Dr. Regina Henkel
Dr. Regina Henkel

E-commerce: Digitization in China puts the customer at the center

China: How C2B is revolutionizing product development

In the world's most digitized country, China, the customer's wishes are to move to the center of product development. Large e-commerce platforms and the increasing digitalization of the Chinese fashion and apparel industry are working together to radically change production cycles. C2B is the new word of the future.

Gesehen, gekauft, geliefert: Die ‚see now – buy now‘ collection von Tmall auf dem Laufsteg.
Seen, bought, delivered: The 'see now - buy now' collection from Tmall on the catwalk.  

C2B innovation becomes the norm in China

While in the Western world C2B means that customers - for example via Internet platforms - search for companies specifically in order to find suitable products or services, in China it means something else.

In this country, things usually still work like this: If a brand has an idea for a new product, it takes at least a season before it can be presented to retailers. More realistic is a whole year.

In the classic distribution model, the retailer decides first whether the product is any good, and the consumer decides six months later. In vertical sales models, the influence of retailers is less and the product tends to reach the market more quickly. However, whether the product reaches the consumer is equally uncertain in both cases.

The reason: innovations usually start internally and flow from the company to the consumer. So it can easily happen that the innovation does not interest the customer at all or no longer does. High markdowns are the result.

This flow direction of product development is increasingly being questioned in China. Instead of business to consumer (B2C), the motto there is consumer to business (C2B). C2B innovation is to become the norm in China.

Customer data supports product development

"C2B puts the consumer at the center, making it an excellent fit with Alibaba Group's mission to simplify commerce globally and serve two billion consumers by 2036," explains Alibaba Germany CEO Karl Wehner.

China's e-commerce market is the world leader in terms of overall volume and penetration. Unlike many Western countries, online commerce there is concentrated on a few large e-commerce platforms such as Alibaba's marketplaces Tmall and Taobao (similar to ebay), where 601 million consumers are active.

Most brands set up a storefront there instead of creating a standalone site. Because these sites often offer entertainment, social sharing, and community options in addition to product information, companies operating there receive a lot of data about their customers. With the help of bots and machine learning and combined with transaction data and social media, concrete conclusions can be drawn from this for product development.

E-commerce platforms do market research

Alibaba shares this information with its customers to get better products. Last year, Alibaba established its own market research division, the Tmall Innovation Center (TMIC).

"Here, we use insights from our entire ecosystem of e-commerce and media sites to help brands develop, design and market new products specifically for Chinese consumers," Wehner added.

Numerous European brands from different industries have been able to better identify what Chinese consumers want and incorporate it into specific products, Wehner says.

Crowdsourcing platforms such as ISPO Open Innovation offer a good opportunity to develop products with the help of customer feedback here as well.

Industry and government promote new manufacturing

Customer analysis, which should lead to better product ideas, is just the beginning. Wehner: "All in all, it's about product-market fit, faster product cycles, smart manufacturing and also marketing." In other words, a digitized process chain ensures in the next step that this product also reaches the market quickly.

"C2B is at the heart of what we call New Manufacturing, a data-driven manufacturing process that is largely driven by consumer demand," Wehner explains.

The government in China is also pushing hard to modernize industry, and thus the degree of automation and digitization of manufacturing processes, with its "Made in China 2025" initiative.

While China was still a low-wage country ten years ago, today industry is confronted with rising labor costs and labor shortages and is looking for ways to operate more cost-efficiently. Many second-generation factories are now investing in faster, digital processes.

More agile, small production units

The aim here is not so much to be able to produce large quantities of mass products even faster. Instead, smaller quantities of individualized products are to be manufactured and delivered cost-efficiently in a shorter time. The country's strong manufacturing base is helping China to completely reorganize its processes.

This goes so far that products are not produced until they are ordered. Companies can therefore sell their products before they have them produced. Nevertheless, delivery to the consumer takes place within a few days.

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Dr. Regina Henkel
Dr. Regina Henkel