China Consumer

Cooked up sales

Alibaba embroiled in its first post-listing scandal

Smartisan w

How many Smartisans were sold?

The first week that Costco opened its virtual storefront on Alibaba’s Tmall, it sold over 3 tonnes of nuts and 1.5 tonnes of dried cranberries.

For the US warehouse club the results may not have come as much of a surprise. Before the company launched its first foray into the China market, it had analysed shopping data on the e-commerce site and identified three segments – dried fruits, nuts and fish oil – as having the highest potential for success, says Caijing.

At the moment Costco doesn’t have any physical stores on the Chinese mainland. In fact, it has been cautious about expanding in Asia, setting up shops only in Japan, Korea and Taiwan. So the fact that a large multinational like Costco decided to open its first storefront – a virtual one – on Tmall is a big boost for the e-commerce giant, which has also courted companies like Zara and Burberry.

“The Tmall platform allows foreign brands to reach Chinese consumers without a physical presence, while it also allows them to preserve their unique identity and merchandising strategies. This low capital entry will give [Costco] a good look at the Chinese opportunity with nominal capital investment,” one analyst told the China Daily.

But some of the good news about Costco was overshadowed last week by negative publicity that Tmall had tampered with its sales figures for one of the items on sale.

Early this month, smartphone maker Smartisan (see WiC239) began taking pre-orders for its 4G smartphone T1 on Tmall. Data from the site shows that shoppers reserved more than 62,000 units in the first week. In the second week pre-order figures continued to accumulate at a brisk pace. Three days into the week, the number had already topped 30,000 units.

But some netizens thought the figures looked suspiciously high. One of them dug into the site’s web-language coding and found that the second week’s sales figure had been boosted with a multiplier that was pushing up T1 pre-orders to triple the reality.

Tmall quickly issued an apology, suggesting the problem stemmed from a snafu that reset the pre-order figure for the second week to zero. That led a programmer to make “a very highly unscientific decision” to multiply the data by three, the company claimed.

“We are sincerely saying sorry to Smartisan Technology and to the consumers who have always trusted and supported us,” the Alibaba Group company apologised in a statement, adding that two staff members have been fired as a result of the debacle.

A spokeswoman then added that the incident “will have no impact on the actual number of phones sold and the final transaction amount”.

Luo Yonghao, the founder and chief executive of Smartisan, was also keen to stress this week that the smartphone maker was not involved in falsifying any of the sales figures. “To all our supporters: the fraudulent pre-order figure has absolutely nothing to do with us,” he assured. But why should there be any allegation that Tmall might want to manipulate the sales figures in the first place? Well, a higher pre-order number creates the illusion of scarcity and popularity. That can become a self-fulfilling prophecy with consumers more inclined to buy products because they are worried about missing out, the Beijing Morning Post explains.

Meanwhile, the Smartisan hiccup prompted internet users to question whether some of the other sales figures on Taobao and Tmall could be dodgy too. For Alibaba Group, which recently went public in New York, the incident could have far-reaching consequences for its reputation. For instance, Century Weekly wonders whether all the record-smashing numbers from previous Singles Day promotion campaigns (see WiC216) can still be trusted.

“This means all order numbers can be changed randomly? They aren’t all from a real database, or from real-time numbers? I think this is a huge issue of principle,” one internet user warned on weibo.

Another netizen joked that – after hearing the news – he immediately logged into his account on Alibaba’s online investment fund Yu’e Bao (see WiC225) to make sure his investment hadn’t ‘accidentally’ reset to zero too…

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