It was the third time that Haier had appeared on Taobao.com. The Chinese household appliances giant brand had come and gone on Taobao.com twice previously since 2006, but both attempts failed. Haier recently turned up on the website again at the end of April to officially unveil its two flagship stores for color TVs and computers respectively in the Taobao Mall, a newly-launched business-to-consumer (B2C) platform on Taobao.com.
It was through this trial and error process that Haier adjusted itself to adapt to Taobao. During the past two years, Haier reformed its production lines and background management for Taobao, and it even introduced three LCD TV models specially designed for the website. Haier’s reputation is well-established in the household appliance industry, and retail giants like Gome Electrical Appliances and Suning Appliance Co. respect the company. So why was it so obsessed with Taobao.com?
In fact, even Gome, the retailing giant which dominates China’s traditional marketing channels, was involved with Taobao.com for a while last year. A location that generates traffic is the golden rule for traditional retailers, and Gome always positions its stores in the hottest traffic areas. Chen Xiao, the CEO of Gome, was impressed by the skyrocketing popularity of Taobao.com in the virtual world and decided to open a store on Taobao last year. Gome eventually gave up on the idea later because its complicated background management was unable to fit into Taobao.com, but nonetheless Chen has since developed a keen interest in online sales.
When it started minor level retailing on a consumer-to-consumer (C2C) platform, Taobao operated in the non-mainstream business field, but it is now enjoying a boom. Apart from Gome and Suning, other large domestic and international companies like Li Ning, P&G, Nokia and Motorola have also been drawn to Taobao. Their flagship stores have already emerged on Taobao.
Reforming the Supply Chain
Hair’s 19-inch LCD TV has seen brisk sales in the Taobao Mall. Since the RMB1,999 (US$292) product was listed in April, the model has topped its sales category for small LCD TVs on Taobao.
“The offline sales of small LCD TVs are pretty gloomy,” admits Tan Biao with Taobao’s operation center. “People tend to choose TVs with large screens when shopping in Gome and Suning, but online sales boosted the demand for small-screen TVs.”
In fact, the promotions for all household appliance manufacturers are focused on large-screen LCD TVs. At the end of July, the top ten TV products in the sales category in the Suning Appliance Beijing Shuangjing store were all large LCD TVs with 40 to 46-inch screens from brands like Sharp, Sony, and Philips.
In the household appliance industry, the costs of the finished products are usually quite high since manufacturers have to pay entrance fees and promotion fees to retailers. They also have to bear the costs of logistics and damaged samples. Small-screen LCD TVs, which are priced at the lower end, don’t generate much profit.
In addition to its rising popularity, Taobao also allows enterprises to base themselves on its C2C platform for free. Compared to the B2C platform, the C2C platform is an asset-light channel for appliance chain stores. On the basis of a minimum profit guarantee, retailers share 1% to 6% of the turnover, depending on the different product categories, with manufacturers in the background. It is much cheaper than the 15% to 30% discount demanded by traditional retailers.
Not every company can make money on Taobao, however. Businesses have to understand consumer behavior on Taobao if they hope to cash in on the website.
After learning its lessons, Haier was obviously more confident this time. Apart from the hot 19-inch model, the company launched another three TV models specially manufactured for Taobao. All of them were LCD TVs with small screens, from 19 to 21 inches. Their prices generally ranged from RMB2,000 (US$292) to RBM3,000 (US$439).
Mainstream consumers on Taobao are very price-sensitive. They generally range in age from 20 to 30 years old. They are a young consumer group with well-established online shopping habits on the C2C platform. Five years ago, they were non-mainstream consumers, but that’s quickly changing. They tend to participate in all aspects of social life and are becoming the mainstay of the economy. On the Internet, their strength as consumers is also becoming increasingly powerful and can even influence changes in business.
Li Yanzhu, the B2C platform promotion manager with Taobao, recalls Haier’s first attempt to open a store on Taobao in 2006. “Haier was not realistic about its prices, which were even higher than in Gome and Suning. It hardly got any orders during that period.”
Haier had already set up its own e-business platform back in 2000, and its online sales were growing steadily. But Haier began to cooperate with Taobao after it outstripped eBay to become the largest C2C platform in China.
“The click-through rate on the Haier store was quite high at the time, but Haier refused to negotiate prices with customers, so the consumers were all scared away,” explains Liu.
Taobao.com has built a communication channel for buyers and sellers by being the first to launch instant messaging software called Taobao Wangwang, which has not only boosted sales but also greatly improved consumer bargaining ability on the C2C platform. Chinese consumers love bargaining, especially on Taobao.com. When they were confronted with Haier’s hard-line style, they simply voted with their feet.
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