The daigou market is booming in Australia as brands use these channels to sell their products to China’s big spending consumers, however, as more marketing spend goes to daigou, are Australian brands are forfeiting their future business in China?
The appeal of daigou is easy to see. Organised individuals or networks who facilitate the buying and selling of products, usually at a premium price, to customers in mainland China. With more than 100,000 daigou operating in Australia and estimates these savvy operators are turning over around $100 billion each year, companies are clamouring to get their brands and products into these channels and into the hands of Chinese consumers. (link)
China’s booming middle classes, who are happy to invest in premium products, and Australia’s excellent reputation for producing good quality products, is ensuring there is a lucrative market in mainland China. The recent launches of offices for China’s biggest e-commerce companies Alibaba and JD.com, both of which are looking to engage local brands and products for Chinese consumers, is further proof of the consumer appetite for Australian products.
However, as a recent report (link) by Westpac and AustCham revealed, just 16% of Australian businesses have a detailed China e-commerce strategy and with Alibaba and JD.com already brimming with thousands of brands, achieving cut-through as a new entrant into the market is challenging, to say the least, and expensive.
Daigou channels present local brands with a cost-effective way to boost sales, shift products, make money and, slowly build awareness in China. These channels can help brands get a leg-up into China’s notoriously competitive market, and once a brand has established some awareness and scale they can look to move onto a platform, like Alibaba’s Tmall, to continue to grow sales.
With so many benefits to this system, companies are increasingly investing marketing spend with daigou channels in a bid to help grow their brands in China. However, when they do this, many are not also supplementing this activity with their own brand-building marketing activity in the China market.
Without a local language website, WeChat or Weibo account, all of the brand’s profile and product information in China, is all in the hands of the daigou. The daigou has full control of the brand’s positioning, product information, pricing, logistics and fulfilment strategy in China – and all of these elements can fluctuate wildly between different daigou.
While there is no denying the short-term benefits of working with daigou channels, it is not a sustainable model for your brand. Unless you are also investing in basic Chinese digital marketing, you are effectively sacrificing the ownership of your brand in China.
This may sound dramatic, but there are a couple of key reasons driving this.
- Brand IP
China is notorious for fakes and knock-offs. It is a nation of fast moving entrepreneurs, who can spot an opportunity a mile off and an unregistered brand name or WeChat profile is an easy target. IP protection remains a huge issue in China and high profile international brands still regularly encounter issues with fake products, fake social media profiles and even falsely registered brand IP. Getting control of your brand once it has been stolen can be a long and frustrating process in China. Securing your IP, brand name and social media profiles is a crucial step for any brand wanting to achieve long term success in China.
- Trust & Safety
Trust and safety continue to be thorny issues in China. There are regular incidents where big name brands are dragged through the mud due to product tampering where fake products are sold in legitimate packaging. Daigou represent a huge issue here as products can easily be compromised when they are sent via post, and if this happens and there is a health issue, it can have a huge impact on your brand. Chinese logistics companies stormed onto the BrandZ list of valuable brands in China, which is a telling sign of the importance of reputable and trustworthy companies for handling e-commerce deliveries.
- Long-term sustainability
China is changing, rapidly. This fast-moving market can change literally overnight, and that includes laws and regulations. China’s import laws and taxes are some of the most stringent in the world, with Chinese consumers paying a high price for imported goods. However, as the current trade war between China and the US is demonstrating things can change quickly and without long-term strategies your brand and products could suffer. Many experts believe it is only a matter of time before higher taxes and stricter rules are applied to daigou – both in China and at home in Australia – which could impact the system significantly.
The daigou market has thrived because companies and marketers lacked a good understanding of China and how to market and sell products to consumers. However, with more tools, specialist agencies and platforms available to help companies, creating sustainable strategies for China is no longer a daunting process.
Ultimately, it should not be a ‘one or the other’ approach when it comes to China, while daigou can provide short-term sales success and awareness in China, a complementary digital marketing strategy will provide long-term security by creating a community for Chinese consumers to engage with your brand.
The China market, and its 1.3 billion people, are too important for Australian companies to not have full control of their brand. A long-term approach to China is crucial to create a successful business.