Alibaba: Trust Is Make-or-Break for eCommerce Shoppers in China

Amid Alibaba’s declining profits, the eCommerce giant is seeing its online shoppers’ spending habits depend heavily on how trustworthy they feel the platform is.

On a call with analysts Tuesday (May 17) discussing the Chinese multinational technology company’s most recent quarterly earnings report, CEO Eddie Wu spoke to how efforts to instill confidence in shoppers are paying off.

“Our investments in … elevating the user experience have received positive consumer feedback,” Wu said. “We’ve seen tangible results in progress, strong growth in quarterly buyers and purchase frequency that has driven robust double-digit growth in GMV, reflecting a continued improvement in consumption and user trust.”

If Chinese eCommerce shoppers are anything like their U.S. counterparts, trust is a key driver of purchasing habits. The PYMNTS Intelligence report “The Online Features Driving Consumers to Shop With Brands, Retailers or Marketplaces,” created in collaboration with Adobe, drew from a survey of more than 3,500 U.S. consumers to understand their actions, choices and behaviors when shopping online. The study revealed that three-quarters of consumers consider trust to be a pivotal factor in their choice of eCommerce merchant.

Plus, findings from PYMNTS Intelligence’s 2022 report “Satisfaction In The Age Of eCommerce: How Build Customer Loyalty Trust Helps Online Merchants Build Customer Loyalty,” created in collaboration with Riskified, showed that 59% of online retail shoppers who have had unsatisfactory experiences with a given merchant say they are “slightly” or “not at all likely” to trust that merchant.

In addition to trust, confidence in their financial futures is proving to be a key driver of Alibaba’s customers habits.

“As we look at the Chinese consumers … right now, household cash is at its highest point. We’re looking at something like $19 trillion of household cash savings that’s in the system,” Alibaba chairman Joe Tsai told analysts. “So, the Chinese consumer has the ability to spend. I think all we’re looking at is, what’s their confidence level of spending on a going-forward basis?”

He added that some discretionary categories are seeing gains, suggesting that consumers in the country are increasingly open to making nonessential purchases, but uncertainty remains, and price continues to be top of mind. CFO Toby Xu highlighted “increasing demand of price-competitive products,” and Wu noted that the company’s price points on offer are key to its efforts to improve consumers’ satisfaction.

Overall, it was a tough quarter for Alibaba, with the company reporting an 86% year-over-year drop in net income, which, per the company’s earnings release, was “primarily attributable” to losses from its “investments in publicly-traded companies” in the three-month period. Revenue, meanwhile, was up by 7%.

As Alibaba navigates through a challenging quarter marked by declining profits, its focus on cultivating trust among eCommerce shoppers proves key to driving sales. Additionally, the company’s attention to pricing competitiveness and consumer satisfaction reflects its focus on addressing evolving consumer preferences and uncertainties, particularly amid a backdrop of economic fluctuations. With these focuses, the eCommerce firm aims to capture the sizable opportunity presented by Chinese households’ increasing spending power.