As rural communities are becoming an important market, China’s e-commerce platform is expected to reshape its business model and personalize more customer experiences.

China: why rural e-commerce market becomes next gold mine

China’s e-commerce market has long been a hot topic. Its great achievements in urban areas have attracted worldwide attention and are becoming a world-class success. In fact, the country’s online shopping growth rate was about 43 percent in 2015.

But China’s e-commerce market is not a highly uniform one. China’s rural areas are an entirely different target market – the same business model as China’s urban areas is hard to apply. But it can be seen as a gold mine that hasn’t received enough attention.

The market is really huge: more than 620 million people currently live in rural areas, and the city has 270 million migrant workers. They are all potential consumers of electronics. The latest data shows that in 2016, online shopping in China’s rural areas reached more than 350 billion yuan ($50 billion), and the size of rural netizens’ shopping was 84.41%. And China’s top e-commerce companies can only begin to understand the potential behind those Numbers.

Rural e-commerce retail sales

Great changes to help overcome challenges

The “36th statistical report on China’s Internet development” released by CNNIC points out that, historically, rural e-commerce has faced two major challenges: small target market size and difficulties in delivering services. In fact, a large proportion of rural young people choose to migrate to cities, while young people in rural areas are mostly elderly and children, who are rarely on shopping online. Now, thanks to relatively monotonous life and conservative consumption concepts, the former’s online consumption demand is limited. While children in rural areas are more likely to adopt the new shopping behavior, their consumption needs are still controlled by their parents.

Another problem is that logistics costs in rural areas are five times higher than in urban areas, which is a big problem for the development of rural e-commerce. Many online shopping orders from farmers have been cancelled because their locations are not in the delivery area, and the cost of delivery from other customers is quite high. Demand is also too volatile and volatile, and transportation in non-plains areas is difficult. Because logistics systems in rural areas cost several times more than those in cities, China’s e-commerce giants prefer to invest resources in developed regions.

But desperate, rural e-commerce has been booming for the past four years. It may be directly related to rural Internet access and smartphone penetration. More specifically, 780m Chinese use mobile phones to get online (57% of the population), and 95% use them. This infiltration led to 77 million rural people online shopping in 2014.

Based on the growth trend of the past four years, rural online shopping will continue to maintain rapid growth in the next three years. The gap between urban and rural areas may even narrow. Many factors have led to this growth trend, including broadband coverage, e-commerce platform promotion, adding service outlets, improving rural logistics, building partnerships with villagers and policies to encourage e-commerce business.

In the future, Chinese e-commerce platforms will not only sell large amounts of industrial products and urban consumer goods to rural consumers, but also expect to ship large amounts of agricultural products and raw materials to cities through these e-commerce. Platform.

Alibaba: pioneer of rural e-commerce market

One of China’s largest online retailers has noticed the potential in the rural market: alibaba group. Its strategy is to enter the rural market through partnerships with local sellers who want to sell their products in the countryside and gain online visibility. This is what the company does in taobao village. Taobao village is a group of rural e-retailers that sell products through alibaba’s taobao marketplace. Typically, e-commerce businesses in these villages have an annual turnover of more than 10 million yuan ($1.5 million), and more than 10 percent of the village’s households own their own online stores.

By the end of August 2016, 1,311 taobao villages had settled in 18 provinces of China. Among these provinces, zhejiang, guangdong and jiangsu have the highest number of taobao villages among the top three in China. More than 700 million packages were sent to taobao village stores in 2016.

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