CAUTIOUS AND SKEPTICAL SHOPPERS
Exploring Special Participant Behavior in China’s C2C Market
Yifan Li
Management School, Fudan University, 670 Guoshun Road, Shanghai, China
Ling Zhu
School of Business, East China University of Science and Technology, 130 Meilong Road, Shanghai, China
Yuning Zu
Anran Corporation, Chicago, IL U.S.A.
Keywords: Consumer-to-consumer, China, Consumer behavior, Market analysis, Localization strategy.
Abstract: Despite the growing body of literature on consumer behavior in electronic markets, previous research has
focused on western customers and cultures rather than upon China, the world’s largest netizen community.
In this paper we conduct structured in-depth interviews with 15 experienced buyers and sellers in China’s
consumer-to-consumer electronic market. Based on the interview results, we characterize the special
behavior of sellers and buyers in China, specifically focusing on the level of market maturity and economic
status. We further analyze the economic foundation of their behavior and use the eBay and Taobao case to
illustrate the importance of understanding the behavior.
1 INTRODUCTION
By the end of 2008, the number of Internet users in
China has reached 290 million and become the
biggest online population in the world. With more
than 130 percent growth rate, online retail sales in
China exceeded one hundred billion RMB in 2008
and accounted for one percent of total yearly sales
for retail and food services (iResearch, 2008). Eighty
million Internet users shop online and boost China’s
emerging consumer electronic market.
Attracted by the promising future, many
international companies such as Amazon and eBay
invested heavily on China’s e-business markets.
However, these dominant e-commerce market
makers in the United States face many challenges
when they try to replicate their success in China.
Previous research compared the differences
between international and local firms at the
This research is funded by the National Innovation Foundation of
Chinese Science and Technology Committee, and subject to the
project “Internet supervising system based on behavior analysis”
(No: 08DZ1191000).
corporate level (Lin and Li, 2005; Li, et. al. 2009).
However, few studies focus on the behavior of
participants in consumer-to-consumer (C2C)
markets, especial the consumer behavior in the big
emerging C2C markets in China.
In this research, we conduct structured in-depth
interviews with 15 persons who are experienced
buyers or sellers in online C2C markets. The results
characterize the different behavior of C2C
participants in China.
In following sections, we first review the general
business environment in China. Based on the
interview results, we characterize the sellers and
buyers’ behavior in China’s C2C market,
specifically focusing on the level of market maturity
and economic status. We further analyze the
economic foundation of their behavior and use the
eBay and Taobao case to illustrate the importance of
understanding the behavior.
151
Li Y., Zhu L. and Zu Y. (2009).
CAUTIOUS AND SKEPTICAL SHOPPERS - Exploring Special Participant Behavior in China’s C2C Market.
In Proceedings of the International Conference on e-Business, pages 151-158
DOI: 10.5220/0002191201510158
Copyright
c
 SciTePress

2 STRINGENT BUSINESS
ENVIRONMENT IN CHINA
Since 1978, following the Reform and Open Policy,
China has been in the transition from the planning
economy to the free-market economy for thirty
years. Although China’s GDP has been growing at
the highest rate among all countries in recent years,
the business environment in China is still unfledged.
As to online business, it is an interesting but a quite
different story compared to developed countries. To
understand China’s C2C market, we first briefly
review China’s overall business environment from
both the business side and the consumer side.
2.1 Constraints on Small Businesses in
China
Although investment climate in China has been
improving dramatically in recent years, restricted
government regulation, heavy taxation, the shortage
of financial and professional services, and lack of
credit systems greatly Constraints the growth of
many brick and mortar small businesses.
China has one of the most complicated systems
of business registration. Many arising small
businesses have been stranded by strict registration
polices and tedious approving procedures. Business
registration and licensing are required for many
informal and flexible jobs such as shoe polishers,
handymen, and booth sales. In some cities, the labor
work and even scavengers need to be officially
registered; otherwise they will be treated as illegal.
As a comparison, in developed countries, self
employed individuals can work without registration,
as long as they follow the rules and pay taxes.
According to World Bank’s “Doing Business
2008” (World Bank, 2007), in China, registering a
company requires 13 administrative procedures,
taking an average of 35 days at a cost of 8.4% of
income per capita compared to 6 procedures, 6 days,
and 0.7% of income per capita in the United States.
