Opinion: For Chinese Shoppers, Some Provinces Are More Trustworthy Than Others

(ThinkChina) — In a study on consumers’ shopping patterns across provinces in China, Associate Professor Chu Junhong of National University of Singapore Business School and Professor Pradeep K. Chintagunta of the Chicago Booth School of Business found that Chinese buyers tend to buy from sellers they trust, and a seller’s location forms a large part of that equation.

Buyers in China care about where their goods come from. It has been well-established that a product’s country of origin adds to the branding effect. Think of Belgian chocolates, Swiss watches and South Korea’s kimchi.

Research shows that this geographical preference applies to goods made within China. Data from e-commerce platform Taobao shows that Chinese buyers prefer to purchase products from some provinces more than others.

Beijing, Shanghai, Zhejiang, and Jiangsu are the most preferred shopping destinations. Anhui, Jiangxi, Shanxi, and Heilongjiang are the least preferred while Hubei and Henan lie somewhere in the middle. Consumers also like to buy products from their home provinces.

This implies that provincial-level governments have an incentive to continue investing in the branding of their respective province’s products. As early as 2015, Zhejiang province issued a directive to build the Zhejiang brand, making it mandatory for businesses and governments at all levels to participate. Hubei and Henan quickly followed suit and there are now dedicated websites to help Chinese cities with the branding of their products.

At first glance, these efforts would be useful in attracting international investment. But they are also useful in attracting domestic buyers from other provinces.

Professor Pradeep K. Chintagunta from the Chicago Booth School of Business and I co-authored a study on consumers’ shopping patterns across provinces in China. This was recently published in the journal Quantitative Marketing and Economics.

Place of origin matters

Why do buyers look at the province? There is always risk and uncertainty in online shopping. To reduce their risk, buyers often look at seller reputation and reviews. In large marketplaces like Taobao however, good reviews can be plentiful and hence inconclusive. At the time of our data collection from 2011 to 2013, there were eight million sellers on Taobao. Beyond reviews and the perceived quality of the products, the seller’s location is another cue for buyers to ascertain their risk.

In other words, the location becomes a brand associated with the products’ quality and the sellers’ trustworthiness.

Preference is unrequited

It is easy to assume that buyers will prefer to buy from their home province or nearby provinces, possibly due to familiarity and lower transport costs due to a shorter distance. In that case, buyers in a group of nearby provinces should show similar levels of preference for sellers located in this group.

Interestingly, that was not the case. Our analysis of weekly Taobao sales figures found that buyers from province A may show a preference for sellers from province B, but not vice versa. For example, Zhejiang buyers have a lesser preference for Guangdong sellers but Guangdong buyers find Zhejiang an attractive source of products.

This is not because the product is only available in certain provinces. We chose data across eight common product categories such as women’s shoes, cellphones and disposable diapers. Our research showed that “standard” products were sold in all provinces. For shoes, which came in various designs, we were also able to find a visually identical pair of shoes in nearly all provinces.

At the time of data collection, Taobao sellers could not launch targeted marketing promotions based on the buyers’ province. Sellers only got to know the buyers’ location after an order had been placed. Hence, marketing timing was not a factor affecting buyers’ preference for sellers from a certain province.

It thus seems that the seller's location has a certain role to play in these asymmetric shopping patterns. Besides the distance to the seller’s province, the location also determines if there is trust.

Trusted provinces get more sales

Previous studies compared respondents’ views of "the provinces they found most trustworthy”. People trusted their home province the most. Beijing, Shanghai and Guangdong also ranked among the most trusted provinces. There was a high correlation between trust and preferences in online shopping: Buyers showed stronger preferences toward and hence bought more from provinces they trusted more.

We also looked at the provinces’ socioeconomic standards, and found that buyers preferred to buy from places with similar socioeconomic levels as their own province. Migrants also showed strong support for sellers from their home province, particularly in the category of women's shoes.

Our findings are similar to a study conducted in the U.S. The study by Daniel Elfenbein and his co-authors, using monthly eBay data collected in 2015 and 2016, found that buyers showed geographic preferences for certain states. However, the factors were different. U.S. buyers tend to buy from states with similar ethnic make-up, religion and political affiliation as their own state. This is not surprising, given the huge differences in social, religious and economic environments of the two countries.

As online shopping booms, particularly during the pandemic, it would pay for provincial or state governments to increase their efforts on branding. This would help to attract more sales, be they from international or domestic customers. This is particularly relevant and important for e-commerce platforms and businesses in Singapore and Southeast Asia since their sellers and buyers are located in different regions, provinces or countries, and a seller’s location might be an important factor for buyers to choose products.

Chu Junhong is dean’s chair and an associate professor at the National University of Singapore Business School.

This story was originally published in ThinkChina.

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