Online Delivery Models for Industrial Goods in

a Chinese Context
Professor Stephen Kelly, Mr Jakob Trischler and Dr Simon Wilde

Desk research report for Dulux Group

May 2013

Contact:
Professor Stephen Kelly
Head – Southern Cross Business School
Southern Cross University
Phone: +61 7 5589 3032
Fax: +61 7 5589 3703
www.scu.edu.au/business–school/
Executive Summary

This report is based on desktop research that investigated e-commerce and on-line consumer behaviour
with a particular focus on e-commerce in China and the marketing of paint and associated products. The
research has been undertaken by Mr Jakob Trischler and Dr Simon Wilde under the guidance of Professor
Stephen Kelly.

The material is presented in 4 sections. The first looks specifically at existing e-commerce modes in Asia
referring to both the academic literature and evident practice. Specific examples from the paint industry
are discussed that provide context for the report and an understanding of current practice.

The second section investigates the e-consumer with a focus on the Asian perspective. The complexity
of Asian markets and the emergent nature of the e-consumer were evident; however core issues that
require practitioner attention were highlighted. These included the importance of perceived usefulness,
ease of use, perceived risk, trust, Chinese e-consumer traits and characteristics and situational factors.

The third section discussed product characteristics and their role in an e-commerce environment. Two
fundamental categories were identified: experience and search goods. Paint was clearly identified as a
search good. The implications of this categorisation were found to be significant and detailed as it affects
the way consumers seek information and purchase goods online.

The final section of the report considered entering China’s e–commerce market and critical success
factors that need to be considered by Western firms seek to pursue this strategy. There are significant
lessons evident in the report that need to be considered and adhered to if e-commerce success is to be
achieved in China. These are underpinned by the significant cultural, consumer behaviour and technical
nuances evident in this environment that are significantly different from those evident in the Western
context.

The report is supported by a presentation pack that summarises the report findings for a broader
audience, an ‘Endnote’ database that provides ease of access to all references used in the preparation
of the report and a ‘Dropbox’ folder that contains copies of all articles referred to in the report.

The researchers are open to any questions that may arise from this report and look forward to feedback
regarding the potential for extension to the information provided.

Yours Sincerely

Professor Stephen Kelly PhD

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 Table of Contents

Section A: E–commerce models in Asia............................................................................................. 1

Introduction – business models in e-business ................................................................................. 2
Paint and Coatings – related examples ........................................................................................... 3
Section References .......................................................................................................................... 6

Section B: The e–consumer – an Asian perspective ........................................................................... 7

Introduction – developments in China’s e–commerce market ....................................................... 8
E–consumer behaviour – factors and relationships ........................................................................ 8
Bringing the e–consumer framework into an Asian context......................................................... 11
Section References ........................................................................................................................ 14

Section C: Product characteristics in e–commerce – Do they matter? ............................................. 16

Introduction – experience versus search goods............................................................................. 17
The implications for experience goods in e-commerce ................................................................ 18
Section References ........................................................................................................................ 19

Section D: Entering China’s e–commerce market – critical success factors for Western firms ...... 20
Introduction – going beyond consumer behaviour ....................................................................... 21
Popular failures from global players ............................................................................................. 21
Key strategies for success ............................................................................................................. 22
Key Considerations for Website Development in the Chinese Market ........................................ 23
Section References ........................................................................................................................ 27

Tables and Figures

Figure 1: Screen capture of Benjamin Moore site (http://www.benjaminmoore.com) .................. 3

Figure 2: Screen capture of Sherwin–Williams site (http://www.sherwin–williams.com) .............. 4
Figure 3: Screen capture of Akzo Nobel Paints Lanka site (http://www.dulux.lk) ........................... 5
Figure 4: Screen capture of Nippon Paint China site (http://www.icolor.com.cn)........................... 5
Figure 1: An integrated framework of e–consumer behaviour………………………………....………………….10
Table 1: E–commerce drivers and relationships…………………………………………………………………………...11

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Section A: E–commerce models in Asia

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Introduction – business models in e-business
Roberts and Zahay (2012) highlight nine major business models common to many e–businesses
(notable examples have been included against each model). These include the:

• Brokerage Model: a model that seeks to bring buyers and sellers together. An example
would be Overstock.com http://www.overstock.com/ . It uses both a merchant (refer
below) and brokerage model. As a B2B example, Exostar http://www.exostar.com/
(aerospace industry) is one of the few consortia that have survived over the longer term.

• Advertising Model: delivering messages with content. One example would be the online
music streaming site, Pandora http://www.pandora.com/

• Infomediary Model: reselling useful data. Businesses like InfoGroup

http://www.infogroup.com/ provide services to direct and interactive marketers.

• Merchant Model: providing goods and services. Drugstore http://www.drugstore.com/

has been doing a good job on its own and is also an Amazon affiliate.

• Manufacturer (Direct) Model: reaching buyers directly. Dell Computers

http://www.dell.com/ , the third largest PC vendor in the world, tops the list in terms of
efficiencies. Like Dell, HP offers direct purchases, although they could not survive without
their other distribution outlets and working closely with online merchants and affiliates.

• Affiliate Model: offering incentives to partner sites.

• Community Model: connecting individuals and groups. Globalvoices.com

http://globalvoicesonline.org/ is an international community of bloggers who report on
blogs and citizen media from around the world.

• Subscription Model: delivering services and content for a fee. youSENDit

https://www.yousendit.com/ and other cloud services have some form of subscription
payment.

• Utility Model: delivering service or content ‘Pay as You Go’. iTunes is a merchant but also
fits into the utility model as it charges as you download tunes. If utilising Skype to make
calls to mobiles and landlines, then it would also be considered to adhere to a utility
model.

Some business models are more well–used than others, such as the brokerage model. As noted
by Roberts and Zahay (2012), the advertising model has limited utility unless one can play with
the ‘big boys’. The community model was somewhat underutilised until the recent explosion in
social media.

In a 2013 report developed by Morgan Stanley, there are three key e–commerce business models
in China: self–branded, marketplace (inventory–heavy) and marketplace (inventory–free). Self–
branded e–commerce companies typically enjoy higher pricing power and stronger product
quality control. However, a self–branded online distributor usually focuses on a single or a few

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product categories and assumes higher inventory risk. Scalability may be lower than other
marketplaces due to a narrower customer base.