Furthermore, the minimum capital of 190.2% of
income per capita becomes a high entry-barrier for
many entrepreneurs.
During the business operation, small firms face
very heavy taxes and fees including 33% corporate
income tax, 17% value added tax (VAT), 5.5%
business tax, and additional taxes (Kim, et. al. 2006).
The corporate income tax leads to double taxation
for many proprietors and business partners as their
incomes are subject to personal income taxes. In
addition to the taxes, some government agencies
collect miscellaneous fees from non-state owned
firms. For example, in a survey in a small city in
2005, 23 firms were charged a total of 12 million
RMB fees compared to 3.9 million taxes. Small
firms cannot maintain a profit margin for a
sustainable growth
In China, professional services such as financial,
accounting, and payment services are difficult to
find. Among those, the biggest problem is lack of
capital and investment. Although bank loan and
credit are the major form of new capitals for small
businesses, the shortage of co-signers and collaterals
makes it hard to get the loans. Moreover, due to the
limited operational power of local government
institutes, many start-up funds and project contracts
designed to support small businesses can hardly
reach the entrepreneurs in need. For example, one
government agent only approved ten
uncollateralized small loans for startups in five
years.
Currently the free-market economy in China is
still unfledged. Personal and corporate credit
systems have barely emerged but not been widely
adopted. On the other hand, the business morals
inherit from the long time planning economy such as
“cheat nobody, neither the old nor the young” and
“being honest and keeping promise” have been
much weakened because of the intense competition
and immature protection by the current laws. In
developed countries, either shoppers or buyers
cherish their credit so much that they would never
leave anything unpaid. There is no such trust and
punishment established in China yet. Therefore, the
majority of buyers and sellers would rather use cash,
even for online transactions.
2.2 Low-end Consumers
Base on the data published by National Bureau of
Statistic of China, the net annual income per capita
in 2008 is 15,781 RMB ($2,321) in urban area and
4,761 RMB ($700) in rural area. Despite of the high
growth rate of income per capita in China, its
absolute income level is still quite low compared to
that in developed countries.
Cheap labor costs in China have been well
explored in the past two decades. In the last few
years the government signed a series of labor laws to
protect worker’s right such as the minimum hourly
rate. But compared to developed countries, the
absolute labor cost in China is still low. For
example, the part time hourly rate in Beijing where
the labor rate is the highest among all other cities is
9.6 RMB ($1.41) per hour.
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Based on the statistics from China Consumer’s
Association, consumer’s time and money spent for
rights protection is much higher than the actual
compensation. The low compensation rate cannot
enforce the punishment to sellers who broke the
laws. According to officials in China Consumer’s
Association, even a consumer won a lawsuit, the
average compensation he or she can get is only 700
RMB ($103), which is extremely low. While in the
U.S., the average compensation per case is $350,000
in 2007, about 3,700 times more than it in China.
Series of the consumer rights protection laws need to
be revised to keep up with the market change.
Besides the low compensation in money, consumers
who sue a company usually are overwhelmed by the
tasks to get evidence, make a complaint following
proper procedures, and push through the process of
investigation, lawsuit and final settlement. The time
of the whole procedure is quite long. Even though a
consumer won a case, he or she actually lost more.
Practically, considering the time, money, and energy
spent in rights protection, consumers are better off to
do nothing.
3 EMERGING C2C ELECTRONIC
MARKET
Online electronic markets in China quickly boom in
the past few years. Compared to set up a brick and
mortar business in China’s stringent business
environment, it is much easier and efficient to set up
a business online. Invested by Alibaba, the largest
B2B company in China, Taobao.com was founded in
2003, focusing on the C2C market. In 2007, the total
revenue for online C2C transaction in China reached
5.18 billion RMB (740 million dollars), while
Taobao alone accounted for 84.9% of it (iResearch,
2008). Despite the large proportion of the C2C
market share, Taobao does not make attractive
profits itself. Even though, attracted by the potential
of this huge, emerging value added market, other
major players such as Baidu.com, TOM-eBay
China, and Paipai.com also launched their
marketplaces and intensified the competition in the
C2C market.
