AI and the Future of Marketing: Learnings from China

Traditionally, Europe looks to the U.S. when it comes to innovation. But is that still right today? Shouldn't we be looking much more to China? China is no longer a giant, it has long been in the fast lane, and it is still partly unnoticed by the West. China is catching up in terms of GDP per capita, for example: While China's GDP per capita, adjusted for purchasing power, was 19 times higher in 2010 than in 1980, the GDP of the U.S. and Germany rose at the same time by "only" a factor of 4. This trend continues to this day: China "tops" the latter two in purchasing power-adjusted GDP growth by a long way: 1980 - 2017 China factor 34, USA factor 5, Germany factor 4.

At the same time, the extreme poverty line fell from 42 percent in 1997 to 0.7 percent in 2017, or about half a billion people who no longer have to live in extreme poverty. And China is strategically building on this growth, investing heavily in education and the so-called New Silk Road, a land and water route to Europe, among many other areas. China's positive economic development may not benefit all Chinese equally, but it substantially improves the lives of almost all Chinese.

It is foreseeable that China will also be a leader in artificial intelligence in a few years. Four factors come together: In AI, the rule is that lots of data leads to very good AI algorithms, because AI learns about data. With 1.4 billion inhabitants, China is the most populous country in the world, and around 800 million people own a smartphone.

In addition, China is developing into a so-called mobile-only society. Many users do all things in their daily digital lives only via their smartphones. The third factor is data protection. The so-called Cyber Security Law of 2017 regulates the use of data: Above all, it protects data from access by other countries. In contrast, there is no similarly strict individual data protection as in the EU. This means that companies can process consumer data for a specific purpose, i.e. network it more closely than is possible in the West. The principle of purpose limitation applies here: Every new data analysis must first be approved by the users for a specific purpose. In China, to put it simply, a single consent from the user is sufficient. The more data that is linked together, the more insights an AI can gain.

The fourth factor is the state's explicit focus on AI. There is a five-year plan for AI that directs all state, educational and economic activities toward becoming the world leader in AI by 2030 at the latest. Chinese leaders are backing this plan with financial and human resources. Through these four factors, China is well on its way to becoming a world leader in "the key technology of the 21st century" (Macron).

This also has an impact on retail, marketing and sales, which can already be observed today. Here are a few examples.

Mobile only and super apps

So-called super apps are currently developing in China. These are individual apps that conceal entire ecosystems. WeChat is one such superapp with more than two million mini-programs in the background. Users only download this one app. The other providers, including public authorities, deliver small mini-programs of their offers to WeChat, which users can then open automatically with WeChat. Mini-programs are only around 10 megabytes in size.

Chinese users can use such a superapp to organize their entire digital everyday life, for example, to communicate with friends, transfer money, book trips, apply for visas, use mobility services, obtain loans, and much more. The advantage for users is that they don't have to download different apps for different applications and enter their user data each time - so using a superapp is very convenient. The advantage for participating companies: A seamless customer journey, where users are less likely to bounce because they don't have to leave systems and user data can be transferred and linked more seamlessly in a single, closed system.

Typical online customer journey in Europe and China. (Figure: Bünte)

WeChat functions (source: Fabernovel, 2019)

Cashless Society 

China is currently developing into a cashless society. Payments are generally made via smartphone using QR codes from popular payment apps such as WeChat Pay or AliPay - or via facial recognition, for example at the Hema/Fresh Hippo supermarket (see image below). This is also very convenient for users and is becoming increasingly popular.

But this is also advantageous from the provider's point of view: The fact that the superapps not only have movement and surfing data on their users' smartphones, but also know what they bought and when and where, creates a complete customer journey with countless qualified data for artificial intelligence to learn and develop more suitable offers for individual consumers. In the West, this individualized playout of offers tailored to a person is much more difficult for data protection reasons.

Paying by facial recognition in the supermarket (Photo: Bünte).

