“Digitisation will not create cracks, technologies will make the city a better place” – Jack Ma, founder of Alibaba Group. Is Hong Kong poised to be the leading smart city? Are marketers ready to embrace digitalisation in business?
The Greater Bay Area initiative aims to integrate Hong Kong, Macau and nine cities in Guangdong province to develop an integrated economic hub, with innovation and technology as a key focus.
The business potential of the area is undoubtedly tremendous. According to government data, its overall GDP is about US$1.36 trillion for a population of 68 million, making the region “as rich as a country” in terms of total economic size and population.
Michael Lee, managing director of Nielsen Hong Kong and Macau, says the Greater Bay Area has a prosperous tourism industry because of the large numbers of visitors. The area also leads in many different industries such as manufacturing, banking services, telecom, etc. It is such a big market for marketers to tap into.
The 9+2 cities have greater demands and are better positioned to be developed into smart cities. The concept of “smart city” has been around for many years – infusing technology, innovation and data analysis into every aspect of the city’s operations to drive economic growth and improve the quality of life for citizens. And Hong Kong appears well-positioned to be a leading smart city within the Greater Bay Area. But the question is: how is the progress of business digital transformation in Hong Kong?
We are lagging behind
Despite well-developed infrastructure and high internet penetration, the pace of digitalisation in Hong Kong is lagging behind neighbouring cities. According to the second edition of the “Smarter Digital City White Paper” by Google Hong Kong, the consumer digital index only slightly increased compared with last year, and only 30% of local residents considered Hong Kong a smart city, ranking it third behind Tokyo and Singapore.
The research also surprisingly found that the retail industry was the only category among others (travel, finance, living and people) in the survey that went backwards in digital engagement at 4%.
Leonie Valentine, managing director of sales and operations at Google Hong Kong, comments: “We always expect the pace of digitalisation to improve, and engagement by digital is going to improve. The fact it is actually going backward is quite interesting.”
Slow digital adoption by local small and medium-sized businesses is one of the reasons accounting for the retrogress.
“Hongkongers have been shopping online for a very long time. But they have been buying from e-commerce providers outside of Hong Kong. We do have a couple of homegrown success stories. But I think there is an opportunity for Hong Kong retailers to catch up,” she says.
“Consumers use digital because they want a wider selection and better real-time availability of products. Perhaps the retailers haven’t made the investment and built the right application, particularly mobile apps, and made their products available to select easily online.”
She further explains the traditional mindset of business has held Hong Kong back. Local SMEs have refrained from embracing digital and innovation to improve the customer experience and the delivery of services.
This is reflected in only 17% of SMEs in Hong Kong engaging in e-commerce, compared with 46% of their counterparts in Shenzhen and Guangzhou. And only 50% of local SMEs agreed that digital was a fundamental of business, according to Google’s white paper.
“One thing has always been said about Hong Kong: Hong Kong retailers did not need to do e-commerce because there is a shop on every corner, it is very convenient in Hong Kong. And for very long time, that’s been the excuse for why we didn’t need digitalisation in the retail environment,” Valentine says.
She points out it is important for business to change the traditional mindset from retail as a physical store, to the modern view which sees retail as a digital process driven by consumers.
“It goes from online to offline, and potentially goes back to online again.”
Online and offline channels are no longer divided in the eyes of consumers. It is essential for businesses to invest in technology and encourage digital interaction to create a personalised experience that is convenient and seamless across all touch-points for their customers.
“Digital transformation is a very broad term, from marketers’ perspective, we would see ‘digital’ first in terms of digital advertising, website, mobile, application, obvious things that marketers get involved in every day,” she says.
“When you think of an organisational perspective, digital transformation actually comes through to how are those tools and technologies related to existing systems and driving transformation across the whole business.”
Valentine points out there are many free tools that businesses can use to get themselves more “digital” such as setting up a website, locating the shops on Google Maps and getting analytics tools.
Slowly catching up
Although business digital transformation is slow, there are local businesses which shine in e-commerce, Ztore.com being one of the examples. It leverages technology in collecting data, the customer experience, logistic management and marketing strategies.
Founded in Hong Kong in 2015, Ztore.com is a Hong Kong-based online marketplace with nearly 250,000 registered up-to-date users. It focuses on providing local quality products. It aims to help local SMEs, particularly traditional brands, boost their appearance online. The online marketplace overall has more than 10,000 SKU, 1,000 of them are made in Hong Kong products.
