Marketing Case Study Analysis : Taobao
Case Study 1: Taobao.com: Building Trustworthy Customer Relationships
While eBay and Amazon may be America’s everything stores, in China, Alibaba’s retail platform Taobao.com dominates the domestic e-market, leaving Amazon fighting in the sidelines and eBay shutting down its China operations in 2006, having entered and failed to meet the market demands.
Established in May 2003 by the Alibaba Group, Taobao is one of the biggest e-tailing platforms today, and in 2014 it commanded around 80 percent of the Chinese consumer-to-consumer (C2C) market segment. Taobao, which means “hunting for treasure”, sells almost everything, from cosmetics and accessories to electronic goods and cadavers. Like Amazon and eBay, it facilitates transactions between individual consumers and sellers including retailers and wholesalers.
Taobao’s success was unanticipated. A year before Taobao was established, eBay entered the Chinese market as a joint venture with EachNet, a Chinese e-commerce company, and had every intention to lead the market in China. However, in anticipation of the future competition, founder and CEO of Alibaba, Jack Ma launched a new website to fend off the United States giant. eBay’s market share quickly dwindled after Taobao’s entry and in 2006 it cut its losses in the light of Taobao’s success.
Amazon entered the Chinese market in 2004 by purchasing the Chinese online bookseller and retailer Joyo.com. The site failed to live up to its high hopes and by 2014, held less than 3 percent of the Chinese e-tail market.
So what accounts for Taobao’s dominance over established online players like Amazon and eBay? Taobao understood the Chinese consumer’s fear of being cheated online and tried to instill trust. Domestic consumers were not familiar with making purchases without being able to inspect the items. Widespread fraud and general misapprehension about the Internet made consumers wary of online shopping. To allay such fears of fraudulent practices, Taobao introduced an optional escrow service where the buyer transfers their money to Alipay, a third-party online payment platform, which informs the seller that the money has been transferred. The seller would then send the item to the buyer. Only when the buyer has received and inspected the item would Alipay allow the seller to receive the money transferred. Because most Chinese consumers do not use credit cards, the Alipay system, unlike PayPal, does not require a credit card for transactions to be initiated and can debit from a Chinese back account.
Taobao also understands that the negotiating and bargaining is part of the enjoyable experience that Chinese shoppers look forward to. Taobao’s chat room, AliWangWang, allows shoppers to negotiate prices with sellers; shoppers can even interact directly with sellers and ask them questions about their products.
The platform’s design gives it a strong local identity. To capitalize on Chinese’ nationalistic sentiment, each member of Taobao’s administrative team has a nickname based on a fictional character from famous kung fu novels. This informality gives Chinese shoppers a sense of welcome and being part of the larger Chinese community. Taobao’s corporate red and orange colors are suggestive of festivity and prosperity – messages that every Chinese individual is familiar with and favorably disposed to. In addition to this, its Web site is filled with information. Unlike Google’s design, which is very sparse, Taobao’s official site is cluttered with many links, imitating the physical shopping environment in China – noisy, busy, and colorful.
Taobao has successfully drawn big businesses into having a presence on the e-tail portal. China’s biggest bookstore, Xinhua, features on Taobao’s platform as does leading Japanese casual-wear maker, UNIQLO. Even China Eastern Airlines has formed an alliance with Taobao and Alipay, setting up an online ticket store and reaching out to more individuals than before.
As another strategic move, Jack Ma, who noted that more people preferred browsing through television channels more than surfing the Web, ensured that Taobao has adequate number of ads aired across major TV channels. Taobao also brings the latest trends in mass-selling online. One of its successful flash sales campaigns was to transform an obscure student holiday into an online holiday. November 11 or 11/11, known as Singles Day, became the largest e-commerce sales day, making $14.3 billion in sales in 2015. This success resulted in offline retailers holding similar sales on November 11.
With smartphone penetration on the rise, Taobao is poised to do even better. Cities outside the Tier 1 region have the fastest growth rate in smartphone penetration. The “far off” locations work to Taobao’s advantage as the ability of offline retailers to deliver to such areas is limited. The company is looking to address changing tastes and preferences of Chinese consumers with Taobao Mall, focusing on service quality; Taobao is also using its shopping search engine eTao to provide information other than pricing, including product guarantees, reviews, and shipping options.
Source: Kotler, P., Armstrong, G., Ang, Tan, C. T., Yau, O. H, & Leong, S. M. (2017). Principles of Marketing: An Asian Perspective. Pearson Education.
Case Study 1: Questions
- Question 1: Describe Taobao in terms of the value it provides customers. How does Taobao engage customers?
- Question 2: With increased competition today, how can Taobao continue to be competitive?
