E-commerce platforms in China are teaming up with the country’s under-pressure manufacturers to push forward a new business model that combines customization and scale.
First the US-China trade spats hit China’s huge manufacturing base with delays and uncertain revenue, then came the COVID-19 pandemic; demand plummeted both domestically and from overseas markets.
But a trend that began some time before the pandemic struck is now being deployed in earnest to boost consumer demand, MIT Technology Review reports – and this time the target market is overwhelmingly domestic.
China’s e-commerce platforms are able to use their massive databanks of consumer behaviour, coupled with algorithms, to analyze and predict what China’s factories should be making in order to respond to demand, the so-called customer-to-manufacturer model, or C2M.
E-commerce giant Pinduoduo has been able to tell manufacturers not only how to customize in great detail, down to the wash of a pair of jeans, or the length of a sock, for example, but it’s also able to advise on redesigning packaging, or what price points to set, as well as how to market goods online, all based on data.
All this makes the manufacturers’ production more efficient and cost-effective, which in turn can mean lower prices for the consumer. E-commerce platforms in turn can sell targeted ads.
When the pandemic struck, Pinduoduo stepped up its push into C2M, adding incentives for manufacturers to join its platform and promoting adoption of its live-streaming service. Now other major e-commerce players – Alibaba-owned Taobao, and JD.com – are planning to expand their C2M offerings.
Pinduoduo saw the launch of 106 manufacturer-owned brands last year and is aiming to establish 1,000 more. Taobao says it wants to bring at least $14 million each to 1,000 factories within the next three years. The target customers for these manufacturers’ brands are overwhelmingly the country’s growing middle classes, who tend to be more concerned with quality and price rather than prestigious labels.
The C2M model is estimated to have generated approximately $2.5 billion in sales in 2018, according to market researchers iResearch, and that figure is expected to rise to $5.9 billion by 2022.
According to Han Lei, a senior specialist for Alibaba’s C2M commodity-management team, the move to C2M can help factories save up to an average of 20%-30% in production costs. He told Alizila the model has big potential especially in China’s lower-tier cities, where the most of the country’s consumption growth is expected to happen in the next 10 years, according to a study by Morgan Stanley.
The C2M trend has also reached the luxury sector, Jing Daily reports, with the Italian designer brand Sergio Rossi co-designing a new short boot based on JD’s big data analysis of customers’ preferences. The boot will be launched exclusively on JD.com’s platform this year.
Sourced from MIT Tech Review, iResearch, Alizila, Morgan Stanley, Jing Daily