Learning the Secrets of E-Commerce in China

There has been much buzz about the initial public offering of Alibaba, China’s e-commerce giant. The company is the top player in an increasingly crowded and diverse Chinese online sales market that features corporations looking to order large quantities of manufactured goods; small business buying items in lots of, say, 25 pieces; and consumers looking for a single product.

The online market includes both local competitors like DHGate, which sells goods for export from China, and international sites selling directly to Chinese consumers — including Amazon, which is beginning to gain mainland customers after a slow start.

There are at least three major differences between American and Chinese online sales. Those differences illustrate both the challenges and the potential for growth in China.

1. Quality and returns. Most American retailers guarantee their products against defects and allow returns for various reasons, including the buyer simply changing his or her mind.

Chinese retailers rarely allow for this scenario, so buyers must be very sure of what they are purchasing before they click “buy.” Also, while the sale of counterfeit products is rare in the United States, it is prevalent on Chinese sites. Buyers in China often pick an item with a midrange price instead of the lowest, because choosing the lowest price is seen as a tacit agreement to accept a knockoff.

2. Delivery. Except in a few larger markets, delivery in the United States is rarely made on the same day, and it can involve big fees. It is easy to buy something for $4.95 and pay $10 to have it delivered.

But in China, the efficient and inexpensive “kuai di” (pronounced KWHY-dee) express delivery services typically charge five to six renminbi — or less than $1 — payable in cash for same-day delivery. Buying something online is often both faster and cheaper than going to the corner store. Even businesses order big deliveries this way, leading to overloaded bicycles and electric scooters.

3. Communication.  In America, online buyers often get most of the information about items they want to buy right on the merchant’s website, through photos, user ratings, videos and other descriptive details. Knowing that they can return anything they don’t like, buyers feel secure purchasing without further interaction with the seller.

In China, most purchases — even very small ones — are discussed via telephone, email or chat before the purchase is made. Negotiations and modifications are made before the order is placed. The sales process often involves as much labor as it would if it were done on a retail floor — all while trying to compete at a discounted rate.

I buy most of my groceries online whether I’m in the United States or China. In America, the process takes 10 minutes, and groceries are delivered by the day’s end. In China, the ordering is simple but always involves many subsequent back-and-forth phone calls with the company that fulfills the order. Simple items like bread or bottled water can generate a call to discuss substitutions of brand or bottle size I will accept. The follow-up calls typically take up an additional half-hour.

I recently purchased a heating pad from an independent vendor on Taobao, an Alibaba site. After reviewing several options, I picked a midrange pad for about $16. It came promptly, and I happily snuggled in as it warmed up. Ten minutes later, it quit working. Disappointed, I turned instead to the hands of a very good and inexpensive masseuse.

The next day, my office called the vendor. The representative apologized and sent me a replacement without requiring me to return the faulty product (much to the surprise of my team). I was encouraged and figured the initial item must have been a fluke. Two days later, after light use, the new pad also failed.

One of my colleagues called the company again. This time, the representative said I was using it wrong and that the company would not do anything to correct the problem. I am now on my fifth heating pad in China. My continued efforts have become a running joke, but it illustrates the frustration that many buyers experience and expect with online retailers in China.

The company’s e-commerce market is now bigger than any in the United States, but all things aren’t equal. As labor in China becomes more expensive, it is an open question whether online sellers can sustain the cost advantages that drove the explosive growth.

Deb Weidenhamer is chief executive of Auction Systems Auctioneers and Appraisers.