Inventory–heavy marketplace operators distribute products sourced from third–party vendors

and take inventory, such as 360buy http://en.360buy.com/ (electronics focused) and Dangdang
http://www.dangdang.com/ (books and media, mother and baby products). These companies
maintain product quality control with lower inventory risk than self–branded players, yet suffer
from lower pricing power due to little product differentiation.

Inventory–free marketplaces, such as Taobao http://www.taobao.com/index_global.php /

TMall, offer the broadest product selections and enjoy the widest addressable customer base,
hence higher scalability. Inventory–free marketplaces attract third party merchants to distribute
on their platforms and charge commissions based on transaction values. These companies enjoy
the lowest inventory risk among the three models but have weaker product quality control, which
may lead to a poor customer shopping experience.

Paint and Coatings – related examples

International Example 1: Benjamin Moore and Co.

US–based paint manufacturer, Benjamin Moore, first constructed an e–commerce site (utilising
the URL of http://www.paintwithben.com/ ) in 2009. Allowing users assign colours to words, such
as love, creepy and dessert, to underscore the emotive quality of colour, Benjamin Moore also
developed (internally) an iPhone app, Ben Color Capture, in which consumers could snap a photo
of anything in the world, select a colour from the photo, and match it to more than 3,300 hues.
The app then directed the user to the nearest Benjamin Moore retailer via the phone's GPS,
garnering 20,000 uses per month (Kunur, 2009). This app has since been superseded to two
further colour apps (developed by Raizlabs): Colour Capture for consumer colour selection
(Version 2.7 for IPhone, V.1.0 for Android, and Blackberry) and ProConnection for professional
painters (IPhone only).

Figure 2: Screen capture of Benjamin Moore site (http://www.benjaminmoore.com)

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International Example 2: Sherwin–Williams

Utilising a similar model to Benjamin Moore, US–based Sherwin–Williams has developed a suite
of apps for iPhone, Blackberry, or Android smart phones (under the trademark of ColorSnap) to
capture colour in an effort to match it to one of 1,500 available Sherwin–Williams paint colours.
ColorSnap Studio™ for iPad was launched in September 2012. As noted on Buildings.com,
ColorSnap Studio users can access the same functionalities as the ColorSnap smartphone app.
However, the expanded iPad app also includes the Color Visualizer tool, which was previously
only available for desktop use, to experiment with thousands of colour combinations. On both
platforms (smart phone or tablet), purchased products are then collected in–store (using Google
Maps integration to find you’re the nearest store).

Figure 3: Screen capture of Sherwin–Williams site (http://www.sherwin–williams.com)

Asian Example 1: Akzo Nobel Paints Lanka

With a launch date (in Sri Lanka) on the 14th of November, 2012, Akzo Nobel’s e–commerce
platform http://www.akzonobel.com/ was the first e–commerce site to sell paints into the Sri
Lankan market. A combination of instructions and well–offered guidance are provided on the site
(with additional help tips) to assist the customer to a purchase paint. Utilising a drag–and–drop
interface, users are able to browse the catalogue and drag and drop colours onto a pre–defined
palette, before choosing paint quantity to complete the transaction.

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 Figure 4: Screen capture of Akzo Nobel Paints Lanka site (http://www.dulux.lk)

Asian Example 2: Nippon Paint

As one of Asia’s largest and most popular paint and paint product manufacturers, Nippon Paint
services numerous Asian markets. Nippon China’s website does imply the availability of a colour–
matching smart phone app, called ‘iColor’. However the embedded app link on the site
(http://www.icolor.com.cn/) appears to be static, with no forwarding link provided. Through
further searches, it would appear that the iColor app is currently only applicable to the
Singaporean market (ie. specially created by Nippon Paint Singapore Co. Pte Ltd.). Like those e–
commerce models highlighted in the International examples, a colour match list can be saved,
and taken to a Nippon (Singapore) outlet where products are then collected.

Figure 5: Screen capture of Nippon Paint China site (http://www.icolor.com.cn)

5
Section References

Buildings (2012) Sherwing-Williams launches ColorSnap Studio App. Available at

http://www.buildings.com/article-details/articleid/14659/title/sherwinwilliams-launches-
colorsnap-studio-app.aspx

Morgan Stanley (2013) E-commerce Disruption: A Global Theme. Transforming Traditional Retail
Report. Available at http://www.rundlemall.com/bm.doc/ecommerce_bp0106131.pdf

6
Section B: The e–consumer – an Asian perspective

7
Introduction – developments in China’s e–commerce market

Internet usage and penetration is rapidly growing in China’s society and marketplace. By
December 2008, the number of Internet users in China reached 298 million with a penetration
rate of 22.6% (CNNIC, 2008). This penetration rate was below the world average (23.8%).
However, five years later in December 2012, China counted 564 million Internet users and a
penetration rate of 42.1%, which is well above the world average (32.7%) (CNNIC, 2013). Among
these, 422 million users have accessed the Internet via mobile phone devices, a number that is
rapidly growing. On the other hand, merely 156 million or 27.6% of the 564 Internet users are
rural Internet users, indicating that Internet usage is still widely limited to urban areas (CNNIC,
2013). However, the Chinese government has heavily subsidised the rollout of high–speed access,
which will lead to a further strong growth in penetration and user rates in the next five years (The
Economist, 2011).

Alongside the growing penetration rates, the e–commerce market is also becoming increasingly
popular in China. With 242 million online shoppers and a utilisation ratio of 42.9% (CNNIC, 2013),
the Boston Consulting Group (cited in The Economist, 2011) predicts that China will be the world’s
largest e–commerce market by 2015, with an annual growth rate of 30 million online shoppers
with each spending $1,000 a year. This boost in e–commerce is not only a result of the constantly
improving convenience and accessibility of the online market but also due to the shortcomings of
many traditional bricks–and–mortar retailers in China which are costly and inefficient in their
operations and thus are unlikely to be a competitive alternative to the rising e–commerce market
(The Economist, 2011).

Nonetheless, despite the rapid developments in Internet accessibility, usage, and e–commerce
adoption, one critical success factor for entering Chinas virtual marketplace is generating a deep
understanding of the consumer within the relevant market and social environment (Liao and Shi,
2009). It is not sufficient to intensively promote the benefits of e–commerce and assume that
individual consumers are instantly willing to use these new services (Liao and Shi, 2009). Indeed
there are a number of well–researched factors that have been found to influence consumer
behaviour and explain how and why consumers choose or do not choose to use online shopping
(Dennis et al., 2009).

