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BOLD STORYTELLINGIN THE PLATFORM AGEFUTURE OF STORYTELLING 2024 iProspect|all rights reserved1.THE IMPORTANCE OF STORYTELLING2.THE SCIENCE BEHIND STORYTELLING3.TOPICS/TRENDS FOR BOLD STORYTELLING4.BOLD IS THE NEW DISRUPTORTABLE OF CONTENTS381120THE IMPORTANCEOF STORYTELLING03FUTURE OF STORYTELLING01SETTING THE STAGE04In the rapidly evolving media landscape,consumer engagement has become thecornerstone of effective marketing.Brands today face a formidable challenge:capturing and sustaining audience interestin an era where attention spans aredwindling and the multi-platformenvironment is increasingly complex.At iProspect,we understand thesechallenges and recognize the importance of cross-channel engagement in drivingsuccess.In this age of convergence,where mediaand commerce blend seamlessly,manybrands are not fully capitalizing on thepotential that lies within.As leaders inperformance-driven brand building,we at iProspect advocate for a new approach to marketing one that integratescreativity with data-driven insights,wherestorytelling meets science.Our mission is to help brands harness the power of boldstorytelling to ensure their messagesresonate across all critical touch points,creating a lasting impact on theiraudiences.The opportunities to integrate storytellingand commerce have never been greater.The rise of addressable content is reshapingthe marketing landscape,blurring the linesbetween storytelling and commerce.Everybrand interaction now has the potential todrive sales,provided it is leveragedeffectively.By applying bold storytelling to performance marketing,brands canaccelerate their impact,enhance relevance,and sustain their competitive edge.In this report,we will explore the latesttrends,tools,and opportunities that definethe modern media ecosystem.We aim to demonstrate how these insights can be incorporated into planning for 2025,empowering you to leverage boldstorytelling for maximum impact in a multi-platform world.THE IMPORTANCE OFCONSUMER ENGAGEMENTFUTURE OF STORYTELLINGTHE POWER OF BOLD STORYTELLINGWithout storytelling,how canwe influence or sell?05Storytelling is more than just a creative tool in marketing,it is the foundation ofsuccessful campaigns.Without acompelling story,how can brands attractcustomers or drive sales?How do they unite people around a common cause orcommunicate their ethos?A well-craftedstory breaks through the noise,creatingconnections that transcend a singletransaction.It builds trust and fostersconsumer loyalty by evoking emotion,turning casual interactions into meaningfulrelationships.To truly differentiate,brands need a series of interconnected narratives that align withtheir unique identity,voice,and values.These narratives should span across variousplatforms,forming a cohesive brandexperience that resonates with theaudience.Personalization is key:brands that excel at tailoring messages to individualpreferences will have the edge.This one-to-one approach allows brands to forge deeperemotional connections and deliver a morecustomized experience,reinforcing trustand loyalty.In an increasingly crowded market,storytelling is your secret weapon.It is what makes your brand stand out,beremembered,and ultimately drive businessgrowth and ROI.By embracing consistent,personalized,and impactful storytelling,you can build customer relationships thatlead to sustainable success.FUTURE OF STORYTELLINGTHE PRESSURE ON BRANDSConsumers now trustbusiness to get results more than the government.06As consumer priorities evolve,so do theexpectations placed on brands.Gone arethe days when the relationship betweenbusinesses and customers was strictlytransactional.According to Edelmans TrustBarometer,people now trust businesses to deliver results more than they trust theirown governments.This shift in trust bringsa new level of responsibility:brands areexpected to engage in meaningful waysthat address broader societal needs,becoming active drivers of transformation.Offering excellent products or services is nolonger enough.Todays consumers demandthat companies engage beyond thepurchase journey.If leadership is part of a businesss mandate,how do brands adaptto meet these expectations?We findourselves at a pivotal point where brandsare expected to be more than just vendors,they must be catalysts for positive change.To meet these new expectations,companies must expand their perspective.This is about more than just selling aproduct;it is about establishing a deeperemotional connection and demonstrating a commitment to shared values.Personalization plays a crucial role,allowingbrands to deliver tailored messaging thatresonates with individual consumers whilealso addressing broader societal issues.Brands must also embrace rigorous testingand optimization.Regularly measuring theimpact of messaging ensures that brandsremain aligned with their audiencesevolving values.Through this iterativeprocess,companies can refine theircommunications in real-time,increasingrelevance and effectiveness.Embracing this shift provides companieswith an opportunity to strengthenconsumer trust and drive growth.Brandsthat stand for something and communicatetheir values authentically are more likely to inspire loyalty and advocacy.The findings from Edelmans Trust Barometersuggest this is not a passing trend it hasbecome an essential part of modernbusiness strategy.Brands that cansuccessfully navigate this new landscapewill be the ones to lead the way,setting the tone for the future of business andconsumer relationships.FUTURE OF STORYTELLINGiTHE TRANSFORMATIVE POWER OFMEDIA COMMUNICATIONSTrustworthy information will engage audiences.07As we step into a new era of media andcommunications when consumers expectbrands to engage on a personal level andplay a broader role in society,recognizingthe transformative power of media andtechnology is critical.Not only are theypivotal for establishing deeper connectionswith consumers,but they also have thepower to bridge societal divides andpromote understanding.This is where trustbecomes a cornerstone.When brandscreate clear and reliable messaging,theydont just capture attention,they buildrelationships that lead to sustained growth.The future belongs to those who canharness the potential of convergingmedia and communications to make ameaningful difference.By providingtrustworthy information,honoringconsumer expectations,and craftingcompelling stories,brands can and willset themselves apart and seize theopportunity of conversion.FUTURE OF STORYTELLINGTHE SCIENCE BEHINDSTORYTELLING08FUTURE OF STORYTELLING02The success of storytelling sitswith the ability to emotionallyengage.09The science behind successful storytellingrevolves around emotional engagement.It is about connecting with your audience on a level that resonates deeply.Thisconcept aligns with author and economistDaniel Kahnemans insights in Thinking,Fast and Slow,where he describes twomodes of human thinking:System 1,whichis fast,intuitive,and driven by emotion,andSystem 2,which is slower,more analytical,and requires effort.Understanding these two systems is crucialfor brands aiming to connect with theiraudiences.System 1 is responsible for 95%of human thinking,encompassing instinctivereactions like reading a billboard withoutmuch thought,expressing disgust atsomething unpleasant,or navigating familiarenvironments with ease.System 2,used inonly 5%of our decision-making,requiresconscious effort and logic,such as solving a math problem or parking in a tight spot.Given that System 1 dominates humanthinking,why do advertisers often focus onengaging System 2,demanding more effortfrom their audience?If most decisions aremade quickly and emotionally,shouldnt our storytelling tap into that?Its also important to consider the wayspeople process information.Some are visuallearners,while others prefer auditory input.To reach everyone,brands need to adapttheir storytelling across different platforms,becoming hyper-specialists in crafting boldnarratives that appeal to diverse modes ofthinking,all while staying within aconsistent brand voice.This approach not only acknowledges thecomplexity of human decision-making butalso allows for a more inclusive way ofengaging with consumers.By focusing on emotional decision-making,storytelling has the power to connect on adeeper level.When brands craft stories thatalign with System 1 thinking,they can buildrelationships that go beyond