Ztore recently raised US$8 million in series B funding. With the new funding, not only will it advance its warehouse and logistics management system, it will also launch a new mobile app, as well as a revamped website with a new algorithm that will help predict customer preferences to recommend the best products to buy.
“Loyal customers prefer personalised customer services. The new website allows every user to see a personalised layout according to their browsing and shopping history,” says Silver Wong, chief customer officer of Ztore.
“We will also develop a chatbot for our website, as we want to provide a humanity service similar to a traditional grocery store.” She adds it will further bolster the customer service by Facebook and WhatsApp’s API.
Ztore’s marketing strategy spans all departments in the company, based on the sales funnel marketing system, which starts with the acquisition of new users via social media or offline initiatives. The next step is “on boarding” – turning website visitors into customers via targeting ads or emails, and then the retention of customers through the VIP membership scheme – Zmile Club, along with a specific complaint-handling team. The last step is “growth packing” to ensure business growth rates via a referral marketing programme for existing customers.
Wong says this marketing model works well for the company, and resulted in the ROI doubling this year.
Richard Nicoll, Publicis Communications’ chief shopper marketing officer in Greater China, says: “Hong Kong is different from other cities in the Greater Bay Area, it is geographically smaller with a more developed physical retail infrastructure and subsequent rental pressures. What we see in Hong Kong is a totally different scale-niche specialist e-commerce selling, rather than mega platforms.”
Apart from e-commerce, e-payment is another key element for digital transformation in business for a smart city.
Since last year, the Hong Kong Monetary Authority (HKMA) has introduced a range of measures to encourage all banks in Hong Kong to develop more fintech and digital banking. There are increasing e-payment methods in Hong Kong such as HSBC’s PayMe, WeChat, Alipay and the Faster Payment System by HKMA.
Michael Lee, managing director of Nielsen Hong Kong and Macau, says: “In China, WeChat Pay has become the main e-payment method to get transactions done between individuals, or individual to business. It helps to get people used to e-payment in their daily lives. However, we still haven’t seen a single platform like this in Hong Kong.”
WeChat Pay recently announced that Hong Kong customers will be able to pay for goods in China via their Hong Kong WeChat accounts.
“This move indirectly accelerates the pace of digitalisation in Hong Kong. Hong Kong people still need more time to adopt epayment, and to change their habits to use new platforms.”
“In the Hong Kong retail sector, less than 5% of supermarkets and pharmacy businesses have installed a scanning system, and less than 30% of them have installed e-payment/octopus machines. Most of the transactions are done by cash. It has a long way to push it to 100% installation of machines. It requires a change of hardware and the mindset of retailers,”Lee says.
How to push further
As a result of digitalisation, the collection of quality and quantity of data has improved. Marketing has become much more target grouporiented, more efficient and more effective.
However, only 24.5% of total ad spend is on digital in Hong Kong, which is relatively lower than other major markets in the world. Valentine says: “We still have a traditional mindset marketing group. Marketers need to think longer term how to embrace digital.”
Valentine has been in the marketing industry for 27 years, starting her career in advertising. “We see a lot of trends in the marketing industry, but the number one trend is data,” she says.
“Business needs to think about the customer journey itself. What are the online/offline touch-points that they have with customers. Where are they collecting the right data. How are they going to use that data to make more informed decisions on where to invest their money.
“Marketers really have to dig deep in the customer data to find out how the customers are behaving both online and offline. The information will allow them to think of smarter campaigns.”
At the end of the day, a marketing strategy always depends on the brand and product.
“But, as a rule of thumb, a strategy must be built on the real understanding of why consumers buy, how they shop or desire to shop, and most importantly, what’s stopping them from buying. This understanding must come from the right data (sales data, but also social listening and search),” Nicoll says.
Customer behaviour is constantly evolving. He adds: “In both China and Hong Kong, we now live in an expectation economy. The constant challenge is keeping up with and meeting consumers’ expectations. Brands and retailers who do this will be the winners.”
Nespresso’s current challenge is that customer expectations are getting much higher, so it has created a seamless shopping experience with various online and offline touch-points that will accelerate sales growth.
It experimented with Google’s “store sales direct”, which allows businesses to import offline transaction data directly into Google Ads. It visualised the journey of customers and sharpened the audience-led click-to-mortar strategy. From this experiment, Nespresso understood that 56% of customers were influenced online and completed purchases offline; a 60% lower cost per acquisition; and a 53% higher return on advertising spend when online-tooffline transactions were included.
“There is no doubt that digital tools, technologies and data drive efficiency in businesses – reduce waste, reach more customers faster, and probably increase share of wallet and customer loyalty over time,” Valentine says.