The Internet frenzy and fizzle as well as China's imminent entry to the World Trade Organization have provided the backdrop to a year of fast-moving developments in China's DM industry.
China's post office has come to life with a number of initiatives to improve infrastructure. The list business is taking baby steps. E-commerce has awakened consumers to the idea of remote purchasing. And both WTO and the Internet craze have attracted significant investment.
One major company, Germany's Quelle, has quit the China market, just as two others have arrived. By year-end Reader's Digest will begin testing mailings to sell books, while Austria's Europa Versand is testing cosmetics via solo mailing. Mecox Lane, which received a $13 million injection of capital early in the year, has focused almost entirely on its Web site.
Other industry players are Otto and 3 Suisse (both based in Shanghai selling apparel); Bertelsmann Book Club, also based in Shanghai; and Healthy Household, based in Guangzhou, selling mostly hard goods.
In direct response television, many local stations are doing their own thing. Australia's TVSN is still active, but evidently just treading water, to keep the “burn rate” low while testing and waiting for an opportunity.
These companies are working together more than ever at list rentals and exchanges, but the market is small and no list companies have yet emerged.
Available lists — mostly telecom and credit cards — have proven under-responsive to DM offers, leaving the companies with the expensive proposition of building lists through magazine advertising and customer-get-a-customer promotions or referrals.
The Shanghai DM companies have established an official business association, perhaps the precursor of a China Direct Marketing Association, to discuss ethical practices, postal and other issues.
China e-tailers are too numerous to mention. The site that has made the biggest splash is 8848.net, which should be lauded for its PR machine. But it recently announced it was switching to a business-to-business model, indicating the difficulty of the business-to-consumer model in China: page views, yes; sales, no.
In the words of 8848's CEO, the problem is that customers find Web commerce risky and inconvenient. The catalog companies here have been dealing with a similar mind-set for years, and have been slowly training their customers to trust them. The Web companies have been unable to short-circuit the process.
Although there are no reliable published figures, I believe the most successful BTC e-commerce sites, judged by online revenue, are m18.com, Mecox Lane's site and bbc.com.cn, the Bertelsmann Book Club site.
These sites have built their customer bases through years of traditional offline DM, and their sales are mostly Web orders from customers who just received the catalog.
China Post has jumped to attention to try to satisfy the potential demands of e-commerce. They are resurrecting a COD system, and are busily implementing parcel delivery to the door. Currently customers must collect parcels at the post office. Both services had previously only been available to EMS customers.
China Post began night shifts Sept. 1 at all mail distribution points to speed mail and parcels on average by several days.
They are preparing to license “business reply mail,” and a system to speed up postal money orders, which are used for the majority of direct marketing purchases — because there are no personal checks in China. This explains why COD is so important since it can make DM purchases much more convenient than a trip to the post office to buy a money order.
COD has been the focus of much effort this year, but there have been growing pains. The Postal EMS system, doing COD for several years now, still faces problems from low delivery rates to slow clearing of payments, so private companies have stepped into the gap.
Although only serving the major cities, the private companies have been able to improve delivery rates to about 95 percent and payment clearance times to about 2 weeks.
The growth of COD services will continue to have a large impact on the industry as it gives customers a huge convenience over postal money orders, and helps address mistrust since no payment is made until the goods arrive.
In many cases, customers insist on opening the parcel to see if the item is what they ordered before giving the money to the deliveryman. They are concerned they'll be shipped a cheap substitute of the product described.
China's entry into the WTO will not be felt directly for several years, but it has already affected expectations. There is a prevailing attitude that the economy will continue to grow at 8 percent or more; the bureaucratic controls on trade and investment will continue to loosen; and customers will become more prosperous.
As I like to say, the head wind we face in China someday will give way to a tail wind. I would both encourage prospective investors, but caution that you need to be prepared for at least several more years of head winds.
• Paul Condrell is general manager at Healthy Household, a US DM firm in Guangzhou. Reach him at [email protected]