Noting the importance of e–consumer behaviour, the next section focuses its review and
discussion particularly on investigating these factors. Additionally, relevant studies that have
been conducted from an Asian context are integrated to develop a theoretical understanding of
the influencing factors and behavioural patterns of China’s current e–consumer.

E–consumer behaviour – factors and relationships

In the academic literature, the factors explaining e–consumer behaviour have been derived from
the technology acceptance model (TAM) and theory of reasoned action (TRA) (Dennis et al.,
2009). TAM theorises that an individual’s intention to use an information system is determined
by the perceived usefulness and perceived ease of use (Venkatesh and Davis, 2000). However,
TAM has been criticised for ignoring a number of influences on e–consumer behaviour including
consumer traits, situational factors, product characteristics and trust. These aspects are
additionally integrated in the theory of reasoned action (TRA) (Dennis et al., 2009). TRA suggests

8
that the immediate antecedent of behaviour is the intention to perform the behaviour in question
(Liao and Shi, 2009).

Drawing upon both TAM and TRA but also by integrating conventional consumer behaviour
theories, Dennis et al. (2009) developed a holistic e–consumer framework. This framework
depicts the numerous factors and relationships that can influence e–consumer behaviour and
consequently the intention to purchase or not to purchase.

Figure 6: An integrated framework of e–consumer behaviour (Source: adapted from Dennis et al. 2009, p. 1126)

The right hand side of the framework describes a more general consumer behaviour model
whereby the intention to purchase and ultimate purchase action is influenced by the consumer’s
attitude towards the firm, which in turn is developed through the customer’s perception of the
firm’s image. In addition, the intention to purchase is directly influenced through increased usage
and familiarity (i.e. learning) and past experiences resulting from previous purchases. Positive
past experiences can build trust in the firm and subsequently is an important basis for customer–
firm relationship development and the securing of future purchase intentions.

The left hand side of the framework, on the other hand, includes factors that are unique to e–
consumer behaviour. While social factors, consumer traits, emotional states and situational
factors are also relevant components in traditional consumer behaviour models, web
atmospherics, navigation and e–interactivity are specific factors that cannot only directly or
indirectly influence an e–consumer’s attitude towards a firm but also the level of trust in a firm.
As such, this framework underscores that critical aspects for developing an effective e–commerce
platform is firstly gaining a deep understanding of the targeted customers including their traits,
situational factors, and the determination of underlying drivers, which foster or impede a positive
attitude and trust towards the firm and the use of e–commerce as well as the intention and action
of making a purchase.

The direct and indirect relationships, labelled as P1–P17 in the integrated framework, might assist
in analysing the underlying drivers of e–consumer behaviour in different context. Drawing upon
consumer behaviour research, Dennis et al. (2009, p. 1123–1131) proposed relationships
between the different factors evident in Table 1:

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P1. E–consumer attitude towards an e–retailer will be positively influenced by customer perceptions of e–retailer
image.
P2. E–consumer intentions to purchase from an e–retailer will be positively influenced by positive attitudes
towards the e–retailer.
P3. Actual purchases from an e–retailer will be positively influenced by intentions to purchase from an e–retailer.
P4. Intention to shop with a particular e–retailer will be positively influenced by past experience.
P5. Actual purchases from an e–retailer will positively influence experience.
P6. E–consumer trust in an e–retailer will positively influence intention to e–shop.
P7. Past experience and cues that reassure the consumer will positively influence trust in an e–retailer.
P8. E–Consumers’ learning about an e–retailer web site will positively influence their intention to purchase.
P9. E–consumer attitude towards an e–retailer will be positively influenced by social factors.
P10. E–consumer attitudes towards an e–retailer will be positively influenced by e–interactivity.
P11. Trust in an e–retailer will be positively influenced by e–interactivity.
P12. E–consumers’ perceptions of e–interactivity will be positively influenced by ease of navigation.
P13. E–consumer perceptions of e–interactivity will be positively influenced by web atmospherics.
P14. E–consumer emotional states will be positively influenced by web atmospherics.
P15. E–consumer attitude towards an e–retailer will be positively influenced by emotional states.
P16. Consumer attitude towards an e–retailer will be influenced by situational factors such as convenience, variety,
frequency of purchase and specific individual circumstances.
P17M1. The relationship between social factors and attitude towards an e–retailer will be moderated by consumer
traits.
P17M2. The relationship between emotion and attitude toward e–retailer will be moderated by consumer traits.
P17M3. The relationship between e–interactivity and attitude toward e–retailer will be moderated by consumer
traits.

Table 1: E–commerce drivers and relationships (Source: adapted from Dennis et al. 2009)

Although P1–P17 have been developed by Dennis et al. (2009) through an extensive review of the
relevant literature, it should be noted that these propositions are not generalisable or applicable
to all e–commerce markets, firm types and cultures. Particularly in China’s e–commerce market
and the market of slow moving industrial goods, the factors and relationships proposed in Dennis’
et al. (2009) framework requires testing and potentially modification. Hence, in building upon the
integrated framework as the fundament of understanding e–consumer behaviour, the next
section will narrow its focus on e–commerce in China including the factors relevant for
understanding this market.

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Bringing the e–consumer framework into an Asian context

This section brings the e–commerce framework, developed by Dennis et al. (2009), into an Asian
context by integrating studies that have been conducted in the Asian e–commerce market. The
aim is to identify and highlight factors that seem to be especially relevant for succeeding in China’s
e–commerce market.

Perceived usefulness and ease of use

Derived from TAM and applied to e–retailing, the first two factors are perceived usefulness and
ease of use. Perceived usefulness describes the consumers’ perceptions that using the Internet
will improve the outcome of their shopping and information seeking through enhanced
availability, accessibility and personalisation (Dennis et al., 2009). Perceived ease of use, on the
other hand, refers to the degree to which an e–retailing platform is perceived as being easy and
enjoyable to use (Dennis et al., 2009). In the context of e–consumers in Asian markets, both
factors have been found to positively influence consumers’ attitudes towards e–retailing (Liao
and Shi, 2009; Tong, 2010; Lee et al., 2011).

