Last Updated on September 20, 2024
In the competitive and crowded Chinese retail market scene, foreign businesses are eager to find ways to introduce their products to new consumers from Mainland China.
The daigou industry used to be a highly coveted global trade channel for this, with personal shoppers directly catering to the local demand for overseas goods. Their extensive networks make cross-border transactions easier and more personalized for Chinese consumers.
However, with the recent government crackdown on the daigou business scene, do these personal shoppers still hold the same influence in the Chinese market?
Let’s explore how today’s Chinese customers view daigous in China and the possible effects of their cross-border trades on your local market entry.
Understanding the Crucial Role of a Daigou in China
A daigou (代购) in China refers to an individual or group that purchases products outside of Mainland China based on the demand of local consumers. The term literally translates to “buying on behalf of” or “surrogate shopping.”
Back then, the daigou trade was typically executed by Chinese students abroad or people who migrated to other countries. After purchasing the goods, these shoppers often sell them for a profit through their existing consumer base or marketing channels.
How daigou trades work in China (Step-by-step)
Before the government started reinforcing border regulations, luxury brands effectively utilized daigou agents to increase their local brand awareness. Global businesses like Dior, Gucci, and Louis Vuitton treated these luxury goods sales from parallel channels as an added value to the already prevalent travel retail trend among Chinese tourists.
The daigou industry thrived in China’s preference for word-of-mouth marketing. However, as local social media platforms rose in popularity, these professional shoppers eventually shifted their consumer acquisition strategies to these channels.
With access to cross-border brands unavailable or with limited stock in the country, Chinese customers rely on daigou agents to acquire the desired products.
Is Daigou legal in China?
Despite the common misconceptions, the daigou trade is legal in the Chinese market. However, with the implementation of the local e-commerce law, the Chinese government requires these professional resellers to register as official business entities.
So, when a purchase abroad is made on behalf of customers, merchants are liable to taxes and other fees required by the Chinese government and the country where the goods are bought.
They must now declare their purchases and ensure they comply with Chinese customs rules, which has increased operational costs. This has caused many smaller daigou businesses to close, as they find it difficult to compete with larger platforms that can better absorb these costs.
Legal Requirements for Daigous in China
How Does a Daigou in China Affect Your Business?
● Gauging Brand Interest for Market Entry in Mainland China
Daigou sellers offer a unique avenue for foreign brands to test their potential in the Chinese market without requiring a formal launch.
These personal shoppers specialize in bringing foreign goods to China, which are often unavailable or highly taxed domestically. By doing so, they create initial awareness and demand for products.
The daigou network acts as a proxy market study, indicating how well a brand might perform on a larger scale. When they source and resell high-demand goods, brands get insights into Chinese consumer preferences and behaviors.
Source: Jing Daily
Foreign beauty products saw tremendous success through daigou sales, as products from South Korea, Japan, and Europe flooded Chinese homes. They played a key role in propelling demand for brands like Estée Lauder.
Many of them used data from daigou transactions as a measure of launching their formal entry strategies. These insights can help in planning product localization, marketing campaigns, and pricing models to suit Chinese consumer preferences.
● Daigou Sellers on Cross-Border E-Commerce Platforms
With recent regulations requiring daigou agents and retailers to register as legitimate business entities, many are shifting to cross-border e-commerce platforms to establish a more formal presence.
Beyond the convenience of logistics and official market entry, these channels also open doors for daigous to access a more structured, scalable way to reach a specific target audience.
Xiaohongshu Profile and Store Operated by a Chinese Daigou
Take Xiaohongshu (Little Red Book), for example. Traditionally, daigou sellers of overseas luxury goods used the platform to promote their purchasing services. However, many are taking things further by opening virtual storefronts.
This move simplifies the customer journey, allowing potential buyers to discover products, learn more about their services, and purchase from their existing inventory without leaving the app.
Moreover, Xiaohongshu was initially launched as a lifestyle-sharing app. Because of this, the app’s user base is still highly inclusive of consumers actively seeking premium and luxurious goods.
WeChat Mini-Program for Daigou Services
Meanwhile, some daigou agents even go as far as launching their own WeChat Mini-Programs to serve their existing clients better and take advantage of the super app’s broad audience reach.
It’s a direct sales channel within the WeChat ecosystem, where sellers can customize offers, manage payments via WeChat Pay, and foster long-term consumer relationships.
These mini-programs can accommodate everything from exclusive product pages to tailored promotions and loyalty programs. They give daigou sellers the tools to control the customer experience, build trust, and leverage the power of private traffic.
● The Rise of Daigou Shopping Websites
While individual agents often operate on a small scale, some larger companies have established e-commerce websites exclusively for daigou trades. YMatou (洋码头) is an excellent example of these platforms, employing over 80,000 overseas buyers in 83 countries.
YMatou focuses on high-demand categories such as luxury items, fashion, cosmetics, and skincare, with many international brands being available directly on the platform.
It serves as a middle ground between small-scale independent daigou sellers and larger international retailers. The platform also provides a legitimate infrastructure for individual overseas buyers to operate at scale while reducing risks on product authenticity and logistics.
● The Growing Presence of Daigou Agents on Social Media Platforms
Chinese consumers view daigou sellers as authentic curators of foreign goods. This trustworthy image is crucial in a market where consumer skepticism toward unknown or unfamiliar brands can be a significant barrier to entry.