Cashless Giving for the Homeless (Photo: Twitter@occupiedstill)

New Retail

Retail is currently undergoing major changes. While in the West new digital offers are often still offered via individual apps, China is one step ahead. Retail platforms such as Alibaba or JD are increasingly combining the online and offline worlds, known as "OmO" for short, i.e. "Online merge Offline". Online and offline offers are equally available.

Here are two examples: The Hema/Fresh Hippo supermarket chain offers a shopping experience that also uses many online applications in the supermarket itself. For example, you can scan the goods in the store with your smartphone using a QR code to find out where exactly, for example, the respective edible crab was caught and what the supply chain looks like. In addition, the customer receives nutritional tables, recipes and other offers relating to these goods. Payment is made via a payment tab or facial recognition.

If you don't feel like putting the goods from the shelves into the shopping cart yourself, paying and then driving home later, you collect the scanned QR codes in the app and pay electronically. Hema employees then assemble this order in the store and an in-house driving service delivers the goods to the front door within a 30-minute radius of 3 km around the supermarket. If one is not at home, the delivery service puts the purchase in the delivery box belonging to the apartment, which look so similar to the packing stations of DHL in Germany. In many cities in China, these are located directly at or behind the house. If you don't feel like going to the supermarket at all, you can order right away via the app.

The Haidilao restaurant chain offers hot-pot dishes that guests can prepare themselves. To do this, they either order the ingredients in person from a waitress or via a QR code that they find at their table. The ordered dishes are assembled in the kitchen by AI-assisted robots and placed on trays. Six service robots bring the orders to the table. If a human stands in the way, the robot kindly asks to be let past. Not all restaurants are equipped with service robots yet, but almost all are equipped with QR codes for ordering and paying.

This new type of retail is called "new retail" or "smart retail. What is new about it is that not only marketing or some back-office areas are digitized, but that the entire value chain including the stores are digitized. Both Alibaba and JD offer to help small retailers with this digitization. That is the "new" in New Retail.

Supply chain info in the supermarket. (Photo: Bünte)

Robot waiters at the Haidilao restaurant in Beijing (Photo: Bünte)

The implications for marketing in the future are many and quickly

You could say that China is entering a golden age in marketing, sales and advertising: As a marketer, you know at all times in real time what a consumer is doing, likes, dislikes, where he or she is, who he or she is traveling with, how much money is available for a purchase, and so on and so forth. This gives you access to a seamless customer journey that consumers hardly ever have to leave, nor do they want to.

Data protection allows data to be linked, and artificial intelligence supports the analysis of data and the derivation of offers. This means that marketers can make consumers individual, precisely fitting, personalized offers in real time - in essence, they no longer work in group segments, but with millions of "segments of one. This is nothing other than a new marketing with data as fuel and AI as the engine.

But therein lie three new challenges for this New Marketing: excellent digital capabilities of the brand based on AI, high speed of response and always new content to stay interesting and thus relevant.

Since all brands use the same systems to sell, for example through Alibaba or JD, they also have the same data at their disposal. So the brands are only as good as their teams when it comes to dealing with data and the AI they maintain to analyze that data.

What's more, consumers very quickly get used to the new offerings, which are individually tailored to their wishes. A brand that does not deliver immediately, i.e. in real time, will quickly disappear. And since all competitors also deliver in real time, consumers are easily overwhelmed by too many offers. Therefore, the marketing of the future will have to come much more via constantly changing content in order to remain interesting and thus relevant.

Conclusion

Not everything that is created in China in marketing, trade and sales through data and AI is directly transferable to Europe. This is due to the different data protection laws alone. But we should not make the mistake of assuming that AI development in China will never affect us. If the principle of AI applies that the more data you link, the better the algorithms and thus offers become, then China will be well ahead of the U.S. and Europe in AI development. And later entice us with AI-based brands and offers that are also interesting for European customers.

So we must and we should also learn from China. Because there, among many other areas, the marketing of the future is developing through AI - a "New Marketing".