Perceived usefulness and ease of use is closely related to web atmospherics and navigation.
Particularly the positive experience and enjoyment that derive from consumers’ interactions with
a web site, referred to as ‘e–interactivity’, is a major determinant of e–consumer behaviour
(Dennis et al., 2009). In China, a central component of e–interactivity additionally includes the
integration of social networks, consumer reviews and recommendations; as such consumer–to–
consumer interaction and feedback options are critical for purchase decisions (Wang and Ren,
2012). Hence, as a first step e–retailers should focus on:

• Providing a web interface or web atmospheric that is appealing and easy to navigate (see ‘Key
Considerations for Website Development in the Chinese Market’ section of this report for
further insight into site navigation),
• Offering detailed product information and presentations, and
• Enabling personalised and customised services.

Minimising perceived risk and building trust

Apart from perceived usefulness and ease of use, another main factor from an Asian context is
perceived risk (Lee et al., 2011; Lu et al., 2011). The Economist (2011), for example, reported that
the biggest hold–up to China’s e–commerce development is the lack of trust and perceived risks
when shopping online. A cross–national study additionally showed that particularly Chinese
consumers perceive higher risks in online shopping than do consumers from, for example, the
USA (Tong, 2010). On the one hand, this finding might be culture–related as the Chinese culture
is characterised by high uncertainty avoidance (Hofstede, 1980). Indeed, the relationship
between uncertainty avoidance and e–commerce acceptance has been underscored by a study
by Yoon (2009). Yoon (2009) found that uncertainty avoidance was the most influential national
culture value affecting consumer e–commerce acceptance: It not only had a moderate effect on
relationships between perceived usefulness, trust, and intention to use but also had a direct
effect on intention to use and hence has the potential to substantially influence actual purchase
behaviour.

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On the other hand, the findings on perceived risk may also be associated with the low level of
experience that Chinese consumers have in online purchasing, combined with security issues
within the developing market. These aspects subsequently increase the perceived risk towards
e–retailing (Tong, 2010). Hence, a critical success factor for virtual business development in China
is to minimise privacy concerns and perceived purchasing risks for users. This can be achieved by:

• Integrating secure transaction and payment systems,

• Ensuring that consumers receive the merchandises they expect,
• Enabling easy return or exchange processes if they are unsatisfied,
• Providing product warranties, and
• Ensuring on–time delivery as consumers are used to take immediate possession after
purchasing a product (Liao and Shi, 2009; Dholakia and Zhao, 2010; Tong, 2010)

Related to perceived risk is the firm’s reputation (i.e. consumers’ perceptions on how well a firm
takes care of consumers), privacy (i.e. the online shopping web site is safe and protects the
consumers’ information), and trust (i.e. the belief in the benevolence, competence and integrity
of the firm) (Lee et al., 2011). From a Malaysian context, Lee et al. (2011) found a linear
relationship between the likelihood of online repurchase intentions and the level of firm’s
reputation, privacy and trust. This finding underlines the significance of minimising perceived risk
and building trust with consumers in the Asian e–commerce market.

Consumer traits and characterise the general e–consumer in China

The way consumers use web sites and adopt online shopping can also derive from their
personality (Dennis et al., 2009). Personality in this context includes possible relationships
between e–consumer behaviour and consumer traits such as gender, age, education and income.

First, differences have been discussed in regards to e–consumer behaviour in relationship to

gender and age. Research findings have indicated that men tend to be more task–oriented and
willing to take risks than women, while women’s decisions are more influenced by the ease of use
of the system (Dennis et al., 2009). Further, men tend to be ‘quick shoppers’ whereas women
shop more ‘for fun’ (Hansen and Jensen, 2009). In addition, consumer behaviour studies
examining age showed that older consumers seek less new information and rely on fewer decision
criteria, while younger consumers seek more alternative information (Dennis et al., 2009).
Notably, when satisfaction with the product is high, older consumers remain loyal towards the
firm and product while younger consumers still tend to seek alternative information (Homburg
and Giering, 2001).

The information aspect seems also to be associated with education and income levels. Consumer
behaviour studies indicated that people with higher levels of education generally gather and
process more information prior to making a decision, whereas less educated people rely on fewer
information cues (Capon and Burke, 1980). This is because educated consumers feel more
comfortable when dealing with and relying on new information (Homburg and Giering, 2001).
Further, people with higher income typically have higher levels of education (Dennis et al., 2009).
Hence, it appears that educated and wealthier consumers seek alternative information about a
particular e–retailer, apart from their satisfaction level. Less educated consumers with a lower
level of income, on the other hand, see satisfaction as a central information cue on which to base
their purchase decision (Dennis et al., 2009). An important aspect of e–commerce is therefore

12
the alignment of the web atmospheric, communication styles and product presentation with the
relevant target groups and their specific browsing behaviour and information seeking behaviour.

Additionally, in an Asian context, personal innovativeness, representing the extent to which an

individual will adopt an innovation before other members in the social group, has been found to
influence a user’s intention to transfer usage from offline to online channels (Lu et al., 2011). This
finding has important implications for firms because such ‘lead users’ might initiate or foster the
transfer towards e–retailing within their social groups. Especially in collective societies such as
China, these lead users can thus have a significant effect on other members with a social group
and their behavioural intentions to use e–retailing (Liao and Shi, 2009).

So what consumer traits characterise the general e–consumer in China? The CNNIC (2013) survey
reported that the gender ratio of Internet users was 56% male to 44% female. In addition, the age
structure of Internet users in China indicates that most users are between the age of 20–29 years
(30%), followed by people between 30–39 years of age (26%) and teenagers between 10–19 years
of age (26%). Only 5% of the Internet users in 2012 were people above the age of 50 years. The
education structure of Internet users showed that in 2012 most users completed Junior High
School (36%) or Senior High School (33%). 10% of the Internet users were less educated as they
had only acquired elementary education. The income structure indicates a dominance of China’s
middle class in Internet usage. Only 9% of China’s Internet users had a monthly income of above
5,000 Yuan. Finally, in 2012 most Internet users were students (30%) followed by people of
individually owned businesses (18%), general employees in companies (10%), and unemployed
people (10%).

Situational factors

Finally, the reason why consumers choose or don’t choose to use e–retailing can be related to
specific situational variables (Dennis et al., 2009). This argument aligns with the broader service
research literature arguing that the way value is created is mainly determined by specific
individual circumstances (e.g. Payne et al., 2008; Sandström et al., 2008). For example, e–retailing
is specifically driven by convenience leading to reduced search–, travel–, and psychological–costs
(e.g. frustrations associated with search and travel costs) (Kim et al., 2009).

