Chinese consumers love them, brands hate them. But as much as brands hate daigou, can they survive without these influencers of China cross-border e-commerce?
Recently, brands have attempted to sidestep daigou by selling directly to consumers. However they rapidly discovered that consumers’ loyalty often lay with these overseas purchasing agents.
Because daigou are more than just middlemen — they are influencers that people trust. Instead of fighting the daigou, brands should consider working with them to support their China cross-border e-commerce.
Who are Daigou?
Daigou is a Chinese phrase for someone overseas who “buys on somebody else’s behalf”. China’s daigou economy emerged for several reasons.
- The large disparity between China and overseas prices
- The desire for foreign goods not available in China
- Lack of trust in Chinese brands and fear of counterfeit items
The most popular products for daigou are supplements, cosmetics and luxury goods. For example, Quality control scandals have created huge demand among Chinese mothers for overseas milk powder. Furthermore, the prevalence of counterfeit goods and high import taxes have caused many luxury consumers to prefer purchasing products sold abroad.
How Does the Daigou Industry Hurt Brands?
The daigou industry increases sales growth globally. That means brands can actually receive short-term benefits from their sales. But in the long-term, the daigou industry can have a harmful effect on a brand.
If consumers purchase through daigou, brands can’t control messaging or brand perception. And with items purchased through a daigou, there is a lack of brand-driven after-sales service. Daigou can also create price confusion, as the wide variety of prices online for the same item can often be confusing to consumers and cause mistrust in the brand and its value proposition.
Can Brands Sidestep Daigou?
To combat the daigou phenomenon and regain control of their company’s sales channels, a growing number of brands are creating their own China cross-border e-commerce stores and working with Chinese platforms like Taobao, JD.com and Redbook to sell direct-to-consumer. While creating an official store might seem like the logical solution, for some brands it’s backfiring.
A prominent example of this is Tasmanian infant formula company Bellamy’s, whose decision to start selling their products in China nearly bankrupted them. This decision hurt daigou, who retaliated by promoting other brands to their customers. Bellamy’s quickly discovered that the daigous’ customers were more loyal to the daigou than to the Bellamy’s brand. They chose to switch to new brands rather than a new sales channel.
Bellamy’s isn’t the only brand experiencing this. In many cases, even when consumers were able to purchase the product though official online channels in China, they still chose to purchase it from the daigou because they wanted the assurance that the product was the same quality as those sold abroad.
For people using daigou, it comes down to trust. Chinese people do not tend to trust big companies as much as they trust recommendations from family and friends, giving daigou the advantage. The majority of daigou start their businesses selling to family and friends, who then share with their friends, giving the business a significant level of trust built in from the beginning. Additionally, many daigou will take extra measures throughout the sales process to prove to their customers that the products they are sending are the real deal.
Tom, an Australian daigou, live-streams his shopping trips. He also signs all of the products so customers can verify that they haven’t been switched with fakes at customs (which has happened before!).
Do Brands Need to Rethink their Relationship with Daigou?
If daigou have so much influence, should companies stop competing with them and find ways to collaborate?
While marketers and brands don’t typically think of them as such, daigou are influencers too. If you think about it, they have been able to grow a profitable product-based business not because they have a unique product offering, but by cultivating a loyal following.
In some sense, daigou resemble affiliate or network marketers, except they are not earning profits through brand-regulated channels. Maybe if brands established affiliate or network marketing-type programs for daigou with special wholesale deals and high commissions, daigou could continue to run their businesses with support and regulation from the brands.
Some brands have started cooperating with daigou and are seeing positive results. Australasian dairy company A2 Milk earned a record NZ$90.6 million profit in one year after increasing their revenue 56 percent, which it credits in part to using daigou sellers as part of its distribution plan.
If brands are working with influencers to promote their products and generate sales, it seems logical to cooperate with daigou too.
While this may not apply to all industries, looking at the daigou as an asset and not an enemy could impact on your China cross-border e-commerce marketing strategy positively.
To learn more about the daigou industry, check out Episode 3 of the China Influencer Marketing Podcast with Aussie daigou Tom Shanahan. The podcast can be found on iTunes and Stitcher Radio.