For the last section and customer experience, let's turn to China because China has really been ahead of the US in what they call new retail and social commerce. And a lot of the things that were happening in China are starting to be seen now in other parts of the world and in the US and COVID really accelerated a lot of these trends that we were learning from China. So in order to understand one of the reasons China was ahead of the US it's important to kind of know a little bit about the difference in culture there and their cultural factors in China led to different types of shopping behavior which led to innovations that we are now seeing here. So the first thing is that Chinese society is more what people think of as collective rather than individualistic and so Chinese consumers like to know what other people are thinking. They like to be part of the group, they care about that, they don't try to be unique and individualistic as it is true in some Western cultures and very true in the US and as a result Chinese consumers depended more heavily on product reviews and on user groups than are done here. 75 percent of Chinese internet users post online feedback about purchases at least once a month, whereas in the US at least before COVID it was less than 20%. So this online community, this idea of buying things together of being part of a group of showing what you're buying to other people and telling other people what you thought is very much part of the Chinese culture. So that's one thing to know. The other thing to know is in Chinese retail trust was very important, now I mentioned post COVID trust became very important in the US but it was not before that such an important thing in the US when you started to interact with your retailer would tend to be when there was a problem and you say. This doesn't work anymore I need customer service that's when you would start to talk back or interact with your retailer but in China trust was built before you went into the store. And it was very important to be in connection with your customer and it was that loyalty that you felt between the customer and the retailer that drew the customers into the store. That is now what I'm arguing is starting to happen the US but it was true in China way before it happened here and that again is part of the Chinese culture. The KOLs or key opinion leaders were very strong in the retail landscape in China, so you had some very very big key opinion leaders who would spend 4-6 hours a day creating content with their video blogs and live streaming and that was happening every single day in China. And they were a big force for retail and that social commerce world was much stronger in China than it was in the US and again we're seeing a lot of this behavior start to come to the US, but it was in China earlier. Chinese consumers also love shopping and they love the treasure hunt experience so whereas we had very strong shoppers who like TJ MAXX or COSTCO for the physical treasure hunt experience in China That treasure hunt experience was produced online by Alibaba and we really didn't have anything like that here in the US. Alibaba is quite different than Amazon, Amazon shopping is about efficiency, making it as fast as possible one Click shopping your search processes to be find what you want as soon as you can, let me organize it by stars, by reviews by dollars, by whatever really sort. Whereas in Alibaba it's very much let's go down the rabbit hole and find what we can find and people spend a lot of time online shopping because that treasure hunt experience is very fun, that was very different about online shopping in China compared to online shopping here in the US. And the other thing that's very important part of the collective culture is a saving face and the importance of maintaining your social status is really important and so Chinese consumers cared about what they bought and showing what they bought to their community as a signal of themselves. So very often when they would buy a product they would share that product experience with other people in their social environment and so that whole group collectiveness that whole idea of what you buy and how it influences other people in your group and how they buy is very much a part of Chinese retail and less so in the US typically in the US you want to be unique, it's very much about individualistic, it's not about being part of the group. So that is a big difference in shopping behavior in China versus the US, so a lot of these cultural factors lead to different shopping behavior in China than in the US. And the other thing that was quite different in China is that 98% of online sales were made on a mobile phone and that it was not true in the US, it's starting to be true here. And the other thing was in China in the big cities you had physical retail but when you got out to 3rd and 4th tier cities more rural, they didn't have the development of the physical stores that we have in the US in fact the US was over stored before COVID and before the retail apocalypse. Part of the reason a lot of those stores closed during those years was because we had too many stores that is not true in China In 3rd and 4th and 5th tier cities and so as a result when sales started to get being made on the phone or online, you could bring in rural consumers