In 2015, NetEase officially launched Kaola – their Cross-Border eCommerce (CBEC) platform. Their model was simple: cut out all the ‘middle-men’ and foster close, direct-purchase relationships with overseas brands. This strategy gave them a pricing edge over competitor platforms which they did not hesitate to pass onto their customers. Unsurprisingly, Kaola’s popularity grew exponentially, and persists even today amongst their 30+ million monthly active users.
Kaola quickly became a dominant player in the CBEC space. In fact, since CBEC was ratified in 2015, Kaola and Tmall Global have continuously swapped back and forth for the coveted 1st position by CBEC market share. By stark contrast to Tmall Global however, Kaola’s reputation quickly became synonymous with heavy discounting.
Perhaps unsurprisingly, Kaola’s price-driven business model didn’t appeal to everyone. Notably: premium and luxury brands, or any business seeking to maintain higher price points in China over the long term. Furthermore, intense price competition from all corners of the market challenged Kaola’s initial point of difference. The emergence of grassroots KOL (Key Opinion Leaders) and KOC (Key Opinion Consumers) sellers, multi-million dollar Daigou distributors as well as Cross-Border eCommerce (CBEC) Multilayer Marketing business models, has left Chinese consumers spoiled for choice. These days, affordable foreign goods are a dime a dozen in China’s increasingly saturated markets.
Kaola has also had to manage intense competition from China’s leading internet giants. Let’s do a quick roll call of their major competitors in the CBEC space:
Alibaba’s premier CBEC platform. The platform with the best reputation and widest variety of products. All CBEC SKUs are visible online to China’s 666 million+ monthly active Taobao users. Tmall has traditionally operated a marketplace model which allows merchants to own and operate their own stores. More recently, they’ve expanded their own direct-purchase strategies.
Boasting their own self-operated logistics network, JD boasts a reputation as 99% counterfeit free. Their reputation has traditionally been that of an electronics retailer, offering direct-purchase and marketplace models. Although JD.com is the second largest eCommerce company by GMV, their direct-purchasing activities technically earn them the title of China’s largest online retailer.
A female-oriented flash-sales company with arguably the most innovative pricing model in China’s eCommerce landscape. VIP consistently offers the lowest market prices on their select range of predominantly cosmetic, health and wellness products. VIP boasts a loyal community of over 100 million members.
Xiaohongshu (Little Red Book)
The platform that pioneered a social eCommerce business model which changed the face of the industry. Having initially launched as a travel blogging site, CBEC products were welcomed as a natural addition to the user experience of their now 300+ million users.
At some point between 2017-2018, it appears Kaola made a conscious choice to rid their platform of cheaper brands with low awareness. Instead, they’re now directing their efforts towards recruiting a select number of ‘on-trend‘ companies. Nowadays, the Kaola platform is a one-stop shop for competitively priced ‘hype’ brands, as well as exclusive/scarce products.
In August 2019, Kaola launched their own on-platform livestreaming services. This placed them in strong stead to withstand the current global pandemic as it swept across China in early 2020. This has proven a vital step to maintaining relevance as China’s eCommerce and retail landscape becomes increasingly livestream-ubiquitous.
Perhaps taking lead from the success of Pinduoduo, Kaola have also launched group-buying. This arrangement allows customers to take advantage of price discounts through buying in groups of 2 or more shoppers (depending on the listing). As opposed to purchasing straight away, the user is rewarded for their patience. As a consumer, you can join existing groups under a given item. Alternatively, you can start your own group and share it with your friends (i.e. via WeChat, Weibo, Xiaohongshu etc.)
Enabling group-buys is a very strategic play, and not only because of the social eCommerce experience it creates. It also lays the foundation for Kaola to compete in the fast growing Customer-to-Manufacturer (C2M) space. This is a logical step forward for a platform, which has always prided itself on minimising the friction between companies and their customers. With Alibaba, Jingdong and Pinduoduo all investing heavily in C2M business models, this is a space forecast for major growth in the coming years.
Offering great prices on exclusive and trending products has proven a winning strategy for Kaola. As of Q1 2019, Kaola held the highest CBEC market share at 27.5% – slightly ahead of Tmall Global’s 25%. Perhaps aggrieved by ranking second best in the CBEC space, Alibaba purchased Kaola from NetEase for a whopping US$2 billion in September 2019.
Since the takeover, Tmall has reclaimed the #1 spot in the market, although Kaola has also increased their market size. Combined, Alibaba owns 62.8% of the collective CBEC market.
Kaola offers two avenues for selling through their platform:
It’s worthy of note however, that flagship stores are a relatively new addition to the platform (introduced around 2018-2019). Furthermore, these are only available to well-known brands and/or heavy sellers. Undoubtedly, Kaola’s traditional and still dominant business model is to purchase directly from brands.
Kaola’s direct purchase arrangement is best described as ‘B2B2C’. To elaborate, Kaola buys your stock B2B. They then provide the point of sale and take care of the last-mile logistics as orders are placed on them. However, to take advantage of Kaola’s Direct-Purchase model, suppliers must take over the back-end management of their product listings. For example, Kaola does not provide any in-house customer service.
To provide customer service, set prices, change designs, update listings etc. you must first gain access to Kaola’s ‘supplier back-end’ interface. For this, Kaola charges a $10K security deposit – a relatively standard practice amongst China’s CBEC platforms. This deposit is returned when the operation/relationship is ended, subject to no contractual obligations having been infringed.
Our experience is that Kaola is one of the best exposure-generating platforms in the CBEC landscape. They’re also very easy going and pleasant to work alongside. One of their key principles Kaola presses on their suppliers is transparency. Specifically, transparency with the category manager who is assigned to your team.
Generally speaking, all your category manager requests is a bit of a heads up several weeks/months before your marketing and sales campaigns. This includes campaigns and promotions occurring both on and off the Kaola platform. They want to know when you’re posting an article on WeChat, when you’re hosting a livestream session on Little Red Book, posting a ‘challenge’ on Douyin or whether you’re working with a KOL on Weibo.
On these days, he/she will generally allocate better search rankings and page prominence for your brand and products on Kaola. They may also provide your brand with a dedicated promotional space.
Article Compiled by Alexander Kelso for RooLife Group, July 2020