Retailers are expanding their horizons in China by reaching into new categories and extending product lines to increase selection.
In preparation for this year’s 6.18 Mid-Year Shopping Festival, brands tapped consumer insights from Alibaba Group’s product development arm Tmall Innovation Center (TMIC).
“There’s a limit in trying to reach new customers in the competitive retail environment in China, because most of the consumer segments have been covered,” said Xie Wei, Head of New Product Launch, Tmall Industry Development and Operation Center.
Large consumer goods companies spend an average of $1.4 billion in research and development (R&D) each year to bring new products to market, or 2-3% of their net sales, according to research by consulting group Bain & Company.
Factoring in their costs beyond R&D, product innovations may account for up to 30% of their resources.
When British multinational Unilever worked with Alibaba to co-create products for China, it leaned on Tmall’s data center to mine consumer insights, discover innovative technology and understand relevant trends in the market.
To tackle the effects of pollution, the partners launched a brand called Purify and tested it with a small run to around 10,000 consumers, then tweaked aspects such as packaging ahead of scaling production.
“It really depends on the partner and their ability and appetite to co-create and launch products together – that’s where the joint value creation comes from,” said Claire Hennah, Beauty & Wellbeing Chief Customer & Digital Officer at Unilever at the ShopTalk conference in London.
Ultimately, the co-created product stalled as Covid hit and slowed demand in China and the partners decided that the timing was not right.
“The best partnerships have been when it is a partnership. That includes knowing when something doesn’t work,” said Hennah, “That’s an example of trust on both sides.”
New product launches can be risky, so when brands want to take the leap, TMIC’s artificial intelligence-powered Knowledge Hub is critical to pinpointing consumer demands.
“The data-driven approach helps set a clear goal for our R&D, making it much faster for us to launch a new product,” said Jennifer Liu, e-commerce general manager at Chinese wellness retailer Breo.
Over the years, Breo has created a handful of eye-area massage devices, but sales hit a ceiling a few years after launch.
Using TMIC’s data analytics, the brand refined its scope to target young female consumers. They often buy eye massage gadgets but use them infrequently because they are concerned about their makeup smudging.
To capture this market, TMIC’s data analytics suggested pivoting from eye area massaging to eye hydration, an area that is growing in demand with prolonged computer and cellphone use among young office workers. The device should also not ruin their makeup.
Breo quickly acted on this and in April launched a glass-like wearable that releases hydrating mist to calm and sooth. It sold more than 5,000 units in four days and ranked as the top eye device for 6.18 presales between May 31 and June 3.
In China, consumers are eager to try new products and new ways of buying. It’s up to brands to keep pace.
This attitude is most prevalent among the fast-growing cohort of Generation Z consumers, who are most likely to “buy products on the go,” according to consultancy McKinsey.
Brands must be quick to keep up, and TMIC supports this effort by cutting the average product incubation time from 18 months to just six.
“Consumer demands in the market change fast. If it takes around a year for a product to launch, trends would have changed by then,” said Xie.
Brands stuck in this rut risk missing out on evolving consumer tastes and behaviors, but a solution is within reach.
TMIC’s more streamlined and data-driven development process helped Breo launch its latest eye massager in half the time, according to Liu.
The consumer-driven way of product innovation brings brands more certainty in growth, and it also pushes brands for a digital upgrade of their company structure and supply chain, Xie from TMIC noted.
To date, TMIC has helped more than 2,500 brands accelerate their research and development processes.