There are 1.05 million active online stores in
China’s online market. 850 thousand of them, eighty
percent of the online stores, are on Taobao. Among
1.17 million online sellers, 1.05 million are on
Taobao’s platform (iResearch, 2008). However, the
average monthly income of the sellers is not high
though, about 2,080 RMB ($300) per month. As
shown in Figure 1, 42.7% of the sellers have
monthly income between 800 to 1,500 RMB and
30.5% are between 1,500 to 2,000 RMB. Only top
1.3% earned more than 6,000 RMB per month.
Based on a sales survey, about 90% of the sellers are
small and they only contribute to 20% of total sales.
For example, more than two thirds of the sellers
have monthly sales lower than 2,000 RMB.
Figure 1: Monthly incomes of C2C sellers (in RMB).
The majority of buyers in the online C2C market
are white collar workers, middle class employees,
and college students between 18 to 35 years old.
Without high annual incomes, they have spare time
and energy to explore opportunities in online
markets. Female is the main body of online shoppers
in China’s C2C market. In large volume
transactions, such as apparel, cosmetic products, and
jewelry, the number of female buyers always surpass
the number of males. Other female dominated
product categories include nutrition supplements,
kitchen, home, body and bath products, toys, baby
and kids’ products, as well as pets and pet related
products. Most buyers live in urban and sub-urban
areas in big cities such as Beijing, Shanghai and
Guangzhou. People with higher education,
especially college students, contribute a great part to
C2C online transactions.
In this paper, we use orientated structured in-
depth interviews method to study the behavior of
buyers and sellers. We developed a survey online in
December 2008. Based on the survey results, we
selected fifteen individuals who are mostly qualified
for this research and made an in-depth interview
with each of them. Among the interviewees, there
are seven buyers, three common sellers, and five
professional sellers; six females and nine males;
eleven college or graduate students and four full
time workers. They are aged between 20 to 26 years
old. Ten of them do the online transactions on
Taobao only, and five have been using both Taobao
and eBay, but not other platforms. This distribution
reflects the market share of Taobao and eBay.
The in-depth interview is one to one in person
and lasts about 30 to 90 minutes. We developed two
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153

survey questionnaires, one for professional sellers,
one for buyers and common sellers. The
questionnaire for professional sellers includes detail
questions such as personal information, online
shopping history, professional selling history, and
the choice of platforms; buyer’s questionnaire
includes personal information, online shopping
history and experience, and the choice of platforms.
The questionnaire for common sellers is the almost
same as buyer’s questionnaire except for additional
questions on selling experience.
Based on interviews, we find three most
important characteristics in the marketplaces: there
are many professional sellers, both sellers and
buyers are price sensitive, and lack of trust to sellers.
3.1 Professional Sellers
Professional sellers who take online sales as their
career are very active in China’s C2C market and for
many of them online stores are the only business
opportunities. In China, there are many people who
are not wealthy but have urge to make money. To
open an online store, what they need is just a
computer and the Internet. iResearch (2008) shows
that one quarter of C2C online sellers are consist of
unemployed workers, college students, or fresh
graduates. They have no or very low income,
relatively weak working skills, but plenty of time.
They could be frightened by the hurdles of setting up
brick and mortar stores in China’s stringent business
environment, or tired of endless registration
procedures and all kinds of fees. Online C2C
platforms have provided them a low threshold, low
risk, and a feasible starting point for a small
business.
The main source of income for the professional
sellers is from online transactions. They usually start
as common sellers and explore a new way of making
money online. Based on the interviews, some
college students who had no cash investment due to
their financial situation usually started as agent.
They set up an online store, post photos and product
details from other online stores with their
permission. They will pass all orders to the upstream
online stores and pay for the orders as soon as they
receive payments from their consumers. Or they
might even find upstream providers from the online
B2B market and order from there directly to make
more profit.
Not all common sellers became professional
sellers. Actually most of them just stayed as
common sellers being aware of how much time they
need to put in as professional sellers and the
intensity of competition among the online stores.
Many of these beginner sellers are opportunistic. For
them, to became a professional seller or not depends
on the profit and risk factor.
The nature of transactions made by professional
sellers and common sellers are different. Without
cash investment, common sellers sell second hand
products, coupons, or products from their upstream
channels. For professional sellers, their profit comes
from the price difference between wholesale and
retail. However, compared to offline retailers these
professional sellers do not need to register as a
company, rent an office physically, and pay
numerous taxes and fees. There is not much to lose
if they shut down the online stores. These characters
are very attractive for online retailers. The most
active online stores in the C2C marketplaces are
operated by these professional sellers. Although the
sellers operate the stores as their career, the
businesses are usually too small to be considered as
the real Business-to-Consumer scenario.