thetransactional and foster genuine loyalty.As our world becomes more complex,storiesthat evoke emotion and connect with theaudiences instincts will be key to success.Brands that embrace the power ofstorytelling and meet consumers wherethey are whether thats through boldvisuals,compelling narratives,or engagingaudiowill be best positioned.It is not about being a jack-of-all-trades but abouthoning the craft to create memorableexperiences that resonate with our fast and slow modes of thinking.FUTURE OF STORYTELLINGiiTHE SHIFT FROM TRADITIONAL TOPERSONALIZED STORYTELLINGIts an opportunity to apply well-mined data and insight into theway we craft our stories.10The old approach to advertising focusedheavily on delivering a message at the righttime and in the right location.But in ourcurrent data-driven environment,with itsproliferation of platforms and changes inmedia behavior,the emphasis has shifted to personalizing content,ensuring storiesmove seamlessly across channels,andrigorously tracking their impact.To engage a diverse audience that includesboth specific audience cohorts and long-term loyal customers,brands must adopt a performance approach,even whenperformance is not the principal aim.Understanding these intersections is crucial.Its no longer enough to simply tell a story;brands must track and analyze its impact to determine what resonates with differentaudiences.By leveraging well-mined dataand insights,marketers can craft stories that appeal to multiple segments,ensuringthey stay relevant and connected in ashifting media landscape.Brands must stay flexible and innovative allwhile maintaining the core elements thatmake storytelling effective:emotionalengagement and a compelling narrative.Very few stories start with Once upon atime.the best ones are those thatcaptivate and inspire,regardless of format or platform.The key to success is building campaignswith planning rigor and a performance-driven mindset.The ability to personalize,adapt,and track stories is what setssuccessful brands apart.By focusing ondistinctive stories,personalizing content,and rigorously evaluating their impact,brands can create campaigns that not only engage but also drive meaningfulbusiness outcomes.FUTURE OF STORYTELLINGTOPICS/TRENDS FORBOLD STORYTELLING11FUTURE OF STORYTELLING033.1 ATTENTIONTHE IMPORTANCE OFCOMPELLING,ENGAGINGCONTENT12In todays media-saturated world,capturingand retaining consumer attention requiresinnovative strategies and cutting-edgetechnology.At iProspect,we believeoptimizing for attention is fundamental toimpactful storytelling and sustainable brandgrowth.By leveraging our proprietary dataand partnerships with leading technologyproviders,we help brands transform fleetingmoments of attention into enduringengagement.Understanding the nuances of attention iscrucial.Over nearly a decade,weve built anunrivaled proprietary data set that coversattention and its impact on consumerbehavior.Our research reveals that whileforced views,like non-skippable ads,generate more total attention,voluntaryviews,where consumers choose to engage,deliver a stronger impact per second.Thisinsight underscores the importance ofcrafting content that resonates deeplycontent that invites engagement ratherthan demands it.This expertise also shapes our approach tomanaging creative wearout,whererepetitive messaging leads to reducedengagement or irritation.While manyclients worry about wearout,research bySystem1 and WARC shows it is less frequentthan perceived.Their study found that testscores for individual ads remained nearlyconstant over two years.However,wearout can vary amongdemographics.A study by BulbShareindicates that ad fatigue is rising amongGen Z,with 99%skipping ads when possibleand nearly two-thirds using ad blockers.Thishighlights the need for variety and balancein marketing campaigns,especially in digitalspaces.Influencers play a vital role in maintainingengagement,leveraging their trustedrelationships with followers.Brands workingwith influencers must be comfortable withtheir stories being told by these advocates.Longer-form content,such as branded TVformats or extended stories,often captivatesaudiences due to its depth and storytellingpotential,requiring brands to seamlesslyintegrate into culture.FUTURE OF STORYTELLING13To tackle wearout and maintain consistentengagement,we employ rigorous pre-testing,post-testing,and brand healthtracking,complemented by advanced toolslike sales decomposition and market mixmodeling.These methods keep our clientscampaigns fresh and effective acrossplatforms and formats.But the journey doesnt stop at automation.Context matters greatlythe type ofattention varies depending on the time of day,the consumers environment,andeven their state of mind.For instance,alighthearted ad might work wonders during a weekend morning,while a moreserious message might resonate better inthe evening.Our strategy considers thesevariables to create campaigns that fitnaturally into the consumers daily life.By optimizing for attention,we unlocknumerous benefits,including increased ad impact,improved brand recall,andgreater brand loyalty.Effective storytellingisnt just about grabbing attention,its aboutkeeping it and building lasting connectionswith your audience.The insights we gain from our attention-focused methodology allow us to guide ourclients toward smarter budget allocationand more effective media strategies.Withthis new lens,we help brands navigate thecomplex and ever-changing medialandscape,ensuring their stories resonatewith the right people at the right time.FUTURE OF STORYTELLING3.2 PERSONALIZATION STRATEGIESTAILORING MESSAGES FORIMPACT14A well-tailored story,delivered at the righttime and through the right channel,has thepower to drive purchasing action and createlasting connections with consumers.Our modern,multi-platform environmentpresents unique challenges.Withconsumers accessing content across varioustouchpoints,consistency is key.Ensuringyour narrative stays coherent across allplatforms,even as paid media budgetsfluctuate,is crucial.The core of successfulpersonalized storytelling lies in maintaininga consistent message while adapting todifferent formats and audiences,fostering a seamless brand experience that resonateswith consumers.Dynamic Creative Optimization(DCO)hasbeen at the forefront of personalization,allowing marketers to adapt their messagesin real-time based on specific data inputsabout the viewer.This can include datapoints such as recent searches,time of day,location,and weather conditions.Forexample,a campaign we ran for a retailclient used multiple creatives based onaudience segmentation,includingdemographics,shopping patterns,andlocation,to show the nearest store with amap.The impact of personalization was an 8%uplift in footfall to the clients stores.DCO is a well-established approach that hasproven effective in driving relevance andengagement.However,with the rise ofgenerative AI,were on the cusp of a new era of personalization.This technology offers the potential tosupercharge DCO,allowing for even greatercustomization and deeper consumerconnections.It can also extend to paidmedia formats,introducing innovativefeatures like customer service functionalityalongside traditional advertising.Yet,personalization isnt solely abouttechnology,its also about understandingwhat matters to your audience.A 2022Edelman Trust Barometer report revealedthat consumers beliefs and values play a significant role in their brand choices.More than half of the respondents indicatedthat they buy or advocate for brands basedon shared values,and a substantial portion also choose workplaces and investmentopportunities based on these principles.This shows that brands must engage withsocietal issues and embrace inclusivity tobuild trust and foster loyalty.FUTURE OF STORYTELLINGiiiiv15Its important to consider how yourmessaging aligns with broader societaltrends and community values.This involvesnavigating the fine line betweentransactional goals and purposefulstorytelling.By embracing diversity andinclusion in your campaigns,you appeal to a wider audience and demonstrate that yourbrand stands for something meaningful.As we move forward,consider integratingpersonalized messaging with a broaderfocus on inclusivity and societal relevance.Brands like Courageous Media and ChannelFactory are leading the way by targetingdiverse and inclusive media,which can help you reach minority communities