What's the fuss about private-traffic marketing in China?

Private traffic has been a buzzword for marketing in China for several years. Compared with 'public traffic' where consumer data is operated and managed by platforms, private traffic is fully controlled by brands to reach consumers directly at a relatively low cost. This is primarily done through social media apps such as WeChat, Douyin and Kuaishou.

2021 was dubbed in China as “the year of the private-traffic explosion”. Tencent Marketing Insight and BCG launched China's private-traffic whitepaper, supported with data from Tencent platform WeChat. Harvard Business Review also wrote about private traffic marketing among Chinese Gen-Z. 

This year, as Shanghai battles tough lockdowns, group-buys have become a norm where food and supplies are managed for 25 million residents, and this brings about a growing opportunity for private traffic. 

Greg Paull, co-founder and principal of R3, said: 

China's strict pandemic policy has demonstrated the importance of private traffic. With limited retail options and group-buying gaining popularity, marketers are leveraging their CRM data to engage consumers offline and develop brand loyalty. With an increased focus on collecting first-party data, privacy will be an issue, and future regulation will have an effect on how brands develop and run their campaigns.

There will be greater investment in CRM, data analytics and AI to integrate consumer data into business intelligence tools. Marketers are very focused on optimising their investments and will want to leverage any insights they acquired from private traffic to optimise campaigns and catch lucrative trends quickly. 

Ashley Dudarenok, founder of Alarice & ChoZan, analysed in 2021 whether brands should do private-traffic marketing in China. She mentioned both Dingdong Maicai and WeChat which have incidentally  become the primary online grocery and communication channels during the lockdown in Shanghai. 

Dudarenok highlighted several Chinese brands actively using private-traffic marketing, such as Xibei, Hey Tea and Forest Cabin. She quoted WeChat (Weixin), Kuaishou, and Douyin to be the most promising platforms for private traffic. 

With big data and new technologies coming through, digitalisation is continuing to empower all channels in the retail industry. The role of private traffic in China has become increasingly important. The demand for customised services and personalisation has only increased, making the communication between brands and users much more frequent. As long as there are still such factors in the Chinese market, and there is no cheaper and more convenient way to reach consumers, private domain traffic will always be a future trend that brands need to master. 

Data (from iiMedia Research) shows that in 2022, over 30% of Chinese netizens show support for private traffic with only 0.9% opposing it. More than half of Chinese netizens have also said that they’d go for private traffic depending on the situation. Creating a refined operation model and providing customers with valuable content will become the focus of businesses operating private pools.

The issue is the cost to maintain for the companies. You need to have an army of personal consultants and that’s a lot to bare. We need new technology to help streamline even such personalised things as private traffic.

The core of private traffic boils down to three points: reachability, the ability to convert to sales, and users who respond and give feedback.Therefore, no matter what platform is used when building a private pool, only when the three conditions of attracting traffic, retaining traffic, and converting traffic are met, is it effective. 

Private domain traffic is a system. The fixed cost of building and operating such a system is high, but the marginal cost is low. Therefore, the more customers this system serves, the more worthwhile it is to do. Private domain traffic is a long-term investment, and operating a private traffic pool with sufficient conversion rate should be a strategic decision. 

Also, the B2C industry will always be suitable for private traffic pools. With B2B however, nothing is for certain. B2C demand can be created through marketing, and it is much more difficult to create new B2B demand through the same way.

Over the past few years, the benefits of private traffic are largely built within the WeChat system, which means greater potential for Tencent's ecommerce and payment ecosystem. But it needs to be considered that the walled gardens dominated by Alibaba and Tencent were torn down by regulators last year. On the other hand, ecommerce players such as JD.com and Alibaba are competing to bring in private traffic by way of building new functions.

Prophet’s associate partner, Tom Zhang, pointed out how the crumbling walled gardens could change the battle scene.

Compared to other markets, China is leading private traffic operations thanks to the ecosystem of super app WeChat and the unique role it plays in consumers’ lives (although private traffic channels go beyond WeChat). However, most private traffic efforts today just focus on sales transaction. While there are indeed tactical bottlenecks such as lack of integration across channels and increase of operational costs, the biggest bottleneck for elevating private traffic is short-termism. 

While CMOs should continue to have the new gen of savvy marketers leading private traffic monetisation, they must inspire longer-term thinking of customer lifetime value. There are two opportunity areas to harness and balance with monetisation—customer loyalty and brand engagement. For loyalty, brands need to integrate private traffic with their membership programme and ensure that it goes beyond discounts to provides experience rewards. Regarding engagement, private traffic offers a great opportunity to involve fans in product and content co-creation, eventually enabling them to make the brand their own. 

When it comes to private traffic operations, Bestseller (绫致) has been at the forefront for years. It has developed its WeMall mini programme to provide sales enablement tools and promotion content to enable all its store associates to become 24x7 private stylists. Over 42,000 associates are now incentivised and equipped to engage existing customers personally in the CRM, even when they are not shopping at store. Meanwhile, associates are supported by other private traffic domains such as livestreaming that aims to drive new prospects to offline stores. According to Bestseller, the profit ratio from its private domain is three times higher than ecommerce. 

For loyalty and engagement cultivation, Nike offers a great example with its Nike mini programme (as well as Nike app). Integrated with its membership, the Nike mini programme has become a multi-dimensional community beyond just a private traffic domain for sales. It allows fans to have early access to hot sneakers, book online and offline Nike events, and enjoy content curated based on their personal preferences. To drive further engagement, it provides Nike By You product co-creation experience, and also features top UGC content contributed by its fans. 

Economic headwind and marketing budget would certainly motivate brands to put even more emphasis on private traffic, as it has proven ROI advantage when being done well. Another factor that might cause big impact is how much and how fast the ‘Berlin Wall’ between WeChat and Taobao would be torn down, as more open integration would shift the current playbook.