who did not have the opportunity to buy in these categories before, so you saw very very big growth in China as a result of these of e commerce and mobile sales. The top retailers in China in terms of revenues or you can measure them in lots of different ways but the number one retailer in terms of online retail sales in 2019 was Alibaba, 56% of all online retail sales were made on Alibaba's platforms and they had several different platforms. And this again is online, they had Tmall which is a business to consumer platform so brands are selling to end users and Taobao which is more like Ebay, which is consumer to consumer. And the second biggest in terms of online sales was JD they had a much smaller assortment Alibaba is 100% marketplace which means they don't make any of their own products their platform that merchants come on and then they sell, JD is 50/50 at least In 2019 marketplace and their own inventory. So they are a retailer and in fact they were the largest online retailer, but they're also a marketplace and the new company, PDD, which started in 2015, was third in 2019 and now in 2021 in number of users, they have beat JD and they beat Alibaba. So they're growing very, very, very quickly in the number of users that come on their platform and I'll tell you how that happened, they have a very unique and interesting. Retail strategy. So another thing that's different from China than the US that really affected customer experience in retail. Was the use of frictionless payment systems and as I told you, that's now being accelerated in COVID. So it was already in China and we're learning from China about this. In China most of the shopping is made on one of two platforms, payment platforms which are mutually exclusive. There's WeChat which is owned by 10cent and then there's Alipay which is owned by Alibaba. Now these payment apps, so that's where you can pay on your mobile phone by this app. In the US it's just a payment app, but in China WeChat and Alipay what were called Uber apps. And you could do more than just pay on each one of these apps. You could do social media, you could buy stuff, they were connected to marketplaces themselves. You could book tickets by like it was like a store pub, you can order cars, the Uber or the lift was within these apps. So you could do everything within your WeChat app or within your Alipay app. And so that really changed the shopping experience, so you're going online on a marketplace and you can instantly pay within Alipay. Alipay was connected to Alibaba's platforms of Taobao or Tmall and WeChat was ultimately connected to PDD to that market place. And so and then with that remember how important group buying is and sharing reviews and telling other people what you bought. Your whole social media is within the payment process too, so you have your retailing. You have your social media, you have your platform all within this Uber app. And that is the way the Chinese customer shopping experience developed. The other thing was these KOLs, these key opinion leaders who their job was to produce video blogs. And live streaming for hours and hours every single day. They would create incredible content and they had millions and millions of followers. And while people would watch these KOLs for entertainment you could also buy products. And there was incredible loyalty to these KOLs, they weren't really celebrities, they became celebrities but they started by being like one of you. They were very authentic and they would explain what they thought about different products and shopping experiences. And they got to be very influential within that by creating their own content within this live streaming world. And that became the way a lot of product was sold. And then there was these content providers like Little Red Book or Tik Tok and that started in China again. Now of course Tik Tok is a big phenomenon in the US, but in China Tik Tok was very much about shopping. And it was considered what's called shoppertainment. So you were being entertained by all of this content and there was this opportunity to buy within the Tik Tok experience or within Little Red Book. The key here is this online customer experience combines content. It's not just about shopping, it's about learning, it's about entertaining, it's about being connected to somebody that you want to hear their opinion about. So you're creating this experience and within this online experience you could also buy. And that is the concept of shoppertainment, you lure people in so they're interested in the online content in the entertainment. And then within that world you create shopping opportunities and that was very, very big in china. And we're definitely seeing that in the US and in other parts of the world. So let's look a little bit at the different strategies of these big Chinese retailers to see what we can learn from them. And as I showed you earlier, these big Chinese retailers also did very well during COVID because most of their business was online to start with. And when the world had to quarantine and then China had some very restrictive quarantining, online shopping really developed. Alibaba as I mentioned before was a treasure hunt, it's about what they call in China killing time. And what that means is you're going to shop for entertainment. They have two big