A study conducted in Hong Kong, for example, revealed that a highly accessible retail environment
in the form of bricks–and–mortar stores negatively influenced the attitude towards e–retailing
(Liao and Shi, 2009). This is because a highly accessible retail environment might result in a
familiar habit of consumers within offline channels, which simultaneously impedes the intention
of using e–retailing (Lu et al., 2011). Thus, in such environments, e–retailers should provide
consumers with particular merchandise and advantages that are not easily available at bricks–
and–mortar stores as well as enhancing consumer confidence in e–retailing by reducing the
perceived risk and offering high quality products (Liao and Shi, 2009).

13
Section References

Capon N and Burke M. (1980) Individual, product class, and task–related factors in consumer
information processing. Journal of Consumer Research, 314–326.

CNNIC. (2008) The Internet timeline of China 2008. Available at:

http://www1.cnnic.cn/IDR/hlwfzdsj/201209/t20120904_36019.htm

CNNIC. (2013) The 31th Survey Report. Available at:

http://www1.cnnic.cn/IDR/ReportDownloads/

Dennis C, Merrilees B, Jayawardhena C, et al. (2009) E–consumer behaviour. European Journal

of Marketing 43(9/10), 1121–1139.

Dholakia RR and Zhao M. (2010) Effects of online store attributes on customer satisfaction and
repurchase intentions. International Journal of Retail & Distribution Management 38(7), 482–
496.

Hansen T and Jensen JM. (2009) Shopping orientation and online clothing purchases: the role of
gender and purchase situation. European Journal of Marketing 43(9/10), 1154–1170.

Hofstede G. (1980) Culture's consequences: International differences in work–related values,

London: Sage.

Homburg C and Giering A. (2001) Personal characteristics as moderators of the relationship

between customer satisfaction and loyalty—an empirical analysis. Psychology & Marketing
18(1), 43–66.

Kim J–H, Kim M and Kandampully J. (2009) Buying environment characteristics in the context of
e–service. European Journal of Marketing 43(9/10), 1188–1204.

Lee CH, Eze UC and Ndubisi NO. (2011) Analyzing key determinants of online repurchase
intentions. Asia Pacific Journal of Marketing and Logistics 23(2), 200–221.

Liao Z and Shi X. (2009) Consumer perceptions of internet–based e–retailing: an empirical

research in Hong Kong. Journal of Services Marketing 23(1), 24–30.

Lu Y, Cao Y, Wang B, et al. (2011) A study on factors that affect users’ behavioral intention to
transfer usage from the offline to the online channel. Computers in Human Behavior 27(1), 355–
364.

Payne A, Storbacka K and Frow P. (2008) Managing the co–creation of value. Journal of the
Academy of Marketing Science 36(1), 83–96.

Sandström S, Edvardsson B and Kristensson P, et al. (2008) Value in use through service
experience. Managing Service Quality 18(2), 112–126.

Tong X. (2010) A cross–national investigation of an extended technology acceptance model in

the online shopping context. International Journal of Retail & Distribution Management 38(10),
742–759.

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Venkatesh V and Davis FD. (2000) A theoretical extension of the technology acceptance model:
Four longitudinal field studies. Management Science 46(2), 186–204.

Yoon C. (2009) The effects of national culture values on consumer acceptance of e–commerce:
Online shoppers in China. Information & Management 46(5), 294–301.

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Section C: Product characteristics in e–commerce –
Do they matter?

16
Introduction – experience versus search goods
By drawing upon the e–consumer framework by Dennis et al. (2009), a good understanding could
have been developed about what factors can directly and indirectly influence e–consumer
behaviour from an Asian perspective. It appears that the focus on perceived usefulness and ease
of use, strategies effective for minimising perceived risk and building trust, as well as the
alignment of web design and communication strategies to consumer traits and situational factors
are fundamental for succeeding in China’s e–commerce market.

However, one aspect has been barely touched by Dennis et al. (2009): the influence of the types
of products or services offered and distributed online. This raises the question, ‘do product
characteristics actually matter within an e–commerce environment’. Addressing this question,
this section builds on the popular theoretical distinction between ‘experience good’ and ‘search
good’ and examines how product characteristics can influence the type of information consumers
seek online, as well as how it can change their online browsing and choice making behaviour. The
article leading this discussion is an empirical study conducted by Huang et al. (2009) examining
e–consumer behaviour for search and experience goods.

The classification between experience versus search good is widely accepted in the marketing
literature (Nelson, 1970). Search goods describe goods for which product quality attributes are
generally discoverable without the consumer interacting with the product prior to purchase or
usage. Experience goods, on the other hand, are goods for which product quality attributes are
discoverable only through direct interaction or experience with the product. Using this
classification Huang et al. (2009) listed shoes, home furniture and garden/patio implements as
typical search goods as well as automotive parts/accessories, health/beauty products and camera
equipment as typical experience goods.

As underscored by Nelson (1970, p.319–20), paint can be classified as a typical experience good
because:

“…paint is not a good whose quality variation can be determined by search. The
properties of paint can be determined prior to use only with the greatest difficulty.
Hence, it makes sense to classify paint as an experience good.”

Reviewing the classification of paint as suggested by Nelson (1970), it becomes clear that the
traditional distinction between search and experience good has been based on the extent to
which consumers can evaluate goods or their attributes prior to purchase. However, it should be
noted that the ability to evaluate goods prior to purchase can additionally differ across
distribution channels. For example, the smell of flowers can be assessed prior to purchase in a
bricks–and–mortar, but not an online, florist shop (Weathers et al., 2007). This means that a
search good through one distribution channel and may be an experience good through another
distribution channel.

It is for this reason why Weathers et al. (2007, p.394) suggested a slightly different and updated
view of the search/experience good distinction. They based the classification on the extent to
which consumers feel they need to directly experience goods to evaluate quality. Consequently,
the greater the need to use one’s senses to evaluate a good, the more experience qualities the
good possesses. On the other hand, the more one feels that second–hand information will allow
for adequate evaluation of the good, the more search qualities the good possesses (Weathers et

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al., 2007). From this perspective, the suggestion to classify paint as an experience good is
underscored because it can be assumed that consumers indeed need to directly experience paint
to evaluate its quality.