We are focusing on the professional seller
behavior in the following part through the analyses
on the characteristics of their operations.
Investment and Risk: Professional sellers need to
purchase stock from wholesalers. They have to use
push system rather than pull system to lower the cost
per product. In another word, they need to stock up.
This means risk. A professional seller who used to
be an agent said during the interview, “Compared to
the offline business, I don’t need an office for
operation. But I do need to stock up. This is risky.
But otherwise the benefit is marginal.” She is not
satisfied with her previous experience as an online
agent. “As an agent,” she said, “I cannot physically
access and examine the products I am selling and if
any problem arises, it’s hard to resolve. It’s also very
difficult to coordinate the shipping in time.” But the
key reason why she changed to be a professional
seller is that the price she got as an agent was pretty
high.
Time and energy: It is critical that sellers can be
reached at the time of a potential transaction in
China’s C2C market. Due to the culture difference
and lack of reliable credit systems, buyers usually
contact sellers online for verification before submit
any order. Like one Taobao seller mentioned, if a
seller cannot be reached at the time of sales, buyer
usually will not wait but just switch to another seller.
Therefore professional sellers need to be online most
of the time to answer buyers’ questions and avoid
any sales loss. Some professional sellers even hire
others for 24x7 online support.
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Advertising and publicizing: Advertising and
publicity are the key to boost sales because
thousands of sellers are selling similar products on
the Internet. Most of the sellers just wait passively
for consumer’s visits which have a very low
possibility. Others advertise their produces through
paid publicity on Taobao.com or replying questions
in C2C discussion boards to get their names around.
One of the professional sellers from the interview
who sells both on Taobao and eBay said that the
Advertising especially pay-per-click on C2C
platforms is really rewarding.
Product variety: To increase the overall revenue
and to lower the cost, a professional seller usually
increases the variety of products sometimes through
multiple online stores.
3.2 Price, Price, Price
Sellers’ degree of sensitivity of the fees on opening
an online store and on transactions is highly related
to their profit levels. Professional sellers can take the
fees as their operational costs. During the interview,
when asked for the fees, one professional seller said
“if Taobao starts to charge fees, I will keep selling
and transfer the fees to buyers.” Common sellers
who do not live on the income from online sales
have less frequent transactions and they sale mainly
just for experience. Therefore, they are more
sensitive to the setup costs compared to professional
sellers (Li, et. al. 2009). For the same question about
the fees, a common seller said, “I just sell some
personal belongings and not for making money. If
Taobao charges fees, I will definite switch to another
free site... If all C2C sites charge fees, I will go back
to bulletin boards, a free place.”
Due to the low income level, buyers are very
sensitive to online prices and they are willing to
spend more time on searching and comparing to get
a better deal. Therefore, they have following special
shopping behaviors: use many price comparison
websites to find the lowest price; choose sellers in
the same geographical region to save shipping cost;
buy multiple items from one seller to reduce the
shipping fee per item; buy from the same sellers
again to get discounts; use instant messaging tools to
negotiate with sellers.
Bargaining as a traditional habit in offline
Chinese stores also appears in online markets. The
root cause of the bargaining phenomenon is the low
income level. With relative low value of time,
consumers are willing to spend more time to get
lower prices. To some people, the process of
bargaining and getting a good deal becomes a game
and a pleasant experience. For this reason, the “Buy
it now” is the most popular form of pricing
mechanisms in Chinese C2C websites and only a
few auction sites. The announced prices provide an
opportunity for offline negotiations: buyers often
shop around, compare prices, and contact sellers for
better prices. Most of consumers love the
achievement of getting a good discount and do not
like the uncertainty of raising prices in auctions. A
buyer in the interview said, “I only have one auction
experience in which the bids raised from 100 to 300
RMB. I didn’t feel comfortable with the final price.
Auctions could inflate the prices. I like ‘Buy it now’
more.”
The pricing transparency and buyers’ price
sensitivity greatly reduce sellers’ profit margin.