platforms Taobao which is super big, it was created to connect a customer to customer. It's like an Ebay platform, it had small merchants selling things to other customers Taobao is just the platform and the assortment is huge. Anything you could possibly want to buy, you're going to find on Taobao. Now, what's different about Alibaba is Alibaba shares the data with the merchants. Amazon does not Amazon protects their data and doesn't necessarily share the data on their platforms. But Alibaba is there to build to their merchants, whereas Amazon as I mentioned is customer focused. They're going to keep that data so that they really maximize the customer experience. And Amazon prime is their flywheel, Alibaba markets to the merchants and they provide a platform and a connection to the Chinese consumer. And so what happens there is the merchants can really develop their own brands. It's a very different strategy and Alibaba helps these merchants develope customer experience and develop their own brands. And consumers are attracted to the platform because there is so much fun experience. So many different brands, so many wonderful customer experiences to engage in. So they're on the top row of the success retailing matrix, they're developing great brands and great customer experience. Taobao is small merchants to end users customer, Tmall is about brands and developing brands to the Chinese consumer. There are tons of Chinese brands on Tmall, but Tmall also attracts a lot of international brands that want to connect to the very lucrative Chinese consumer. So for example, Allbirds I mentioned earlier is a very successful digitally native vertical brand does not sell on Amazon in the US. AllBirds sells direct but to get to the Chinese consumer Allbirds went on the Alibaba platform. And Alibaba goes out of their way to help brands connect to the Chinese consumer. And the whole strategy here is this idea of killing time, creating great brands. Creating pleasant fun customer experiences that are treasure hunts and they're very sophisticated. They use artificial intelligence machine learning to really personalize and customize your online shopping experience. So they know what you're going to like because they have all of this data. And they can keep creating experiences that draw you down the rabbit hole and into this fun shopping experience. So Taobao and Tmall are their online platforms. Now, they've also started opening physical stores, which are Hema stores And these are smaller grocery stores. And this is the concept that China started. And the U S is copying now. Which is known as new retail. And what new retail is, is the physical stores are built in neighborhoods. And they serve as delivery points. Buy online, pick up in the store, fulfillment centers. The back part of the store is catering to distribution and fulfillment. The front of the store offers great customer experience. And so these physical stores really make this online world in omni-channel world. Which is connected through the mobile phone and through those mobile apps. So it's customer centered omni-channel experience. And the way Alibaba does it, is through these really big platforms. Where amazing amount of product and customer experience exists. And then they opened up, they started digital. And they opened up physical stores. The physical stores are connected to the online world. And they served not only as physical retail experience but also as distribution and fulfillment centers. So that's Alibaba. JD is more about efficient shopping. It's much much smaller. They don't offer the same size assortment. Their assortments are much smaller. 50% of it is their own inventory that they control. And 50% of it is marketplace. So other merchants sell on their platform. They say, their messages, we will save you time. In this sense they're more like an Amazon. So shopping on JD is very efficient. JD also offers you the peace of mind of, you're not buying counterfeits. It's because they're so much more control. There's a smaller assortment. Half of it is JD's own inventory. They can tell you that you're not getting counterfeits, you're getting the real product. And they're going to reduce price. They're going to reduce friction. They're going to make it very easy to shop. And they're very much on saving time. So that's a very different kind of marketing strategy than Alibaba. Which is more about spending time shopping and enjoying the shopping experience. Perhaps the most interesting one is this new one, PDD. Or pin duo duo, which started in 2015. Now if you go back to the success matrix, pin duo duo started in that low price quadrant. So they were kind of cheap products, very low cost products. But people who were a dollar store kind of thing, really when you wanted to buy very cheap low end products, and that's what you wanted to buy. Product is a commodity and you're really buying on price. But what they did, was take that low price strategy and combine it with a really fun customer experience. Some people think of pin duo duo is Costco and Disneyland combined. So it's low price with incredible shopping experience. So if you look at the success matrix, it's going to be the low price strategy and the customer experience strategy. And it's also going to be the way they grew was by group buying. And I'll show you that in