moreeffectively.This approach is particularlyimportant for younger generations,who aremore likely to identify with fragmented andfluid communities.In summary,while technology plays asignificant role in personalization,thebroader context of storytelling andrepresentation is equally crucial.Byadopting a holistic approach,you can create campaigns that resonate with adiverse range of consumers,driving bothengagement and loyalty.As we continue to explore new frontiers in marketing,remember that personalization is not justabout the message,its about connectingwith your audience on a deeper level.FUTURE OF STORYTELLING16As marketers,we now face the dauntingreality of reaching consumers who no longergather in the same places or even the samereality.Enter non-linear storytelling,a creativeapproach that acknowledges and embracesthe complexities of the modern mediaenvironment.Its no longer about dictatingthe narrative;its about creating a dynamicecosystem where consumers can explore,engage,and share their own stories.Brands must be willing to break free fromconventional structures and designcampaigns that adapt to the ever-changingdigital world.This means rethinking how weplan and execute our messaging,focusingon the intersections of media experiences.Consistent planning frameworks can helpguide this process,ensuring that eachtouchpoint offers a seamless transition from one part of the story to the next.Walled gardens,social media platforms,and emerging virtual environments haveadded layers of complexity to channelplanning.But they also present uniqueopportunities for creativity and connection.For example,Generation Z,raised in virtualspaces and more inclined to socializethrough gaming,requires a differentapproach from older generations.Researchfrom GWI reveals that the Gen Z cohortplays games to interact with friends,whileolder audiences see gaming as a way torelax or unwind.Understanding thesenuances is crucial for crafting compellingnon-linear stories.3.3 NON-LINEAR STORYTELLINGADAPTING TO EVOLVINGMEDIA BEHAVIORSFUTURE OF STORYTELLINGv17The boldness of non-linear storytelling lies in its potential to transform the consumerexperience.By resisting the temptation tofollow a linear path,brands can create richer,more immersive narratives that encourageexploration and interaction.However,thisapproach requires careful balance to avoidcreating a chaotic multiverse where evendie-hard fans of complex narratives mightget lost.Non-linear storytelling is about capitalizingon the limitless opportunities presented by each media touchpoint.Its aboutconnecting,shopping,sharing,experimenting,and belonging in ways that make sense totodays audiences.In one case,we workedwith Twitch talent to help a telecomscompany achieve 3 million engagementsand pick up more than fifty thousandfollowersdemonstrating the power ofcommunity to take a brand story and tailor it to their audiences.By taking a storytelling approach tocampaign and ecosystem planning,brands can navigate the intricacies of thedigital world and create transformativeexperiences that drive action and fosterlong-lasting connections.FUTURE OF STORYTELLING18Technologies like machine learning andadvanced analytics are redefining the waywe measure success,offering a freshapproach to optimizing storytelling on thego.This is not just about traditional pre-testing;its about engaging with audiencesas the story unfolds and refining yourmessage based on real-time feedback.The increasing complexity of mediachannels and the unique behavior patternsof contemporary audiences are driving thisshift.By tapping into the power of real-timedata,brands can adapt their storytelling inresponse to changing trends,consumerpreferences,and new insights.This agileapproach ensures your campaigns remainrelevant and effective,no matter how fastthe digital world moves.Tools like dentsus Artemis,built inpartnership with Meta,CreativeX,andDragonfly.ai,have pioneered ways to pre-test creative assets,ensuring they fit theplatform and evoke the right emotions.However,real-time measurement takes this concept further by providing actionableinsights as a campaign unfolds.Imagine launching a multi-platformcampaign.With real-time measurement,you can track how consumers respond todifferent elements of your storytellingacross various touchpoints.This approach allows you to identify whatsresonating and whats not,enabling you toadjust your messaging,visuals,and calls toaction in real-time.The result?A moredynamic and responsive campaign thatevolves with consumer preferences.Artemis,a machine learning technologydeveloped by our Creative Intelligencedivision in partnership with Meta,exemplifies the shift towards real-timemeasurement.It predicts the success ofcreative assets based on media data,enabling marketers to optimize theirstorytelling strategies dynamically.Thiscapability bridges the gap between adplacement and reporting,fostering a morefluid and responsive approach to campaignmanagement.3.4 REAL-TIME MEASUREMENTOPTIMIZING STORYTELLINGEFFECTIVENESSFUTURE OF STORYTELLINGOur tool,DC Insights,further enhances thisby providing global clarity on the utilizationand performance of different creativesacross multiple markets.By tracking assetusage and effectiveness across variouschannels,DC Insights reveals how brandstories come to life worldwide.As real-time measurement advances,brandsgain access to a wealth of platform-specificguidance and expert insights.Thisintelligence allows marketers to craftcompelling stories and ensure their deliveryto the right audience at the optimal time.This level of adaptability keeps brands aheadof trends and engages consumers in waysthat feel both relevant and authentic.FUTURE OF STORYTELLING19BOLD IS THE NEWDISRUPTOR20FUTURE OF STORYTELLINGAs outlined in this report,the key to successful marketinglies in storytelling that connects with both the emotionaland rational decision-making processes of consumers.Standing at the threshold of significant change,where risks are accompanied by vastopportunities,demands a bold approach.Boldness is the new disruptor in a world wheretraditional paths are no longer sufficient.0421FUTURE OF STORYTELLINGThis report identifies four critical pillarsfoundational to every advertisers planning for 2025.These pillars serve as launch points for understanding how to approach thedynamic marketing landscape with creativityand confidence.Brands that view these trendsas opportunities and commit to delivering bold,creative,and authentic storytelling will not only survive but thrive in this new multi-platform frontier.FOUR PILLARS FOR SUCCESSIN 202502PERSONALIZATIONWith access to real-time data,brands can create personalized experiences thatresonate with individual consumers.Thislevel of personalization allows for a one-on-one conversation,cutting through the noiseand engaging customers on a deeper level.The ability to tailor content and messagingin real-time will be a critical storytellingtechnique in 2025.03NON-LINEAR STORYTELLINGThe traditional linear approach tostorytelling is giving way to more flexibleand dynamic narratives.Non-linear storiesallow brands to connect with consumersacross various touchpoints,offering atransformative experience,such as withingames.This approach encourages creativityand can help brands reach even the mostelusive audiences.04MEASUREMENTReal-time measurement is revolutionizing the way brands assess the success of their campaigns.By adopting an agilemeasurement framework,marketers can use machine learning and advancedanalytics to optimize their strategies in real-time.This level of adaptability allowsbrands to stay ahead of the curve andmaintain a competitive edge.01ATTENTIONIn a crowded media landscape,capturingand maintaining consumer attention isparamount.The metric that will define 2025is the quality of customer attention.Brandsmust learn to measure campaigns based onthese values,using data to guide strategy.EMBRACING CHANGE FOR A BRIGHTER FUTURE22To succeed,brands must embrace change,experiment with bold storytelling,andcommit to a performance mindset.By focusing on emotional connections,optimizing for attention,and leveragingreal-time data,marketers can createcampaigns that drive business growth and inspire audiences.The insights and recommendations in thisreport provide a clear path forward.Webelieve that by focusing on storytelling andperformance,brands can achieve sustainedgrowth and make a lasting impact.If youreready to tap into the potential of convergenceand conversion,we invite you to reach out tous.Lets work together to shape the future ofmarketing in a multi-platform world.FUTURE OF STORYTELLINGAbout iProspectiProspect,a dentsu company,is a global digital-first end to end media agency.Its unmatched mix of media strategy and storytelling with digital expertise and audience knowledge defines the new territory of performance-driven brand building.By delivering human-centric solutions,iProspect accelerates growth for the worlds most iconic brands including,Hilton,Levis,Budweiser,Microsoft,Procter&Gamble,Kering and more.The iProspect team works across anetwork of more than 8,000 media and performance specialists spread across 93 global markets.23FUTURE OF STORYTELLINGSOURCESi.2023 Edelman Trust Barometer,https:/ and Slow.Farrar,Straus and Giroux.https:/psycnet.apa.org/record/2011-26535-000iii.dentsu,proprietary DCO case study,2023.iv.2022 Edelman Trust Barometer,https:/ new age of Gen Z,https:/ OF STORYTELLING 2024 iProspect|all rights reservedContact UshelloiP
