If you follow trends of China’s E-commerce, then the term C2M should sound familiar to you. Dubbed as “the future of manufacturing” and “the ultimate sales model”, C2M is getting an increasing amount of attention from investors and industrial experts. So what exactly is C2M? What are its prerequisites and how will it change our life and businesses? This article aims to provide some of the answers.
What is C2M
C2M stands for Customer-to-Manufacturer, and it is an E-platform enabled business model that directly connects consumers with upstream manufacturers – eliminating distributors and challenging traditional consumer products brands to their core. Up until now, the relationship between brands and consumers has mainly been a top-down and authoritative one, where brands decide consumers’ product options. While it is true that brands will conduct market research and consumer opinion surveys in the R&D process, what turns out in the end is at best a good estimation for what people might want to buy and in what quantity. Not surprisingly, this type of estimation is often detached from the real market situation.
Here, C2M comes and offers a short-cut model– it enables consumers, not the brands, to send direct orders to factories. Factories then only start production after the orders accumulate to a profitable scale. Hence there will be no over-production, zero inventories and no intermediate costs from marketing, distribution, warehouse, store rents and others. This results in ultra-low prices with (ultra) good quality.
How it began
The world’s first true C2M E-commerce platform is Biyao Mall, which was founded in 2014 by Sheng Bi, former Marketing VP at Baidu. Before Biyao, Sheng founded another E-commerce company called Letao, which focused on the shoe category and was eventually sold in 2014.
Sheng Bi, Founder of Yiyao Mall
The failure of Letao forced Sheng to a reflect on two bottleneck problems in the retail industry – low sell-through rate combined with high sales mark-ups. For Sheng, the solution lies in the C2M model, which eliminates all guessing about consumers’ buying preferences and costs in-between. With this in mind, he started to visit factories to convince factory owners to work with him. To cope with individualized consumer orders, these factories first needed to set up Flexible Production Lines – an investment that could cost millions and several years’ time. At the beginning, many manufacturers turned Sheng down.
Today, Biyao is working with more than 200 manufacturers who are also suppliers for famous international luxury & fashion brands. Its 2018 GMV almost reached 2,000 million RMB.
Digital screens at production lines from one of Biyao’s retail suppliers (PC of Caijing.com.cn)
The E-commerce Giants
This March, Alibaba officially launched Taobao C2M edition “Special Offer Taobao” as the group’s main C2M battlefield. The APP itself was first launched back in 2018 for testing, and its original USP was not C2M but predominantly low prices and frequent discounts to counter Pinduoduo. However, after formally establishing a C2M BU within the group at the end of last year, “Special Offer Taobao” was bestowed a new mission: Now the platform has been linked to 1688, Alibaba’s B2B sector where thousands of factories are registered and ready to serve. Furthermore, according to Hai Wang, Head of C2M BU at Alibaba, the platform was planning to have 90% of its SKU directly supplied from factories by the end of the year 2020.
Hai Wang introducing Special Offer Taotao (PC of Xinhuanet.com)
Another relevant big move is Alibaba’s Rhino Factory. This has been a three-year secretive project until this September when it was publicly presented. Rhino Factory is an Industry 4.0 clothing factory from head to toe, where a digital cerebral center receives and processes data about orders and translates it into digital instructions for the whole assembly line. The result is quick adaption to varying order requirements (aka flexible production lines) and higher efficiency in resource allocation. So far, it has fulfilled orders from 200+ fashion E-stores. It is not hard to see that Alibaba’s ultimate ambition is to replicate this digital factory model to other factories and other industries, thus launching a manufacturing revolution within the country and beyond.
Currently, SKUs on Special Offer Taobao are still mainly comprised of consumer goods products that are rather easy to make, such as food & beverage, tissues, cleaning tools, battery chargers, phone cases and clothes. The platform is endeavored to increase its SKU span and to include more sophisticated products in the future.
Inside Rhino Factory, where IT talents and experienced manufacturing workers work side by side. (PC of CBNData)
In 2018, Pinduoduo (also “PDD”) announced its “New Brand Initiative”, claiming it will equip 1000 Chinese factories with consumer data to create “hit products”.
Established in 2015, PDD now has over 700 million active users. This year, the platform achieved quarterly profits for the first time. PDD was able to quickly accumulate users firstly thanks to its social E-commerce nature, and also thanks to a huge price advantage as consumers were shopping directly from factories or mimic brands – the latter has been rather criticized and ridiculed. Now, having benefited from the organic growth brought by C2M model, the platform is eager to consciously support its manufacturers with consumer insights data.
Pinduoduo’s New Brand Initiative
JD’s C2M has been featuring collaboration more with consumer electronics and home appliances brands, rather than with factories from other consumer goods sectors. In this year’s 618 Shopping Festival, the percentage of product revenue created via C2M model where brands and the platform joined hands in R&D process reached close to 25% of JD’s total revenue in home appliances segment.
Last month, JD announced its plan to develop “C2M Smart Factory” where specific customer needs could be translated into a production process that is “adjustable, trackable and quantifiable.”
In the next chapter, we will be discussing the reasons behind C2M’s surfacing influence and what brand owners can do to keep up with this disruption and to even benefit from it.
Aventura is a China focused venture builder and market partner. Aventura offers holistic solutions to launch, manage and grow businesses in China, drawing upon competences across marketing, sales, e-commerce, and logistics. Founded in 2011, the Group’s client base comprises a wide range of multinationals, international consumer brands, startups and investors. Aventura is headquartered in Shanghai, with additional representation in Hong Kong and Stockholm.