a second. But pin means let's buy together as a group. You're going to get more savings because it's low price. And you're going to get more fun because the shopping is going to be a fun fun shopping experience. So what is the idea behind pin duo duo? And how did they grow so fast, that in 2021 they were number one in China a number of users. Bigger in number of users in Alibaba in JD dot com. That is astonishing. So what happened, is PDD is based on this low price model. You're going to go there to buy and get a lower price good. And remember also PDD was the marketplace that was attached to WeChat to that payment center. So they also got in at the right time. Alibaba and Alipay had a marketplace connected to Alipay. Because Alipay was part of the Alibaba infrastructure. But WeChat was just a payment strategy. And PDD said, you've got to have a marketplace attached to you. And they became the first marketplace attached with WeChat. So they got a lot of mind brand awareness because they were tied to the WeChat payment system. But what they were offering, was this low price good, right? So you're going to go to PDD to get a really low price good. What they offered was that, if you could find friends or family who would buy the same product as you wanted to buy at the same time, we will give you a group discount. And ,well, you could take the already low price that PDD is offering you, and give you a much cheaper price if you can make a team purchase. And so what happened, is people were attracted to the PDD site. Because either of WeChat or the low price. And now they're attracted to bring all their friends and make the purchase at the same time. That did two things. One, it made growth happen exponentially. Every time that I'm going to buy something, I'm going to bring in ten of my friends. You can imagine how fast your growth was. And then those ten friends bringing ten more friends, growth very very quickly. The other thing that happen, is it reduce costs. Instead of having to make one off, your now selling things in group. Because you're bringing in scale and it's reducing costs. So this became an extremely a successful model. So on one hand, the more users you bring in, the more savings you have. But the other thing is now you're buying in a group. So you've got more fun. D. PDD is collecting data not only about you but about other people in your group. And by using that data about yourself and your group buying behavior, they can produce a buying experience that's more fun. You have a better understanding of the users, you have better understanding of the interactions among the users, you get more trust and recognition. And overall you get a better user experience. And remember this is particularly true in China. Which is very much about a group experience in buying. The other thing that happens as I said, is when you bring in more people to buy the same thing at the same time, you reduce distribution costs, you reduce production costs and you get more savings and you can lower the price. Because your costs are going down. It is a very much a self reinforcing virtuous cycle. And the other thing about it, is the data side of it. Not only are you getting information to increase the customer experience and increase the fund, you're getting a much better understanding of the users. Because you're seeing who they're buying with, what these other people are buying. You can use recommendations from one person to make from another. And your growth in understanding what customers want, also grows exponentially. So this has been an incredibly successful model. And it also, as I said, just to reemphasize, it really reduces delivery costs. Because you're aggregating demand that would otherwise be dispersed. So instead of Judy buying on Monday, and tom buying on Tuesday, and Sam buying on Wednesday, if we all agree to buy together, we're going to get a discount, and we all buy on Monday. That's better for PDD. because they reduce costs and it passes on part of the savings that they are making to the end user. And so they're incentivized to buy together. So it's just a brilliant shopping experience. And they've been rewarded by incredibly rapid growth. The other thing about it, is the Disneyland part. So some of the experience of the people who started this business was in gaming. And they really put in lots of different games into the shopping experience. Again, you're doing this by groups. So you can compete, you have all these different kinds of things. They would do things they started out in a lot of grocery in agriculture. So for example, you might plant or water a virtual tree, an orange tree, if you remember to virtually water your orange tree every single day for a certain amount of time. Which means you're logging into the app every single day and you're building that habit. Once you get to a certain point and you reach your goal, PDD would send you real oranges. So they're connecting the virtual fun gaming experience with the physical world. And they're building these patterns of streaks of really intense involvement. because gaming build very much involvement into the app and build habits over time. And they're using everything they knew about gaming to develop that concept within the shopping experience. And so they bring fun to online shopping through gaming principles.
