product is regarded as a separate product.

• Shangpinzhaipei – a home furniture and decoration company that is renowned for its customized service; consumers can customize the specifications (size, design, style, etc.) of furniture based on their preference.

www.spzp.com/

“Name-your-own-price” model

• Consumers make a suggestion for a product’s price and the transaction occurs only if a seller accepts this quoted price.

• This model is pioneered and best-known by Priceline, where travelers would name their price for airline tickets, hotel rooms, car rentals and vacation packages.

• Qingchujia – an online auction site established since 2014.

www.qingchujia.com/

12 Source: http://column.iresearch.cn/b/201512/755502.shtml

Advantages of C2B Model

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Tailored products and

services

Lower prices

Lower production

risks

Build direct relations

with consumers

Higher product turnover

Faster response

from suppliers

Diversity of

products

Consumer Business

Consumers enjoy personalization and tailored-made goods and services. They also receive faster response from businesses as the latter sell directly to them.

Businesses that adopt C2B e-commerce model can build direct relationships with consumers. The supply chain can be optimized with more accurate production and better inventory management, thereby reducing production costs and risks.

Lower sourcing,

inventory & marketing

costs

“The C2B business

model is an

undeniable trend”.

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The C2B Model of Alibaba

• Jack Ma is an advocate of C2B e-commerce. At the Softbank World 2014 event, he forecasted the future of retail would be all about C2B:

Photo source: Independent.co.uk

Jack Ma, Founder and

Executive

Chairman of the Alibaba Group

“We will see a shift to C2B, in other words, it’s all about customization…it is no longer about cost competition. We have to compete against value.”**

“In the future, it will be a C2B world

where businesses produce what the customers require and the level of individualization of products is much higher.”*

Source: *http://www.marketing-interactive.com/jack-ma-technology-trends-shaping-future-businesses/ **https://www.techinasia.com/jack-ma-softbank-world-alibaba-business-model

Alibaba’s 11.11 Global Shopping Festival 2016: Pre-sale Activities (C2B) will be a Highlight

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• We foresee that pre-sale activities will be a key highlight of 2016 Singles’ Day. This is a

form of group-buying model of C2B. • To arouse consumers enthusiasm and interest of the shopping festival, Tmall allows

merchants to receive orders several weeks before the actual sales date. Customers have to pay the deposit for their pre-orders before they are put into production. This helps merchants make more accurate production forecast and eliminate the risk of excess inventory. Discounts are usually offered to customers.

• Over the past few years, many merchants have taken part in Singles’ Day pre-sale activities and offered their products/services at a discounted price. Such activities have allowed them to reduce production cost and enjoy higher efficiency and turnover in return.

• In 2015, Alibaba’s record-breaking transaction volume was largely attributable to the pre-sale activities.

Pre-sale activities is a form of online group-buying of C2B model.

Alibaba’s 11.11 Global Shopping Festival 2016: Pre-sale Activities (C2B) will be a Highlight (cont’d)

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• Another important feature of the Singles’ Day pre-sale activities is customization. Many Tmall merchants allow consumers to choose the designs, materials, and features of the products. Based on consumers’ needs and requirements, merchants then produce the customized products.

• E.g. A local apparel brand Peacebird collected consumers’ opinions on designs and materials via questionnaires before the Singles’ Day event in 2015. The brand then came up with several customized designs based on consumers’ opinions. The brand released a customized design for a 4-piece set on 18 October 2015 for pre-sale. The original price was 699 yuan and the pre-sale promotion price was 198 yuan (approximately 72% off). Total amount of pre-orders quickly reached more than 20,000 as of 2 November 2015*.

*Source: http://www.aliresearch.com/blog/article/detail/id/17047.html

Singles’ Day pre-sale activities in 2016 – How does it work?

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Singles’ Day pre-sale activities 2016

Consumers preview offerings and select products or services. In some cases, limited customization is available.

Consumers pay a deposit before the actual sales day. Products are offered in a discounted price than 11.11 sales day.

Consumers pay the balance on the actual 11.11 sales day. They would enjoy priority in receiving the products.

Merchants collect pre-orders from consumers to organize mass production.

Me

rch

an

t C

on

sum

er

Merchants’ registration: 20 Sep – 29 Sep

Pre-sale and payment of deposit: 21 Oct – 10 Nov

Actual sales day and payment of balance: 11 Nov

Merchants receive the remaining balance of the pre-orders on the actual 11.11 sales day.

10 Nov

21 Oct

20 Sep

Merchants who want to participate in the Singles’ day pre-sale need to register with Alibaba.

Singles’ Day pre-sale activities – the case of Bermo

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• Bermo is a home textile brand in China. It has a quick-response production chain of seven days from raw materials to fabric sewing, weaving, printing, dyeing to production and sales.

“In the pre-sale model, we could give consumers the lowest price (for example, a 4-piece bedding set on Singles’ Day pre-sale promotion in 2015 was 194 yuan. The original price was 899 yuan). This is because we have a strong supply chain to support the fast-speed production and give consumers the best shopping experience.*”

Zhou Yanhua, Manager of Bermo

Source: http://www.aliresearch.com/blog/article/detail/id/17047.html

• Through the Singles’ Day pre-sale activities, Bermo precisely estimated the total amount of orders. Their factories then handled the production in a timely manner. The pre-sale model helped the company to reduce capital investment, costs in warehousing, marketing and other production costs and achieve “zero inventory risk”.

Bermo’s strong supply chain allowed the brand to enjoy huge success in the Singles’ Day pre-sale activities.

Singles’ Day pre-sale activities – the case of Inman

• In 2015 11.11 Global Shopping Festival, Inman, one of the best-selling local apparel brands on Tmall, launched six items for pre-sale one month prior to the actual sales event. Among which, two items received over 20,000 pre-orders.

• The brand adopted the C2B model by collecting consumer preferences and requirements during the pre-sale period. They showcased 300 new styles to consumers and finally selected 180 styles for production and sale on the Singles’ Day.

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• Consumers who placed order for pre-sale items received a discount and free gifts. They also enjoyed the priority in receiving the products.

Source: https://inman.world.tmall.com/p/rd452190.htm?spm=a312a.7700824.w11394616-14424673079.29.jtKbFX&scene=taobao_shop

Inman adopted the C2B model by collecting consumer preferences and requirements during the Singles’ Day pre-sale period.

20 Source: https://informationstrategyrsm.wordpress.com/2012/09/28/alibaba-the-future-trend-of-e-commerce-transformation-from-b2c-to-c2b/ Photo source: The Wall Street Journal

“B2C is only a transitional business model, the real e-commerce model in the future is C2B”, said Dr. Zeng Ming, Executive Vice President of Alibaba Group

Conclusions

• Under the C2B business model, there are direct linkages between business and consumers. Hence, consumers are more powerful and influential in the supply chain.

• C2B model is set to play a more crucial role in shaping e-commerce development. It creates win-win situation for both consumers and business. We foresee that more companies will adopt the C2B model as well as consumer-centric business strategies.

• This year’s Singles’ Day will see a lot more pre-sale activities that leverage the C2B business model. Mass customization will also be more common and allow business to create more unique online shopping experience for customers.

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Contacts

Asia Distribution and Retail

Teresa Lam

Vice President

Tel: (852) 2300 2466

Email: teresalam@fung1937.com

Lucia Leung

Research Manager

Tel: (852) 2300 2481

Email: lucialeung@fung1937.com

Fung Business Intelligence 10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong Tel: (852) 2300 2470 Fax: (852) 2635 1598 Email: fbicgroup@fung1937.com http://www.fbicgroup.com/

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