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DECOUPLED AND RECONFIGURED202445IntroductionIntroductionThe Future of Trade 2024 is the fifth edition of DMCCs biennial flagship report.In a time of profound change,we delve into the power dynamics shaping the global trade landscape.New political and economic alliances are forming.Rising geopolitical tensions and conflicts are shifting trade networks and accelerating regionalisation.The United States and China are embroiled in a“chip war”as each fights for supremacy in the semi-conductor industry.Meanwhile generational changes namely the dawn of AI and drive for carbon net zero are redefining the global trade landscape as the biggest redeployment of capital in history is deployed and business operations are transformed.This report examines the key themes impacting the future of trade,including geopolitics,sustainability,technology,and finance,and how these forces will reshape trade dynamics.We reflect on predictions made in our previous report,written as global commodities rebounded from their COVID-19 stasis,and examine how trade has evolved from a global crisis that continues to influence government policy and consumer behaviour.The last few years have shown how a succession of crises can disrupt the global economy.Against a backdrop of wars in Europe and the Middle East,macroeconomic challenges such as slowing growth and inflation,and ongoing trade tensions between the United States and China,the present situation paints a complicated picture for global trade.This year promises further change.Just under half of the worlds population will go to the polls in some 80 elections that could shift domestic and foreign policies,driving economic nationalism and trade protectionism.The EU has entered the transitional phase of its carbon border mechanism,amid a global patchwork of multilateral and national green policies with varying levels of ambition,a development which could re-route trade and exacerbate INTRODUCTIONNavigating New Challenges and Opportunities67IntroductionIntroductionregionalisation between carbon-intensive and greener producers.In a further paradigm shift,more businesses are incorporating AI and related technologies into their operations to increase efficiencies and inclusiveness of trade.However,they are making this transition in the absence of clarity on both regulation and data harmonisation.This landscape provides fertile territory for new trade barriers.In the push for economic growth,businesses will need to remain vigilant to the consequences of policy decisions,market forces and trends that can disrupt production,operations,and supply chains.However,there is also a rich vein of opportunities for global trade.The shift to regionalisation and bloc-based trade will carve out new relationships and corridors.A rise in friendshoring and decoupling from China will diversify supply chains and boost production in emerging markets.There are signs that global inflation and interest rates may contract,fuelling business confidence and buying power for consumers.Meanwhile,the twin forces of technology and sustainability present the biggest opportunities for trade resilience.These will drive a rapid and,at times,interlinked growth in digital services trade and production of technology and environmental goods,leading to demand for key commodities and the rise of new trade hubs and facilitators.Many of these developments will be underpinned by the widespread adoption of artificial intelligence.We stand at the cusp of a profound transformation,where multiple factors have the potential to reshape the global trade landscape.Businesses and policymakers alike must be equipped with the latest intelligence to understand the dynamics at play,and the tools to draw on to safeguard operations,trade,and economic performance.With insights taken from nine global roundtables with over 150 industry experts,the Future of Trade 2024 explores the dynamic evolution of international trade and offers predictions of the likely trends for the next two years and beyond.9CHAPTER IThe Future of TradeIntroductionExecutive SummaryCHAPTER IIThe Geopolitics of TradeSection One:The outlook for global tradeSection Two:Transformative forces of tradeSection Three:Commodity developments and DMCC Commodity Trade Index 2024Section Four:Drivers and dynamics of trade resilienceKey takeaways,and recommendationsReferences for Chapter ISection One:Regionalisation to redraw trade architectureSection Two:Conflicts and tensions to fuel instabilitySection Three:Securing global supply chain resilienceSection Four:The future of the World Trade Organization(WTO)Key takeaways,and recommendationsReferences for Chapter II0412CHAPTER III The Dawn of AI86Section One:Technologies that will transform tradeSection Two:Cryptocurrencies and blockchain technologySection Three:Digital trade agreements and free flow of dataSection Four:The impact of digitalisation and the DMCC Industry Digitalisation Index 2024Key takeaways,and recommendationsReferences for Chapter III 9010612014015015460626878 8284CHAPTER IVSustainability and the Future of Trade158Section One:How climate policy is changing global tradeSection Two:Carbon pricing to transform business modelsSection Three:The relationship between trade,sustainability and technologySection Four:Integrating climate and environment into trade agreementsKey takeaways,and recommendationsReferences for Chapter IV162164178192198202Table of contentsTable of contents16TABLE OF CONTENTS5618283244485281011Table of contentsTable of contentsCHAPTER VGlobal Trade and Finance Gaps206Section One:The growing trade finance gapSection Two:Alternative financing solutionsKey takeaways,and recommendationsReferences for Chapter V208214224228230Annex-research methods1213Executive SummaryExecutive SummaryEXECUTIVESUMMARYAn accelerated shift to regionalisationWidespread supply chain restructuring A surge in digital services trade and AI adoption We expect three transformative forces to shape global trade in the next few years:Regionalisation will be driven by new alliances forged from the pressures of geopolitics,climate and technology.As outlined in our Future of Trade 2022 report,this new era of multilateralism will see the emergence of new trade blocs and corridors.It is a marked departure from the drive to globalisation of the last two decades as corporations prioritise resilience over cost savings and efficiencies.This trend will be heavily influenced by political events,namely the U.S.elections,which could trigger a new wave of protectionist tariffs on sensitive goods.Over the next few years,there will be an increase in friendshoring the movement of operations to allies,aided by regional multilateral agreements-which will strengthen inter-regional trading hubs in Asia and North America.Fast-growing emerging markets that are pursuing non-aligned strategies will benefit from increased trade in the multipolar landscape.Supply chain restructuring will be front of mind for companies looking to de-risk their logistics networks by moving production out of areas affected by conflict,protectionism,and climate change.This may entail longer shipping routes and elevated costs but prioritises resilience.Compounding this trend is climate change.Driven by shifting consumer consciousness and extreme weather events impacting trade and production