When a daigou promotes a foreign product, it benefits from the personal credibility and long-standing relationships they’ve built with their followers. As a result, overseas businesses gain immediate, organic exposure in a market where traditional advertising might struggle to create a similar level of trust.
Luxury Watch Daigou Agent on WeChat
With an official social media profile, daigou sellers can promote their services and showcase available inventories in various formats. On WeChat, they can use features like Channels to demonstrate the products in action, offering a more dynamic way for potential customers to see the goods.
In addition, they can create visually appealing, informative articles highlighting the products they can purchase on behalf of clients. These articles provide details, trends, and insider tips, helping to build trust and engage the audience.
All these content formats can be optimized with specific tags to increase visibility so they appear in WeChat’s search results.
By using the right keywords, daigou sellers can attract more customers who are already searching for similar products, ensuring their content reaches a relevant and interested audience.
WeChat Livestreams of Chinese Purchasing Agents
Another social media content format that works well is live-streaming. It enables purchasing agents to showcase products in real-time, often streaming directly from overseas stores or markets. This gives buyers confidence that they are getting a genuine item.
Seeing the daigou agent physically select an item from a store shelf adds a layer of transparency. This is critical for building trust with Chinese consumers, who are often wary of counterfeit goods.
Consumers can also request real-time demonstrations of products—whether it’s how a designer handbag looks when worn or a close-up view of the details on a luxury watch. This type of engagement drives immediate purchasing decisions.
At the end of the day, foreign brands can utilize the social media trends launched by daigou sellers to build their reputations and reach new audiences, especially if their business has yet to have a direct retail presence in China.
● Reaching Chinese Consumers from Lower-tier Cities
Some may think that customers from lower-tier cities are unlikely to indulge in luxury purchases. This assumption is quickly becoming outdated, especially with the growth of the middle class in these smaller urban regions.
These consumers are becoming more affluent and increasingly inclined to spend on luxury goods. This is one reason why brands like Louis Vuitton, Gucci, and Dior have expanded their presence in these cities.
As more brands enter lower-tier cities, the daigou trade is important in connecting these consumers with international products, especially when physical stores are not yet present in these areas.
● The focus on Niche Markets and Limited Edition Goods
Consumers in China, particularly younger, wealthier shoppers, are increasingly looking for rare and unique items that set them apart.
Daigou sellers excel at sourcing hard-to-find items, especially limited-edition goods in high demand. This focus on exclusivity gives them an edge in a competitive local retail marketplace.
These sellers understand this consumer mindset and capitalize on their ability to procure such items from overseas markets. According to Bain & Co., limited-edition products account for up to a third of all daigou consumptions, signifying the demand for these types of goods in this market segment.
Chinese consumers at a duty-free shop (Source: Jing Daily)
What is the Current State of Daigou Market in China?
The daigou phenomenon reached an impressive feat of $57 billion market value in 2019 before the travel restrictions were placed for the pandemic.
However, the COVID-19 pandemic dramatically impacted this industry, halting much of the overseas travel that Daigou agents relied on to purchase products. After this, the reports on sales and demand from this market segment became relatively scarce.
The introduction of tighter regulations and the rise of legitimate e-commerce platforms and domestic duty-free stores have likely led to a decline in Daigou activity. By 2021, industry experts predicted that the market would never return to its pre-pandemic scale.
Dewu’s booth at China International Import Expo (Source: China Daily)
The shift in demand in the daigou market has allowed online retailers like Dewu to capture around three-fourths of the segment’s trades.
On the bright side, the strict regulations have pushed many daigou agents to operate as large-scale organizations rather than individual buyers. These business entities continue to dominate the market for luxury products, particularly for high-demand items like cosmetics, bags, and jewelry.
Challenges of Today’s Chinese Daigou Market
Daigou sellers have long offered luxury goods at lower prices, taking advantage of tax exemptions, currency exchange rates, and discounts available abroad. While this may initially seem beneficial for Chinese consumers, it often comes at a cost to foreign luxury brands.
The lower prices offered by daigou can significantly undermine a brand’s perceived value and exclusivity, especially in a market where luxury products are often seen as status symbols.
Source: Jing Daily
In China, where luxury brands are a marker of social status, paying a premium for high-end products is part of the appeal.
When a daigou sells these items at discounted rates, it creates a mismatch between the brand’s pricing strategy and consumer expectations. This can dilute the brand’s luxury image, positioning it more as a commodity than an aspirational product.
Your Trusted Digital Marketing Partner in the Chinese Market!
Although the stricter e-commerce regulations did reduce the influence of the Daigou market in China, there’s no denying that it’s still a beneficial network for foreign brands. The shift towards formalized channels urges these sellers to innovate, but it gives businesses more control over how to collaborate with them.
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At Sekkei Digital Group, we understand the local demand coming from the daigou market. With our highly experienced team, we can help your brand understand and maximize the perks of these channels.
Whether your brand needs to amplify its local social media presence or simply work with influential KOLs, we have all the digital solutions you need. Contact us today, and let’s discuss your market entry in China.
References:
Focus: ‘Daigou’ goes corporate as retailers seek new ways to reach Chinese shoppers