BEIJING--(Marketwire - Nov 21, 2011) - China has more Internet users than the United States and Japan combined, and it already has 145 million online shoppers (second only to 170 million in the U.S.), with exponential growth expected that could bring the number to 329 million by 2015 and make the e-commerce market in China the world's most valuable.

Despite this vast window of opportunity, many companies are leaving significant growth potential on the table; they're allowing merchants that sell on Chinese shopping marketplace giant Taobao.com, as well as other e-commerce companies, to shape consumer perception and the market overall. These are insights from "The World's Next E-Commerce Superpower: Navigating China's Unique Online-Shopping Ecosystem," a new report from The Boston Consulting Group (BCG). The report, which included a survey of more than 4,000 online shoppers in China, is available on bcgperspectives.com.

"Consumerism is already big in China -- people simply love to shop. But China is unusual in that Internet access has far outpaced the reach of the top physical retailers, which means that e-commerce development probably will not mirror the pattern in other countries," said Waldemar Jap, a Hong Kong-based partner at BCG and coauthor of the report. "Companies that want to compete will not only have to understand how Taobao and others may already be shaping their online presence but they will also have to engage consumers via multiple online -- and offline -- channels."

Growth of E-Commerce in China

• Less than 10 percent of China's urban population shopped online in 2006. The figure jumped to 23 percent in 2010 and will nearly double to 44 percent by 2015.
• An astonishing 30 million additional Chinese consumers are expected to shop online for the first time every year until 2015.
• E-commerce in China will go from representing 3.3 percent of the country's total retail value today to 7.4 percent in 2015. It took the United States ten years to achieve that growth.
• Within five years, most of today's online shoppers in China will be spending RMB 6,220 (or about $980) per year, twice what they are today. That's close to the U.S. average of $1,000.
• The low cost of shipping in China gives e-commerce an ongoing boost. It costs $1 on average to ship a 1-kilogram parcel, versus $6 in the U.S.

E-Commerce in China Is Dramatically Different from Elsewhere

• Up to a quarter of e-commerce demand in China is for products consumers cannot find in physical stores -- a circumstance unique to China, where the immensity of the country limits the coverage of physical retailers. In fact, there are many consumers, especially the younger ones, whose first contact with a brand or type of product occurs on the Internet.
• The relationship between search engines and retail sites is different in China. In most markets, shopping begins with a Google search. In China, online retailing marketplace Taobao.com blocks the spider of the top search engine, Baidu.com. Therefore, most shoppers start their search within Taobao, which accounted for nearly 80 percent of e-commerce volume as of 2010. "Chinese shoppers are developing the habit of not relying on search engines to find products online," said Jeff Walters, a Beijing-based principal at BCG and coauthor of the report.
• Largely because of consumer wariness and distrust of merchants, Chinese consumers are the most likely in the world to check for product recommendations on social networking sites. Forty percent of online consumers in China say they've read and posted reviews -- more than double the rate in the United States. Conversely, only 19 percent of consumers in China go to official brand or manufacturer sites, compared with 41 to 60 percent in Japan, the United States, and the European Union.
• China's shoppers are increasingly not just looking for discounted products as they shop online. Today they are also concerned with finding unique products that are not available offline, better customer service, convenience, and the pure fun of the discovery process that happens online.
• The concentration of the Chinese e-commerce market by category is much lower than in other countries, with the top-five categories only accounting for half of the total market (while in the United States, Japan, and the United Kingdom, that ratio is nearly 70 percent).

How China's E-Commerce Leaders Do It

• Until not long ago, a key barrier to e-commerce adoption in China was the lack of a satisfactory payment method; credit cards aren't prevalent. Taobao solved this through its Alipay escrow-accounts innovation. Payments from consumers are held in escrow until the consumer receives the order. (Paypal, in contrast, transfers money to the merchant when the order is placed, and merchants don't send orders until the money is received.) More than 60 percent of consumers on Taobao use Alipay. Cash on delivery is a popular alternative, as well.
• The logistics of the e-commerce process is a top priority for consumers. "And they are not just concerned about cost or the risk of damage during delivery," said Youchi Kuo, an expert project leader at BCG's China Center for Consumer Insight in Hong Kong and a coauthor of the report. "An incredible 45 percent say they worry that their purchases will be swapped out for fakes during delivery." Leading business-to-consumer sites recognize this issue and are addressing it by improving their logistics networks. 360Buy, an e-tailer with a focus on computer, communications, and consumer electronics products, has announced a RMB 8 billion infrastructure investment over the next five years. Taobao's parent, Alibaba Group, is also building up logistics to stay competitive.
• Taobao, with 800 million online products, of which 48,000 are sold per minute, is leading as a result of its customer service. It has the largest virtual call center in the world and an instant messaging system that lets online merchants communicate with consumers in real time.
• Chinese consumers become what the BCG report refers to as superheavy spenders as they grow more experienced with online shopping and as they accumulate more wealth. More than 70 percent of these superheavy spenders are from the middle and affluent classes and have been shopping online for more than four years. Bargain hunting is part of the experience for them, but these shoppers also look for branded and premium products and are emotionally attached to online shopping. Business-to-consumer companies have attracted superheavy spenders by focusing on quality and service.

"Fulfilling the emotional needs of China's super-heavy spenders will be key to future success in China's e-commerce landscape. Given the strong emotional ties consumers in China have with shopping, it will be critical to engage them with value propositions beyond mere price savings -- for example, by creating a fun shopping experience or by appealing to trend-conscious consumers' sense of discovery by making them feel they are learning something new in the shopping process," said Hubert Hsu, a Hong Kong-based senior partner at BCG and coauthor of the report.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

The Boston Consulting Group

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