costs,governments and companies are increasingly embracing net-zero commitments.Trade is emerging as a key enabler in the pursuit of renewable energy sources and sustainable technologies.Carbon-pricing regimes are evolving across different jurisdictions and will force companies to internalise the carbon cost of production,which will create new trade opportunities for more sustainable suppliers and drive forward a greener trade landscape.AI is set to revolutionise trade.This will herald a paradigm shift in the operating environment,as businesses embrace the ability to optimise supply chains,enhance efficiency and reduce costs through predictive analytics,drive data-driven market insights to capture new business opportunities,and use AI-powered trade finance solutions to streamline transactions.As the world gears up for a period of profound change,new opportunities emerge for businesses and governments that promise to reshape trade for decades.While this era brings unpredictability,there are major gains to be made.Agility is key for businesses to thrive;those who invest and understand the shifting market dynamics will be best placed to reap the potential on offer.The next few years herald trade growth,albeit gradual,driven by new digital advances,the rapid and widespread adoption of AI,and services trade.In the global quest for sustainability,a competitive field is emerging in the supply of green products,a case in point being energy where the Gulf region is turbocharging investments in renewable and clean forms of energy like hydrogen.As a result,Asia and the Middle East are set to lead the world in trade expansion as alliances form and supply chains adapt to multifaceted pressures.1415Executive SummaryExecutive SummaryFrom our survey of trade leaders and policymakers,AI is held up as the technology with the most transformative power,influencing what is traded,how,and at what cost.Whilst the potential is vast,concerns remain in shaping appropriate regulation amid diverging rules on data flows and harmonisation.Nonetheless,the advent of AI heralds a new era of digitally driven trade,fuelled by advancements in blockchain,big data,and additive manufacturing across sectors.Beyond AI,semiconductors are poised to be the frontline in the drive for technological supremacy.Beyond their indispensable role in electronics,semiconductors are also integral to the green transition,as essential components in solar panel cells and electric vehicles.The emerging chip war between China and the United States will compound trade tensions and further regionalisation as both powers ramp up production and shield their industries.Technology will also be key to addressing wider macroeconomic challenges.Our previous Future of Trade 2022 report highlighted soaring inflation as a key factor to subdued consumer demand and heightened trade costs.Against a modest global growth forecast for the year ahead1,persistently high global inflation and interest rates,this report finds demand will remain weak for the foreseeable future,particularly in China and Europe,that will constrain business access to finance.There is a risk that the trade finance gap,now at a record of$2.5 trillion,may widen despite increased adoption of solutions like fintech and blended finance.The expected persistence of macroeconomic challenges will contribute to cautious lending practices which will be most detrimental to small businesses in emerging economies.Nevertheless,technologies such as AI and blockchain have huge potential to improve transaction efficiency and access to credit.These can provide manufacturers and exporters with vital new options to boost production and trade flows.What is key is the extent to which governments can harness the potential of these technologies and provide regulatory frameworks that give flexibility,rather than stifle,business innovation and their knock-on effects on trade.The landscape is filled with uncertainty and risk.But there are opportunities for businesses and governments to drive trade resilience and growth.It is essential for businesses to remain vigilant against regulatory considerations,macroeconomics and trade trends.AI and other technology should be strategically integrated into business operations to capitalise on its transformative potential.Diversification and risk management strategies should be adopted to mitigate against geopolitical developments,including U.S.-China trade tensions,and the growing sensitivity of semiconductors,commodities and minerals integral to technology and the green transition.A strategic focus on emerging markets with high growth potential should also be considered for supply chain reconfiguration,allowing for the development of exciting new consumer markets and production hubs.For governments,the central focus must remain the provision of appropriate and flexible regulatory frameworks for technology that balance innovation,consumer protection,and trade facilitation.Continued trade liberalisation for services,and digital services in particular,should be energetically articulated and pursued.Meanwhile,efforts should be made to standardise national and regional carbon policies to avoid further fragmentation of the climate policy landscape.Barriers to trade in environmental goods and technology should be removed to encourage trade and progress in global climate goals.The main findings of the Future of Trade report are:Trade will grow albeit slowly.All regions will experience export growth over the next two years,with North America,Asia and Africa leading the way.Regionalisation will accelerate,marked by friendshoring strategies and trade hubs centred around Asia and North America.Geopolitical tensions and conflicts will heavily shape supply chain restructuring strategies,leading to a rerouting of trade and potential inflationary pressure.The widespread adoption of AI will drive greater trade efficiencies.Digital services will surge,driven by the dawn of generative AI.The battle for supremacy in semiconductors will become more prominent amid the U.S.and China chip war,with knock-on effects across industries and the green transition.Carbon pricing and trading systems will significantly change the nature of trade,favouring lower carbon-intensive producers and sustainable products.The trade finance gap is likely to remain high or even widen.Risks to trade growth include high inflation,elevated interest and the slowdown of the Chinese and European economies.Supply chain reconfiguration will allow for the development of new consumer markets and production hubs.1 WTO,2024THE FUTURE OF TRADECHAPTER ICHAPTER I:The Future of TradeCHAPTER I:The Future of TradeTHE OUTLOOK FOR GLOBAL TRADESECTION ONEGlobal trade is expected to grow in 2024 albeit slowly.Despite a 1.2%contraction in merchandise trade volume in 2023,the WTO predicts a modest rebound with growth of 2.6%in 2024 and 3.3%in 2025 mirroring similar projections for global GDP.Global trade is expected to grow in 2024 albeit slowly.Despite a 1.2%contraction in merchandise trade volume in 2023,the WTO predicts a modest rebound with growth of 2.6%in 2024 and 3.3%in 20252 mirroring similar projections for global GDP.However,this forecast faces a number of pressures not least the economic headwinds tied to the Chinese and European slowdowns,high inflation,and geopolitical tensions.Risks abound,including sea shipment disruptions linked to regional conflicts and rising protectionism.Trade will need to demonstrate its resilience to sustain the wider global economic recovery.1918Merchandise trade volume and GDP growth,2019-202532 WTO,2023b3“P”denotes predictions.Merchandise trade volume growthReal GDP growth at market exchange rates%changeSource:WTO,2024A number of forces will support the global trade landscape in 2024 and beyond.E-commerce and digital services,having surged during COVID-19,will continue to grow.The advances in technology of the past few years will undergo their most transformative shift yet with the advent of AI,significantly redefining the trade landscape.The global energy transition will support increased trade in renewables,clean energy,and green tech.Meanwhile shifting geopolitical and macroeconomic events will lead to trade divergence,volatile commodity prices,new regional partnerships and trade corridors especially for emerging economies that can offer alternative sources of production to China.The use and popularity of e-commerce