The implications for experience goods in e-commerce

Given paint is best defined as an experience good, what are the implications for e–commerce?
First, and most importantly Huang et al. (2009) found that in an online setting the divide between
search and experience goods in terms of consumers’ perceived ability to judge product quality
before purchase becomes blurred. This means that product characteristics do not matter in terms
of e–consumers’ perceived ability to assess product quality before using the product. Yet, there
are still important differences to note in terms of:

• The type of information sought,

• The nature of online browsing, and
• Purchasing behaviour (Huang et al., 2009)

In particular, Huang et al. (2009) found in their study:

• That for experience goods consumers view fewer pages but spent more time per page before
purchasing the good;
• That communication mechanisms such as consumer feedback and experience simulations (e.g.
consumer reviews, multimedia) increase the time spent on a web site selling experience goods;
• That third–party opinions and recommendations do not significantly affect time per web site;
and
• That buyers of experience goods are less likely to be information free riders (i.e. they are more
inclined than buyers of search goods to buy form the web site from which they obtain the most
product information).

These findings indicate that product characteristics matter in the way consumers seek
information and purchase goods online. Huang et al. (2009 also found in their study that
consumers, when purchasing experience goods online, are more likely to benefit from more
informative web sites that incorporate:

• Multimedia presentations to truthfully illustrate product features, and

• Consumer feedback to communicate authentic product quality information.

The importance of using tools and media formats that enable a realistic display of product
information has also been underscored by Weathers et al. (2007). The authors found in their
study that if a good predominantly possesses experience qualities, retailers should focus on
providing pictures and improving the vividness of information. However, because the vividness
of information is generally difficult to accomplish through an online environment, e–retailers are
often required to take specific actions. For example, the furniture retailer Crate & Barrel sends
fabric swatches to its shoppers so they can better determine if a fabric will match their décor
(Weathers et al., 2007). Such strategies do not only reduce the intangible nature of e–commerce
but additionally minimizes the perceived uncertainty about whether products ordered online will
fit consumers’ needs or perform up to their expectations.

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Although both studies by Huang et al. (2009) and Weathers et al. (2007) have been conducted
from a US context, their implications appear to be also relevant for China’s e–commerce market.
This accounts particularly for developing informative and interactive web sites for minimising the
perceived risk about whether products ordered online are trustworthy, represent the described
quality, and are not counterfeit. These aspects will additionally be highlighted in the next section
where an overview is given about reported success and fail points of Western firms attempting
to enter China’s e–commerce market.

Section References

Huang P, Lurie NH and Mitra S. (2009) Searching for experience on the web: an empirical
examination of consumer behavior for search and experience goods. Journal of Marketing 73(2),
55–69.

Nelson P. (1970) Information and consumer behavior. The Journal of Political Economy 78(2),
311–329.

Weathers D, Sharma S and Wood SL. (2007) Effects of online communication practices on
consumer perceptions of performance uncertainty for search and experience goods. Journal of
Retailing 83(4), 393–401.

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Section D: Entering China’s e–commerce market –
critical success factors for Western firms

20
Introduction – going beyond consumer behaviour
The previous two sections reviewed consumer behaviour studies and identified factors that can
directly or indirectly influence the intentions of Asian consumers to shop online. Research studies
showed that in an e–commerce environment it is critical to minimize perceived risks and
maximise the perceived usefulness and ease of use. These aspects appear to be particularly
relevant when e–commerce is implemented in societies where consumers are still inexperienced
in using online shopping, the culture is characterised by a high uncertainty avoidance, and when
the offered product can be classified as an experience good. This section now goes beyond e–
consumer behaviour and reports specific success and fail points of Western firms attempting to
enter China’s e–commerce market. As a result, critical success factors are discussed, which might
be considered by firms seeking to enter China’s e–commerce market.

The fundamental question is, ‘what is essential for successfully competing in China’s e–commerce
market’? China is currently the world’s largest e–commerce market and is still growing (Wang and
Ren, 2012). In 2012, 242 million people used online shopping in China, which is a growth of 48.07
million compared to 2011 (CNNIC, 2013). Further, in 2011 e–commerce represented 12.5% of the
China’s gross domestic product (GDP). As such, the strong growth of China’s online market can
be seen as the “second wave” of the global Internet after the “first wave” in economically
advanced countries during the 1990s (Pick et al., 2013).

Popular failures from global players

However, despite the strong developments and growth patterns, Western firms in particular have
repeatedly struggled when entering China’s e–commerce market (Wang, 2010). This included
global players such as Amazon, eBay and Google - repetitively? Examining the reasons behind the
failures, Wang and Ren (2012) discussed four flop points that have been evident in US companies
that sought to enter the Chinese market:

1. Not modifying the business model for Chinese consumers: Wang (2010), for example, noted
that consumer review areas and clearly specified information were missing on the web sites
of big players such as eBay and Amazon when they launched their e–commerce platform in
China. This was at a time when CNNIC (2008) reported that approximately 80% of online
shoppers read online reviews before purchasing goods and that 90% of online shoppers write
reviews on purchase web sites and their own blogs. Thus, these business models did not meet
the consumers’ requirements.

2. Insistence on a standard global technology platform: When data has to travel across borders,
it has to pass through China’s censorship firewall. This leads to a significant slow–down of the
browsing speed and consequently frustrates users of the web site (Wang and Ren, 2012).
Hence, consumers change to other e–commerce platforms.

3. Overlooking and underestimating the competition: Competition is intense in China’s e–

commerce market with a few major players dominating the market including Taobao,
Dangdang, and Joyo Amazon (Wang, 2010). Many of these competitors have advanced local
knowledge, are customer driven, and have developed a highly flexible business model (Wang,
2010). This creates high–level entry barriers for future and international e–commerce firms.

21
4. The inability to address challenges from Chinese authorities: Clashes with the Chinese
government as it has occurred with Google can lead to slow browsing speed, no content
displayed on the web site, or even the withdrawal of the website from the Chinese e–
commerce market (Wang, 2010). Thus, the developed business model did not meet the
governmental regulations and requirements.

