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Understanding China's O2O Commerce Marketplace

Women are more likely than men to conduct O2O transactions

August 22, 2016 | Retail & Ecommerce

The size and growth of China’s online-to-offline (O2O) market is difficult to pin down. The O2O category stretches to include on-demand services like Uber, Airbnb and their Chinese equivalents, daily deal sites such as Groupon or China leader Meituan.com, as well as click-and-collect services offered by traditional brick-and-mortar retailers. In China especially, O2O also covers all manner of services that might not be cost effective to offer in Western markets, including pick-up dry cleaning, home haircuts or wholesale and fresh market delivery services, as explored in a new eMarketer report, “China Online-to-Offline Commerce: Understanding a Rapidly Evolving Marketplace” (eMarketer PRO customers only).

Online-to-Offline (O2O)* Ecommerce Sales in China, 2011-2018 (billions of Chinese yuan renminbi and % change)

The breadth of the category in China is important to keep in mind. In markets like the US and the UK, O2O is generally considered shorthand for click-and-collect commerce—items purchased online and picked up in-store. In China, the O2O label also applies not only to travel, transportation and other services, but often to services that may be arranged for online, then paid for at the point of service. (In fact, click-and-collect purchases of physical goods are generally less common in China, largely because auto ownership is not as widespread and many prefer the convenience of having goods delivered to their home.)

In short, digital activities that probably would not be considered O2O in the US—i.e., making a dinner reservation on OpenTable or booking a medical appointment via Zocdoc—are generally counted as such in China.

Internet Users in China Who Have Purchased Online-to-Offline (O2O)* Services, by Demographic, Dec 2015 (% of respondents in each group)

This is a crucial distinction with the US but it’s also a fair one, because payment in China is far more likely to occur via mobile. So the process is a bit of a loop: online purchase, offline pickup (mainly of a service), followed by online payment. Of course, the definition of O2O is hardly monolithic within China. Research companies have varying areas of focus, narrow and broad. And most focus on services, rather than goods.

Of course, the definition of O2O is hardly monolithic within China. Research companies have varying areas of focus, narrow and broad. And most focus on services, rather than goods.

As an example, iResearch Consulting Group focuses on “local services,” which include medical care and dining. It estimates that O2O sales of services in China increased 38% in 2015 to RMB335 billion ($53.78 billion), and are projected to reach RMB428 billion ($68.71 billion) this year. Growth will remain over 20% year on year until 2018, when O2O will account for RMB626 billion ($100.501 trillion) in annual sales.

The profile of O2O consumers in China is not too surprising. The typical buyer is most likely to be younger than 40, live in one of China’s larger cities and be better educated. One possible surprise: Women are more likely than men to be O2O buyers.

Data from Tencent Penguin Intelligence’s “2015-2016 Report on the Year’s Internet Trends in China” found that more than three-quarters of internet users between ages 20 and 40 had purchased O2O services. Those younger than 20 were considerably less likely to have done so. Presumably this reflects life-stage issues—younger people have less disposable income and may face barriers to bank services and mobile payments.

Types of Online-to-Offline (O2O)* Services Purchased by Internet Users in China, by Gender, Dec 2015 (% of respondents in each group)

The survey also found that the higher the education level, the more likely was O2O activity. More than 80% of respondents with a bachelor’s degree had made an O2O services purchase.

The most common O2O service respondents bought involved food, whether restaurants or food delivery. And that focus on food seems to tie into higher usage by females. Tencent Penguin Intelligence found that nearly three-quarters of female respondents said they had purchased “restaurant and dining/food delivery” services last year. The number was far lower for men. Women also were significantly more likely than men to purchase travel services.

eMarketer PRO customers can view the full report here.

Get more on this topic with the full eMarketer report, “China Online-to-Offline Commerce: Understanding a Rapidly Evolving Marketplace.”

eMarketer releases over 200 analyst reports per year, which are only available to eMarketer PRO customers.

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