platforms,accelerated under COVID-19,has surged in the past two years.This is expected to remain the case,with the proliferation of young consumer markets,increased internet uptake worldwide,and an improved user experience in online marketplaces.The B2B e-commerce market alone is expected to grow at an average rate of 14.5 per cent through 20264,5 driven by major Chinese retailers such as Alibaba,JD.com and Pinduoduo.6 In a bid to meet demand,platforms have rushed to improve the online shopping experience by making digital payment systems more efficient,providing better product recommendations and enhancing customer support.In the coming years,the presence of young consumer markets in developing countries,particularly CHAPTER I:The Future of TradeCHAPTER I:The Future of Tradein Asia Pacific and Latin America,is set to bolster market growth further.7 Meanwhile,services continue to outstrip goods in terms of growth.In 2023 global services trade registered 9 per cent growth.Digitally delivered services have done particularly well in recent years,largely due to the ease and speed of their delivery which have provided increased reliability amid a pattern of global shocks.The impact of AI on global trade will be profound and multifaceted.From supply chain management and logistics to market analysis and customer engagement,there is a vast wealth of potential to transform how trade is currently conducted.With AI-powered predictive analytics,businesses can optimise inventory management,reduce costs,and enhance efficiency by anticipating demand fluctuations and streamlining production processes.Meanwhile,AI-driven automation is transforming trade finance and documentation processes,expediting transactions and reducing administrative burdens.As AI continues to advance,its integration into global trade ecosystems promises to drive innovation,unlock new efficiencies,and reshape the competitive landscape for businesses worldwide.Companies that are willing to invest and understand the enormous potential of AI as well as other technologies in the realm of Web3 stand best placed to reap the benefits within the next five years.Those unwilling to invest leave themselves at risk of being left behind to their competitors.Amid the global sustainability drive,the link to trade and innovation gets stronger.Clear challenges are emerging as well as distinct competitive advantages at the regional level.One example is the energy transition where the Middle East has positioned itself advantageously with strong upstream oil and gas as well as major investments in installed capacity for renewable and clean forms of energy in particular hydrogen.Meanwhile,global demand for environmentally sound technologies(ESTs)such as electric vehicles and solar panels continues to soar,as more and more countries wake up to the economic advantages of the green transition,something that will become clearer as regional policies such as the EUs Carbon Border Adjustment Mechanism(CBAM)comes into effect and prices less clean producers out of the consumer market.Meanwhile,the race for semiconductor supremacy will have a knock-on effect on the development of green products such as solar panels,with rising tensions between China and the United States opening an interesting battleground in the green transition.As the last two years have shown,commodity and energy prices remain highly exposed to market forces.Russias invasion of Ukraine saw notable price hikes for a number of commodities,in particular Sustained surge in e-commerce and digital services Widespread AI adoption will drive efficienciesSustainability to bestow competitive trade advantagesCommodities markets remain highly exposed4 Average measured as a Compound Annual Growth Rate(CAGR).5 ITA,20246 ITA,20247 Digital Journal,2022The B2B e-commerce market alone is expected to grow at an average rate of 14.5%through 2026 driven by major Chinese retailers such as Alibaba,JD.com and Pinduoduo.2021oil and natural gas,nickel,aluminium,fertilizers,wheat and corn.Whilst the world appears removed from a long-term commodity supercycle,commodity prices are nonetheless expected to remain high in the near to mid-term,largely because of the sustainability transition as well as geopolitics and conflicts that are causing supply shortages,driving costs up from rerouted cargo,and compounding global inflation and interest.Amidst these challenges and opportunities,strategic adaptation and robust risk management will be essential for stakeholders navigating the complexities of commodities trade in the years ahead.Geopolitics will remain one of the biggest factors influencing the global trade landscape in 2024.Conflicts in Europe and the Middle East will sustain commodity prices,and divert and disrupt trade flows.Given the proxy nature of these conflicts,there is a high risk of spillover to other regions,including the potential to bring the United States and China into more direct confrontation.Such a situation would send shockwaves through markets and lead to further instability,driving up inflation and keeping interest rates high.Despite the turmoil,there are opportunities for trade.Emerging markets like Mexico,Vietnam and India are positioning themselves as alternative sources of production to China,in particular for manufacturing goods,and seeing companies shift supply chain segments to their markets.In the Middle East,countries like the UAE and Saudi Arabia are capitalising on their status as a relatively neutral political arbiter In 2023,the Middle East and Europe were the only regions in the world to experience negative export growth as they were deeply impacted by regional conflicts and the consequent rise in commodity prices which subdued consumer demand.Nevertheless,all regions in the world are forecast to see positive export growth in the next two years,with Africa seeing the highest growth at 5.3 per cent,North America second at 3.7 per cent,and Asia third at 3.4 per cent.Sustaining this will be key for the global economy to mitigate shocks and remain resilient amid unfoldingcrises.Goods continue to make up the bulk of global trade volumes at 75 per cent of the total$31 trillion but services are catching up fast.In 2023,services trade grew by 9 per cent compared to 6 per cent for goods,a sign of the shifting importance of services in the global economy.This is something agreed on by trade experts.In our Future of Trade survey,we asked more than 100 industry leaders about their trade outlook for goods and services,with a sizeable majority believing services would grow more rapidly compared to goods,while most thought that both goods and services would grow slowly.Few foresaw a plateau or decline for services trade.Geopolitical and macroeconomic factorsGreen,digital and resilient:Trade in 20242223and their central geographical position as well as a trade facilitator between East and West and the Global South.Amid the push to greater regionalisation,a deepening of intra-regional trade corridors is happening,namely through bilateral and multilateral trade agreements,a lowering of tariffs and the elimination of trade barriers between the Middle East and Asian markets,which is yielding considerable results.Regional merchandise export volume growth,2020-2025FIGURE 2%changeNorth AmericaAfricaSouth AmericaMiddle EastEuropeAsiaSource:WTO,2024CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade2425Over the next two years,do you expect global trade of goods and services to:FIGURE 3World trade in goods and services,2018-2023($trillions)FIGURE 5Global merchandise export volume change-annual(%change over previous year)8World trade in goods and services,2018-2023(annual%change)FIGURE 4FIGURE 6Source:DMCC Future of Trade survey,2024Source:WTO(2024)Source:WTO Stats(2023)Source:WTO(2024)GoodsServicesGoodsCommercial ServicesGlobal merchandise exportsWTO forecast(pessimistic)WTO forecast(optimistic)GoodsCommercial Services8 The 2020 forecasts are based on the WTO 2020 publication(WTO,2020a).That publication stated that a 2021 recovery in trade is expected but did not include forecasts.The 2021 forecasts are based on a publication that year,predicting that world merchandise trade volume would increase by 8.0 per cent in 2021(WTO,2021).151050-5-10-15-20-25-30-352017201820202021202220192023302520151050-5-10-15-20201820232019202120202022CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade2627Digital services