Key strategies for success

Resulting from the fail points listed above, Wang and Ren (2012) suggested the following five key
strategies for companies seeking to enter China’s e–commerce market:

1. Adapt offerings to better fit the social habits of Chinese consumers: As part of a highly
collectivistic culture, social networks, consumer reviews and recommendations have an even
higher standpoint than in Western cultures when making purchase decisions (Wang and Ren,
2012). Referring back to the study conducted by Huang et al. (2009) it appears that interactive
communication mechanisms gain even further importance when experience goods such as
paint is to be sold in China’s e–commerce market.

2. A second cultural habit is the high importance of trust: As reported by The Economist (2011)
the biggest holdup of e–commerce developments in China has been the lack of trust and
concerns that online firms are fraudsters, that online payment transactions are insecure, or
that purchases might get swapped for counterfeits during shipment. Hence, although the use
of online payment methods is growing (39.1% utilisation ratio of online payment in 2012)
(CNNIC, 2013), most e–consumers in China still rely on traditional ‘cash on delivery’ methods
(Wang, 2010).

3. Speed up the decision–making processes: China’s e–commerce market is constantly growing,

developing and changing. CNNIC (2013), for example, reported a total of 7.51 million .cn
domains by end of December 2012, which was an increase of 112.8% in comparison to 2011.
.com domains count 4.83 million. Hence, long reporting chains to/from Western headquarters
are unlikely to be feasible as local competitors are more flexible and thus will adapt faster to
the changing environment (Wang, 2010).

4. Be flexible and creative in strategies and in response to regulations: Generally two critical
factors underpin a successful market entry strategy (Wang and Ren, 2012): the complexity of
local knowledge of the entry market and the speed at which the industry is evolving, called
‘industry–clockspeed’. China as a fast–developing economy requires both complex market
knowledge and a well–balanced approach between standardisation and customisation that fits
with the firm’s vision, business model and strength (Wang, 2010; Wang and Ren, 2012).
Further, flexibility becomes an absolute necessity due to the constantly changing government
rules and regulations that are often non–transparent (Wang and Ren, 2012) as well as a
technology availability, development, and utilisation that varies throughout China’s 31
administrative units (Pick et al., 2013).

5. Apart from the above key strategies proposed by Wang and Ren (2012), there is a fifth critical
aspect to be noted for international firms: the language barrier: As described in the section
‘consumer traits’, most Internet users in China are people who have not completed a degree
higher than Senior High School (80%). Further, although 300 million people are learning or

22
 have learned English in China, most do not feel confident using e–commerce platforms that
are in English. Hence, the inclusion of linguistic translations to web design is a fundamental
criteria for entering the Chinese market (Bin et al., 2003). However, while linguistic translation
might be an easy task to fulfil, cultural translation also needs to be considered. Bin et al. (2003),
for example, underscored that while people in Taiwan and Hong Kong use ancient Chinese
characters, people living in mainland China use more simplified Chinese characters. Thus, the
design of a Chinese web site might not be an easy task and again underlines the importance of
local knowledge when a Western firm seeks to expand into China’s e–commerce market.

It can be concluded that although China’s e–commerce market has huge demand and potential,
it can be frustratingly difficult for foreign firms to gain a competitive advantage within this market
(Wang, 2010). The examples listed in this section further indicate that a well–established Western
brand does not automatically transfer to China. Instead firms have to prepare for a highly
competitive and a fast–changing environment when entering China’s e–commerce market.
Hence, in order to succeed, firms need to adopt a virtual business model that is customer–centric
and trustworthy, decentralised and integrated within the local networks, and flexible in a way so
that it is fast–acting to the rapidly changing market environment and consumers’ requirements.

Key Considerations for Website Development in the Chinese Market

In addition to the aforementioned considerations, work undertaken by ADTW (2013) highlights
other key points for consideration when developing a web presence in China. These ideas are
summarised as follows:

 When developing a Chinese website, it is critical that the content is not merely a translated
version of the website used in a Western market. A web platform/site needs to be created
from scratch; completely customised with full Chinese language, design and positioning with
respect to Chinese SEO (search engine optimisation). There have been many instances where
websites of Western companies, when translated into Chinese, have failed to function as
intended due to cultural and linguistic differences, a stance supported by Singh, Zhao, and Hu
(2003). As such, firms should seek to arrange a full cultural translation of the relevant search
terms to ensure the site is optimised with terms that Chinese people are using to search for a
given product or service. As a further SEO–related point, due to the importance of Baidu.com
in the Chinese search market, a website must be predominantly optimised for Baidu, even
though any SEO efforts will likely also be beneficial for other search engines, including
Yahoo.cn and Sogou.com.

 A truly successful Chinese website has to be hosted in China for speed and search engine
rankings. Links to foreign social networks should also be avoided and replaced with the
Chinese ones respectively (especially on global, corporate template designs that typically
include Facebook, Twitter, YouTube links/icons).

 China has a variety of different dialects across many different regions, hence language
considerations are important. Standard Putonghua Mandarin Chinese (as spoken in Beijing),
is by far the most commonly understood (as this is what is taught in school). Mandarin is the
main language not only in mainland China but also in Taiwan. Cantonese is spoken in southern
mainland China, Hong Kong and Macau.

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 With respect to site design, while simple and clean looking websites are very much in fashion
in many non–Asian markets, China is different and in many ways the opposite. A large number
of Chinese websites follow a ‘click more, type less’ approach, which usually means larger,
heavier (often fully visible) navigations and a lot of information (in text or animations) on main
launch pages. This provides an easy way of displaying large amounts of content to users who
can then quickly scroll through and move on with a click and without the need for typing in
order to find the right information. As many Asian languages use characters it is much easier
to navigate through a website by a click rather than to type a search query. Consequently page
layouts that are often perceived by Westerners as very crowded make sense and work very
well for Chinese Internet users. Although this content–heavy approach might cause Western
users to leave a site, in China the reverse is true; if a landing page doesn't contain enough
information they are more likely to think the site has little value and dismiss it.

 Animated graphics are extremely common on Chinese websites. To Western eyes this may
seem distracting, but it suits Chinese users. Interestingly, Western Internet behaviour studies
have shown that users now actively screen out page elements like animated graphics as they
have similar characteristics to adverts. Whether this eventually becomes the case in China
remains to be seen.

 The use of bright colours on Chinese websites can be a little less conservative than on their
Western equivalents. Use of strong colours, often in contrasting schemes, is commonplace.
Bright colours are a chief tool in attracting visitor attention. Unfortunately, it means usability
is frequently sacrificed in Chinese websites, with text that can be difficult to read. The range
of palettes used also reflects the lower average age of Internet users in China.