Therefore their only strategy is low price
competition. One seller said, “The key factor for an
online store is price because that is the reason most
of buyers shop online. Many buyers are very young
and have no stable income, they are pretty
demanding on price.” Another seller said, “Produces
in my store usually are 60 to 70 RMB cheaper
compared to offline stores. For the item with a 100
RMB price tag offline, you need to offer it at 30 to
40 RMB to attract people.” Some sellers may get
compensated from volume discounts on shipping.
One seller said, “Usually shipping companies will
approach me and offer discounts. I can earn one
RMB from five RMB standard shipping fee.”
3.3 Trust Crisis
Similar to the offline market, credit deficit, a lemon
market full of counterfeit and ersatz products, and
high costs of consumer right protection widely
create a chaotic online market. Buyers do not trust
sellers and rely more on word of mouth and
reputation systems when select online stores. Serious
sellers understand the importance of credibility and
start building their reputation. An informal credit
system is gradually developed to improve the
business environment in China.
Counterfeit and ersatz products are widespread in
the offline market and it is even worse in the online
market. Based on an investigation made by China
Association of Fragrance Flavor and Cosmetic
Industries in May 2008, 90% of cosmetic products
sold online are fake and low quality produces
swamp the whole market. Similar situations occur in
other product categories. For instance, smuggled cell
phones with new design and low prices attract many
consumers and bring sellers considerable short-term
profit. However, in long run, the lack of service
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155

support and regulation damage the relation between
buyers and sellers.
Compared to offline stores, it is much easier to
sell illegal products and avoid being detected and
punished because of the difficulty of monitoring and
law enforcement for online transactions. The
technologies to identify anonymous sellers,
investigate online, obtain digital evidence, and
regulate online activities are ready to deploy.
Due culture, social, and historical heritage, in
China, buyers generally take a skeptical attitude
towards sellers. Extensive counterfeit and ersatz
products and the difficulty of return and dispute
make buyers very cautious to shop online. Based on
a survey on 3119 individual online customers in
2007, 50.7% interviewees have no faith before they
could physically inspect the products and 49.5%
worry about after sales services. As previous
research revealed, lack of trust is the major hurdle in
China’s C2C online market (Peng, et. al. 2006;
Wang, et. al. 2006; Li, et. al. 2009). We illustrate the
detail representation of the lack of trust in the
following instances in China’s C2C market.
• Transactions made online are usually for cheap
products. For products with higher value,
customers usually buy offline to avoid the
uncertainty and risk. One buyer said during the
interview, “There is no guarantor or warranty
for online purchases. I would buy cheap
products online only for convenience.”
• People tend to buy from the same seller again if
they have previous satisfactory experiences,
which establish the trust on the seller.
• Buyers will intentionally investigate
questionable product categories and avoid
purchase in the market for lemons.
• Because of poor return policies, some buyers
prefer to investigate the same products in offline
stores before making online purchases.
• Reputation scores have a key impact on buyer’s
trust. Buyers use reputation scores to estimate
the quality of products and after sale services.
One buyer in the interview expressed that she
would not buy from a seller with more than two
negative feedbacks. One hundred percent
positive feedbacks make her feel comfortable to
make purchasing decisions.
• Buyers usually chat with sellers online to verify
the detail information on size, price, and quality
before submit an order. Taobao takes online
chat history as evidence to protect buyer’s right.
Customers tend to be influenced by word of
mouth from friends and family members. Buyers
trust the personal recommendations more than
advertising due to the poor credibility of some
businesses and the high cost of consumer’s right
protection. Many buyers in the online C2C market in
China made their first online purchase based on
friends’ reference.
Other than word of mouth, reputation scores are
another key factor to choose sellers. Reputation
scores capture the history of a seller’s transactions.
Bad reputation scores will discourage potential
customers. To get more positive feedbacks, online
sellers tried their best to satisfy buyers such as
providing better after sale services or even lower the
prices. Taobao encourages sellers to build good
reputation scores through series of evaluation rules.
The higher a seller’s reputation score is, the more
windows he or she can use to display produces on
Taobao.com.
