Xian – Chinas popular online-to-offline sales model seems to hold great opportunities for lube suppliers, but insiders aired some concerns about the method at a recent conference held here by industry consultancy Muchengyou.
Online-to-offline platforms – or digital methods of marketing or selling products or services that are fulfilled in traditional stores – are widespread and growing in China. For example, consumers can learn about and select motor oils online, then schedule services that incorporate that product, such as an oil change, at a nearby quick lube workshop. Its typical for O2O platforms to significantly discount products or services in a bid to draw consumers from an app or website to partner stores.
China leads the O2O race, but it remains to be seen if current practices in that space are sustainable, said United States-based management consultancy McKinsey & Co. In China, deep discounts to gain share and hold on to customers are common in [O2O] markets, consultant Wings Zhang said in a 2015 report. The bet is that weaker players will drop out as cash runs dry, and the winners will finally profit from their businesses by slashing discounts and eventually charging merchants fees for sales on the surviving platforms.
The opportunity to target consumers for aftercare services by partnering with O2O service providers may seem lucrative to lube suppliers, and a plethora of suppliers have already jumped on the bandwagon. O2O platforms in automotive aftermarkets were very hot last year, said Steven Zhang, project leader at U.S.-based consultancy Kline & Co., at a conference in Singapore earlier this year. Especially in the passenger car motor oils market, this poses a challenge to the market position of traditional lubricant distributors.
Given some of the models downfalls, independent consultant Wang Xuguang thinks players may want to weigh all their options before investing too much in that particular route to market. There will definitely be a good solution for the overall aftercare market, but I dont think O2O is the one, especially when it comes to lubes, which rely heavily on services, said Wang, who has experience with O2O models through his former roles as senior manager for both Sinopec and Handi Lubricant, the lube sector of the Chinese private refiner Hainan Handi Sunshine Petrochemical Co.
There is no shortage of O2O platforms for lube suppliers to pick from in China – ranging from startups such as Tuhu and Che Zhu Wu You, to massive enterprises such as Alibaba and Suning that compete with the likes of the U.S.s benchmark e-commerce platform, Amazon.
Some, such as Yangche51 and Qccr – on which Chevron Lubricants lists its passenger car motor oils – are focused solely on the automotive aftercare segment. YX-Cat – where consumers can purchase Shell Lubricants – is another that narrows its offerings to the automotive market. Yet Wang is skeptical even of the automotive-only varieties of O2O providers. I think they are good enough as online resources, but they wont focus on developing the lube business, because they have many other partners to take care of, Wang said, noting that lubes account for only about 2 percent of total aftercare market sales revenue in China.
Wang believes that for now, traditional marketing methods should still be the foremost priorities for lube suppliers. He suggested they focus on product quality and technology differentiation, as well as diversifying marketing strategies, rather than putting all eggs in one basket.
Wang was echoed by Feng Bin, a director of Beijing-based China Auto Dealers Chamber of Commerce, which lobbies for Chinas auto industry.A problem with Chinese O2O platforms is that many of them are only interested in attracting investors, and they couldnt care less about the products, Feng said.
For example, he said some platforms like to provide packages with some free services – such as a car washes and oil changes – to attract a large number of customers quickly, which has been known to impress investors. But such a model is not sustainable, thus it cannot reward partners like lube companies, he suggested.
As a result, China in the past year saw a bunch of such platforms go out of business, he explained. Examples include Bo Bai, Gong Fu and E-wash. Be very careful to choose the right O2O partner who actually cares about sustainable growth and partners, Feng concluded.