 Scrolling Text. Although scrolling website text is no longer common on western websites, in
China the practice is still immensely popular. Not only is it an excuse to get some more
movement on the page, it is a valuable means of displaying more information in the same
space – useful considering the Chinese preference for lots of page information.

 Decorative java and or flash. It's common to see many decorative design features used in
Chinese websites. Whether the site belongs to a teenage blogger or a large corporate
company, Flash or Java Script elements that have a purely decorative purpose are popular.
Examples might include background music, falling snowflakes and trailing cursors. Again, these
would not be received well on a Western site but are the norm in China.

 With a large number of Chinese Internet users being mobile–only internet users (around 250
million), web design for the Chinese market must especially focus on mobile usability, and
address the associated issues of contrast, colours, list and form elements (dropdowns, field–
types, auto completion) as well as responsive design.

Although many of these points are possibly the most ‘obvious’, there are also many other
nuances you must take into account when creating a website for a Chinese audience. For
instance, using language and concepts acceptable to both Chinese culture and law are vitally
important, as is a design that will help your site rank highly in Chinese search engine results.
Domain name selection is another other aspect worthy of attention.

Domain name extensions (.cn, .com, .net etc.) are an important consideration for any new web
presence. Although the country code domain extension for Chinese websites is .cn, many Chinese

24
companies opt for a .com extension for international recognition. Non–Chinese companies
mainly tend to prefer a .cn extension for their Chinese websites as this indicates that the site is
designed exclusively for this market (demonstrating commitment) and because .cn domains rank
more highly in search engine results. Chinese .cn domains were once freely available for anyone
to buy but they are now restricted to those with a legal presence in China. In light of this, it is
important to work with a company with a legal presence in China to secure a Chinese domain
name (ADTW, 2013).

25
Taoboa Case Highlight

A customer–to–customer shopping website refers to an electronic internet–facilitated

medium through which business between customers occurs through a third party. Online
auctions are the most common form of C2C. In China, the four dominating C2C shopping
websites includes taobao.com, paipai.com, eachnet.com, and youa.com. Taobao.com, an
online C2C and B2C sales platform, and one of the biggest online auction websites in China,
was founded in 2003 by Alibaba.com. Taobao is ranked top of the online shopping market
in China, with a 70% market share. Moreover, Taobao occupies 83.5% of the total amount
of transactions in the C2C market, with second placed Paipai (which is a joint–venture
enterprise between Chinese portal firm Sina and Yahoo) accounting for 11.5%. On
November 11, 2011, TMall (a sub–brand of Taobao) held a massive one–day sale, resulting
in a total of 3.36 billion Chinese Yuan in revenue ($US 530 million). A 2011 study by Luo*
highlighted the following Taobao–related demographic and psychographic statistics:

 Users aged between 18–24 years of age accounted for 51.5% of respondents (43.9% of
respondents were 25–30 years of age). This sample does relate strongly to the 2011
CNNIC Internet Online Shopping Market Research Report.
 37.9% of the sample held a degree qualification (undergraduate and postgraduate).
 It should be noted a large number of respondents identified themselves as students.
 88.1% of the sample had experienced online shopping in China.
 26.9% of respondents frequented online shopping sites less than once a month. 17.3%
of users browsed online store more than once a week. With respect to Taobao, 28.9% of
respondents shopped on the site ‘frequently’, with 31.6% of respondents shopping on
Taobao ‘sometimes’.
 Vendor information (ie. reputation) and customer service information were the most
important types of information respondents actively pursued by users.
 45.5% of respondents ‘strongly agreed’ that the attainment of a low price was a key
motivation to shop online.
 42.1% of respondents spent, on average, RMB 101–500 per transaction on Taobao.
 Nearly 60% of respondents indicated that they had never experienced what they
consider to be a 'risk' on Taobao.
 Most respondents (with the percentage of 76.3%) indicated that they would continue to
purchase on taobao.com in future.

*The study by Luo is based on a sample of Taobao shoppers, not the entire user base of Taobao.

26
Section References

ADTA (2013). Online in China – Developing a Chinese Website. Available at:

http://www.tq.com.au/fms/tq_corporate/brochure_pdfs/Tutorial_51_-_Online_in_China_-
_Developing_a_Chinese_Website.pdf

Bin Q, Chen S–J and Sun SQ. (2003) Cultural differences in e–commerce: a comparison between
the US and China. Journal of Global Information Management 11(2), 48–55.

CNNIC. (2008) The Internet timeline of China (2008). Available at:

http://www1.cnnic.cn/IDR/hlwfzdsj/201209/t20120904_36019.htm.

CNNIC. (2013) The 31th Survey Report. Available at:

http://www1.cnnic.cn/IDR/ReportDownloads/

Dennis C, Merrilees B, Jayawardhena C, et al. (2009) E–consumer behaviour. European Journal

of Marketing 43(9/10), 1121–1139.

Huang P, Lurie NH and Mitra S. (2009) Searching for experience on the web: an empirical
examination of consumer behavior for search and experience goods. Journal of Marketing 73(2),
55–69.

Luo, J. (2011) An investigating of network information how to influence customers’ online

shopping behavior in China—a case study of Taobao. Unpublished Masters Thesis, University of
Sheffield.

Nelson P. (1970) Information and consumer behavior. The Journal of Political Economy 78(2),
311–329.

Pick J, Nishida T and Zhang X. (2013) Determinants of China's Technology Availability and
Utilization 2006–2009: A Spatial Analysis. The Information Society 29(1), 26–48.

Reuters. (2012) China's online trade hits $45 bln in Q2, Taobao reigns – report. Available at:
http://www.reuters.com/article/2012/10/16/china–ecommerce–idUSL3E8LG1HP20121016

Singh, N., Zhao, H. and Hu, X. (2003) Cultural Adaptation on the Web: A Study of American
Companies' Domestic and Chinese Websites. Journal of Global Information Management 11(3),
63–80.

The Economist. (2011) The great leap online: E–commerce in China. London, p.78.

Wang X. (2010) Foreign direct investment and innovation in China's e–commerce sector. Journal
of Asian Economics.

Wang X and Ren JZ. (2012) How to compete in China's e–commerce market. MIT Sloan
Management Review 54(1), 17.

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