4 CASE: TAOBAO VS. EBAY
On December 19, 2006 eBay, one of the most
successful e-commerce companies in the world,
announced a joint venture with TOM Online Inc.
and indicated the failure in the direct competition
with Taobao. In 2003, eBay owned over 70% market
shares and had a 10 times more advertisement
budget compared to Taobao. What were the reasons
leading to the overturn of market shares in three
years? Based on the analysis above, Taobao’s
business strategies on market targeting, service fees,
and online payment systems were better aligned with
the special participant behavior in Chinese C2C
market and therefore won the battle in short time.
4.1 Market Targeting
As illustrated above, eBay and Taobao, although
both serve the C2C market in China, have different
target markets. eBay committed to the second hand
market and friendly community; Taobao aims to
serve as an online trading platform for about 10
million owners of small and medium-sized
enterprises, which account for 95% of companies in
China and still mainly use traditional procurement
and distribution channels. It is hard for them to build
their own websites for online sales due to the lack of
technical support and financial investment (Peng, et.
al. 2008). Taobao provides an easy e-commerce
platform for these small businesses as well as start-
up companies and common sellers. Different market
targeting later leads to different focuses of service
pricing strategies.
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4.2 Service Fees
As a rule of thumb, price and fee sensitivity is
negatively correlated with income levels. The less
people earn, the more sensitive to the prices and fees
they are, and vice versa. For the low income level of
buyers and sellers, a small change in prices and fees
can bring tremendous changes in demand. Therefore
Taobao's free strategy not only makes fee-sensitive
storeowners switch from eBay, but also attracts the
majority of buyers.
4.3 Online Payment Systems
Before Alipay, Taobao’s online payment system,
buyers and sellers mainly use banking systems to
finish transactions. Once a buyer finds a product
online, the buyer and the seller will discuss the detail
of the transaction by telephone or instance
messaging. Then the seller will ship the product after
the buyer deposits the payment to seller’s bank
account electronically. Although the process is
simple, buyers make the advanced payment with the
risk of being cheated, e.g. receiving defective items
or no shipment at all. The uncertainty of transactions
and lack of trust on sellers precludes many potential
online shoppers.
eBay provides PayPal to facilitate payment and
resolve dispute. However PayPal’s transaction
framework does not fit into a financial environment
without established credit and trust. PayPal operates
purely based on its own authority as a moderator and
the protection of fully fledged credit card systems in
the developed countries. If a seller failed to fulfill
the agreement, the buyer can file a chargeback with
his or her card issuer or submit a claim to PayPal.
Cheating sellers will be punished by PayPal and
have bad records in the future. Personal credit
systems are essential to enforce the trust during
transactions. Therefore, with immature credit card
payment and personal credit systems in China, it is
difficult to replicate this mechanism (Li, et. al.
2009).
For this reason, Taobao designed Alipay as a
trusted middleman connected to existing banking
systems. A typical Alipay transation is: when a
buyer deposits the payment into his or her Alipay
account, Alipay will ask the seller to ship the order;
after the buyer receives the order and instructs
Alipay to finish the payment, Alipay will transfer the
money to seller’s Alipay account and the seller can
withdraw it through his or her bank. Banks rather
than online payment websites serve as the
fundamental payment infrastructure. In China, major
banks have very low default and bankruptcy rates
due to the support from the government.
Consequently, they are trusted and preferred by the
customers for the payment method.
Similar to the letter of credit in the international
trade, Alipay constructs the trusted relation between
buyers and sellers via banking systems. Although
buyers need to pay first, they can get refund if they
are not satisfied with the products. On the other
hand, sellers can get compensation for the shipping
for returned products.
Alipay changed the payment preference of online
consumers in China. According to our earlier
interviews in 2005, two years after Alipay was
introduced, most of online shoppers preferred
searching products online and finished the
transactions offline through cash-and-carry or cash-
on-delivery. However, during this study in 2008,
most of shoppers are comfortable with online
payment. Alipay has established the reputation and
facilitated the trust in the online market.
5 CONCLUSIONS
This paper analyzes China’s C2C market from the
perspective of participants’ behavior. Although the
Internet and globalization greatly reduce the national
barriers, the behavioral differences of consumers in
different countries are still tremendous. The
electronic markets in China form a unique type of
bazaars, not an auction based market. Both sellers
and buyers exhibit special behaviors for their social
and economic status. Recognizing these behavioral
characteristics is the first step for international
companies to understand Chinese online market and
consumers and design their localization strategies.
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