are a thriving segment of global services trade.Their inherent reliability,efficiency and flexibility underpinned rapid advances during COVID-19 and digitally delivered services continue to grow amid global crises and uncertainty.This is particularly the case for regions like the Middle East which benefit from high internet penetration,a young population and enhanced digital shopping infrastructure including online marketplaces for traditional shopping malls.In 2020,the share of users in the UAE who shopped online more than doubled,from 27 per cent to 63 per cent.In Bahrain,the share tripled to 45 per cent.Exports of digital services which are a blend of computer,consulting,legal,financial,management,research and development services grew on average over 8 per cent per year in the years up to 2022(far outpacing goods at 5.6 per cent,and other services at 4.2 per cent),and reaching a global value of$3.82 trillion.9At a regional level,North America and Europe remain the biggest exporters of digital services.However,Asia and the Middle East have seen their exports shoot up since 2019,with growth rates outstripping the global average.10 For Asia,this has been boosted by its booming e-commerce platforms and its growing expertise and supply of computer and information services.Demand for digital services will likely remain strong in the coming years amid wider economic uncertainty and the rapid rise of downloadable and streamed products such as software,music and e-books,online newspapers,gambling and gaming.As a case in point,Netflix,the worlds largest video-streaming service,has seen revenues increase ten-fold to reach a value of$33.7 billion in 2023.Over 300 million Netflix subscribers are expected by 202811.From booking travel and hotels to finding employment,the exponential rise in demand for digital services will contribute to increased globalisation in this space.Many services that traditionally required proximity between producers and consumers can now be provided remotely,due to technology advances,falling prices for voice and data communications and the computerisation of tasks.12Meanwhile,the green transition presents clear challenges to global trade,but also a major opportunity.Amid growing carbon consciousness worldwide,companies and governments are increasingly committing to net zero and there has been reciprocal growth in production and trade of environmentally sound technologies(ESTs).Over 140 goods are now classified as EST,and a new race for supremacy in this area could already be underway as China ramps up production on electric vehicles and is embroiled in rising tensions with the United States on semiconductors.Meanwhile,the Gulf region is carving out a clear competitive advantage within the global energy transition,as its abundant,low-cost and low-carbon resources continue to drive major investment to the region.The Middle East has taken centre stage when it comes to global capital allocations and project developments for traditional and renewable forms of energy a case in point being the development of several major hydrogen production hubs in the UAE.As a major importer and re-exporter of ESTs,the UAE and wider Middle East will play a significant role in the energy transition as well as green trade growth in the coming years.9 WTO,2023d10 WTO,2023d;WTO,2023e11 Iqbal,2024;Kelly,202412 WTO,2023fGlobal exports of services 2010-2022($trillion)FIGURE 7Source:UNCTAD Stats(2023)Digitally delivered service exportsTotal service exportsExports of digital services grew on average over 8%per year in the years up to 2022(far outpacing goods at 5.6%,and other services at 4.2%),and reaching a global value of$3.82 trillion.CHAPTER I:The Future of TradeCHAPTER I:The Future of TradeTRANSFORMATIVE FORCES OF TRADESECTION TWOStructural changes in the world economy and society are deeply interlocked with trade.Technological advances,shifts in manufacturing centres,evolving consumer preferences,demographic trends and geopolitics all play a powerful role.Whilst the future of trade is multifaceted,clear forces stand to transform the trade landscape in years to come.This section covers three of these shifts:increased regionalisation,supply chain restructuring,and the transformative potential of AI.Macroeconomic risks and geopolitics will be the strongest driver of regionalisation in the coming years.The COVID-19 pandemic all but arrested the decades-old trend to globalisation,as global lockdowns and transport delays exposed complex supply chains,a lack of alternative suppliers,and the collapse of just-in-time delivery networks.Sluggish economies in China and Europe have subdued global trade growth.Open conflicts in Europe and the Middle East have disrupted trade,rerouting ships from the Red Sea and adding costs to consumers.Meanwhile,geopolitical factors such as the rise of BRICS11 and trade tensions between the United States and China over semiconductors could further fragment the world into West-East and North-South trade blocs,leading to the rise of multi-polar and regional trade hubs in Asia and North America.2928First transformative force:Increasing regionalisation as a response to geopoliticsMeanwhile,bilateral and multilateral trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP),Regional Comprehensive Economic Partnership(RCEP)and African Continental Free Trade Area(AfCFTA)will deepen inter-regional trade corridors.These play a crucial role in promoting regionalisation by reducing trade barriers,harmonising regulations,improving infrastructure and connectivity,fostering economic cooperation,strengthening institutional frameworks,and enhancing cultural and social ties within the region.The last few years have demonstrated how quickly unforeseen crises can distort trade.CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade3031Regionalisation is spurring companies to favour reliability and security over cost savings in their supply chains.Shocks like COVID-19 and Russias invasion of Ukraine have triggered major supply chain disruptions and price hikes in oil,gas,fertilizers and food.Companies have been forced to look elsewhere to source these goods.Meanwhile tensions remain high between the United States and China,an ongoing effect of the 2016 Trump presidencys punitive cycle of tariffs on Chinese goods that have reduced trade of Chinese exports on electronics and manufactured goods.Further rerouting of trade away from China is likely as the United States probes Chinese semiconductors and the EU finalises a review into Beijings subsidies for electric vehicles.Countries like Vietnam and Mexico that can produce similar products while remaining distant from these tensions are likely to see increased trade as a result.Potential escalation of these tensions,as well as the evolving crisis in the Middle East,will lead governments to reassess trade in line with diplomatic objectives,potentially re-routing trade Over the past decade technological innovations such as automation,robotics and digitalisation have already revolutionised production processes and supply chain management,leading to changes in trade patterns.Advances in e-commerce and digital trade have facilitated the growth of cross-border online retailing,which remain highly resilient to external shocks,leading to an expansion of trade in services and digital goods.The growth in trade in services is likely to accelerate in the next decade,driven by a rise in home-working and growing global demand for e-commerce via smartphones.Services that were once traditionally supplied in-person can now be traded over longer distances,contributing to increased globalisation in this space.The most seismic development is the dawn of artificial intelligence,overtaking blockchain as the most disruptive technology for businesses.There is a sense of a paradigm shift for how business operations,and global trade,are conducted.AI opens up a vast realm of possibilities including enhancing supply-side efficiencies,automating decision-further.Attacks of freight ships in the Red Sea have already resulted in the re-routing of shipping around the Cape of Good Hope resulting in freight fees between Asia and Europe increasing by 173 per cent(see Chapter 2 section 2.2.).Against this fraught landscape,companies should proactively stress test their supply chains for security and resilience.Producers or sectors that rely on single-source materials are most exposed to