Businessmodel of DHgate

Customer Segments

DHgate has a multi-sided business model, with two interdependent customer segments that are both needed in order to operate:

• Consumers: Individuals worldwide who want to purchase goods from Chinese companies.
• Vendors: Chinese businesses that want to be able to sell their goods to foreign customers. ### Value Proposition

DHgate offers six primary value propositions: accessibility, convenience, customization, cost reduction, risk reduction, and brand/status.

The company creates accessibility by enabling trade. It allows consumers outside of China to purchase goods directly from Chinese wholesalers and manufacturers, and allows the firms to promote their goods to these customers. This is particularly useful for small and medium businesses, who may have limited channels. The company also increases accessibility by providing versions of its site in 10 languages, including English, Spanish, French, Italian, German, Portuguese, Russian, Korean, Japanese, and Arabic. Lastly, it accepts over 30 forms of online payment, including numerous credit cards, online bank transfer services, and eWallets such as WebMoney and Skrill.

The company creates convenience by providing a one-stop source for customers. It covers every phase of the supply chain process, offering logistics, Internet financing, international payment, and escrow protection services. The purchase process is simple, avoiding complicated processes that usually characterize traditional trade, such as quoting, sample sending, checking, and negotiating.

The company enables customization through the shopping experience. When customers create an account on its website, it offers suggestions tailored to their tastes based on past experience, including personalized products and promotions, recommended stores, and highlighted coupons.

The company reduces costs by offering “Daily Deals” that can provide discounts on items that are as high as 75% off. In general, it touts lower prices for items than can be found elsewhere.

The company reduces risk through its “Buyer Protection” program. Through the program, vendor identities and business histories are verified manually and automatically. Customer payment information is encrypted and not given directly to the seller. Payments are not released to vendors until customers confirm the successful delivery of their order and quality of their product. If the product is not delivered, customers receive a refund, and can also request one if the item is not as described. Sellers deemed dishonest are automatically blacklisted, their shops closed indefinitely.

The company has established a strong brand as a result of its success. It bills itself as the first cross-border eCommerce platform in China, and as the top online wholesale marketplace for China-made goods. It has over 10 million individual/enterprise buyers from over 230 countries, with over two million completed transactions (one every three seconds). It has more than 1.2 million vendors with 40 million product listings. Lastly, it has won many honors, including ranking as #1 in B2B Dotcom Power’s China eCommerce Culture Festival (2011), placement in the China Industrial eCommerce Dotcom Top 100 (2010), and placement in the Deloitte Technology Fast 500 Asia-Pacific (2009).

Channels

DHgate’s main channel for consumers is its website, while its main channel for vendors is its business development team. The company promotes its offering through its social media pages.

Customer Relationships

DHgate’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service through the main platform while having limited interaction with employees. The company’s website includes answers to frequently asked questions.

That said, there is a personal assistance component in the form of e-mail and online chat support. Customers who spend $3,000 within 90 days qualify as “VIP Buyers”, and receive expedited service responses to e-mail queries.

Lastly, there is also a community element in the form of a forum where customers can interact with their peers.

Key Activities

DHgate’s business model entails maintaining a robust common platform between two parties: consumers and vendors.

Key Partners

DHgate’s business partners for payment, logistics, and other services include American Express, Visa, MasterCard, DHL, UPS, and FedEx.

The company also maintains strategic alliances with the following organizations:

• China Electronic Commerce Association (CECA) – An organization that aims to promote the development of electronic commerce throughout China and strengthen cooperation between China and the rest of the world in eCommerce. It provides a link between enterprises and government.
• China International Cooperation Association of Small and Medium Enterprises (CICASME) – A corporative organization that aims to organize, leverage, and promote the development of small and medium enterprises (SMEs) according to relevant national regulations and policies, to play an intermediary role among SMEs, to exchange information and ideas, to link economic and technical cooperation with trade, and to serve the technical progress and development of the export - oriented economy. Its membership consists of Chinese SMEs and social leaders. The company also offers an affiliate program through which it offers third parties the opportunity to earn a commission through promotion of its services. The program provides advice on marketing through the use of landing pages, links, text link ads, banners, and buttons.

Key Resources

DHgate’s main resource is its proprietary software platform, which connects over 10 million customers with over 1.2 million vendors.

It also depends on its human resources in the form of customer service employees to provide support.

Lastly, as a startup it has relied on funding from outside parties, raising $16 million from four investors as of September 2014.

Cost Structure

DHgate has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions.

Its biggest cost driver is likely marketing expenses, a fixed cost. Other major drivers are in the areas of customer support/operations and administration, both fixed costs.

Revenue Streams

DHgate has one revenue stream: the commissions it charges to vendors for successfully completed transactions.

Commissions may vary by specific product category, but sellers typically pay 4.5% on sales of $300 or more and 8% - 12% on sales of less than $300.