volatility and supply chain disruptions and should consider active contingency planning for scenarios of protracted conflict.making,powering trade finance solutions,streamlining transactions,and improving buyer side personalisation and customer experiences.What is less clear is the regulatory framework that will accompany the adoption of AI,and the extent to which global regulators can provide a safe operating environment without stifling innovation.Until then companies looking to harness the full potential of AI should dedicate resources to understanding the technology and its capabilities,as this will grant them the ability to take use cases to market with greater ease and speed.Second transformative force:Supply chain reconfiguration as a consequence of regionalisation Third transformative force:A surge in digital trade and widespread AI adoption CHAPTER I:The Future of TradeCHAPTER I:The Future of TradeCOMMODITY DEVELOPMENTS AND DMCC COMMODITY TRADE INDEX 2024SECTION THREE3332The post-pandemic years have been marked by volatile prices in commodity markets,as an initial surge in demand preceded supply chain disruptions,global inflation and high costs.This pattern seems set to continue in the near term as wars in Europe and the Middle East threaten trade routes and commodities output.In this landscape,some regions are more exposed than others,with Europe and China braced for an extended period of economic downturn.However,as the Ukraine crisis revealed,shocks are never uniquely contained and have knock-on effects for commodity prices and supply around the world.The current trade outlook is premised on the following factors:Commodity prices have fluctuated significantly in the past two years,impacting the value of global trade.The value of world merchandise trade grew 12.4 per cent in 2022 and then fell by 5 per cent in 2023.13 The initial upsurge resulted from high global prices for commodities such as oil and gas following the onset of the Russia-Ukraine war.While prices have fallen from their peak,they remain above pre-pandemic levels.Ongoing commodity price volatility13 WTO 2024Despite the rapid advances of services trade,trade in goods still makes up the lions share of all global trade at roughly three quarters of the total.Total global merchandise trade 2017-2023($trillions)Source:WTO Stats(2023)CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade3435Higher commodity price rises are a boon to mineral and agricultural exporters in developing countries.Despite a slight easing since mid-2022,most commodity prices remain elevated compared to pre-pandemic levels.14 Fuels and mining products,in particular,surged by an average of 19 per cent annually from 2019 to 2022,surpassing$5 trillion in value in 2022.15These dynamics have led to varied impacts on trade balances,with mineral and agricultural-rich countries experiencing boosts,such as Brazils export surge driving growth,while others,like Indonesia,witnessed rapid growth in key commodities like nickel.16Oil and gas typically go through multiyear cycles of peaks and troughs,but Russias invasion of Ukraine has exacerbated these fluctuations.As shown in Figure 9,the prices of many commodities shot up in the aftermath,when supplies were reduced by fallout from the conflict as well as sanctions on Russia.Since then,the escalating crisis in the Middle East and attacks in the Red Sea have impacted approximately 10 per cent of global seaborne trade,which includes key commodities such as grain,oil and liquefied natural gas.17 Maritime shipping routes have been diverted to the Cape of Good Hope,after which oil prices hit$80 a barrel,raising concerns that the crisis could feed into more volatile commodity prices and inflation.18While oil prices are often volatile,the Russia-Ukraine conflict dramatically magnified market effects by altering supply and demand.Oil prices surged by some 25 per cent between June and September 2022,before falling back to trade around 11 per cent higher.19 This is partly due to international sanctions placed on Russian oil,a strong U.S.dollar making imported crude more expensive,and supply cuts by OPEC members.The conflict also triggered volatility in food prices since Russia and Ukraine are both major fertilizer and wheat producers.There is a shift towards regionalised commodity trade as nations balance import needs with diplomatic priorities.Conflicts and tensions to drive high energy and commodities pricesDespite a slight easing since mid-2022,most commodity prices remain elevated compared to pre-pandemic levels.Fuels and mining products,in particular,surged by an average of 19 per cent annually from 2019 to 2022,surpassing$5 trillion in value in 2022.businesses to forecast costs and profits,these price effects are likely to have an ongoing negative impact on trade that will only worsen should commodity prices rise again,followed by higher energy and transport costs.2214 UNCTAD,202315 WTO,2023d16 UNCTAD,202320 WTO,2023c21 McKinsey,2023a22 Donovan&Nikoladze,2024 23 Reuters,2024Global climate drive will bring disruptions to commodities marketsAs the global climate drive continues,the growth in environmental technologies like renewable energy and power infrastructure,AI,automation,and electric vehicles(EVs)is set to disrupt commodities markets in several ways.There will be increased demand for critical minerals such as lithium,cobalt and rare earth metals key components of EV batteries and renewable energy infrastructure.Some analysts predict at least 10 million metric tonnes of copper alone will be needed to satisfy demand in these sectors.23Sanctions on Russian oil exports by G7,EU,and Australia have led to alternative markets,notably increased oil supply to China.After experiencing significant energy price volatility in 2022 and 2023,Europe has sought alternative suppliers of natural gas to Russia including the United States,Norway,Qatar,and Algeria.20 This trade realignment supports bloc building and will reshape shipping routes and downstream production.Expectations for oil pricing have shifted,with$80 per barrel forecasted as the new norm,impacting OPEC dynamics.The energy transition may prompt re-evaluation of renewable sources and increased domestic production,as highlighted in a 2023 McKinsey study projecting hydrogen and ammonia production by the United States,Saudi Arabia,and Australia by 2050.21The longevity and severity of these price fluctuations are uncertain.Much will depend on the duration of these conflicts and any future escalations.Because they make it difficult for Global average primary commodity prices,2019-2023Index 2019=100 and US$per million BtuFIGURE 9GrainsFertilizersEnergyCrude OilFoodSource:WTO(2024)Index,2019=10017 The Economist,202318 Partington,202419 WTO,2023c40035030025020015010050020192020202120222023CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade3637The concentration of commodities in a select number of countries poses new geopolitical risks as their strategic importance is heightened.As supply is strained,this could lead to new trade tensions,disruption and pricing dynamics.A case in point is electric vehicles.In 2022 global automotive exports increased to a value of$1.5 trillion.24 The United States overtook Japan as the second-largest exporter of automotive products while China recorded a massive 30 per cent annual increase in its car exports.25 As countries around the world attempt to phase out combustion vehicles,EVs should theoretically be facing a period of growth as they fill a crucial supply gap.However,the picture is complex.Global EV sales have slowed due to high interest rates that limit purchasing power in big consumer markets like Europe as well as consumer anxiety surrounding EV charging and the lack of battery resiliency at low temperatures.26 Teslas shares fell 33 per cent in 202427 while Chinas BYD saw sales drop by 42 per cent in the first quarter of 2024.28EV demand is expected to pick up in line with global climate regulation,but the short-term outlook for the industry remains uncertain and could open up a new chapter of trade turbulence.Chinas recent dominance has caught the attention of U.S.and European regulators.An EU anti-subsidy investigation opened in October 2023 into Chinese electric vehicle battery imports following a surge of cheap imports.29 This may lead to increased trade rerouting and regionalisation as China seeks new markets to sell its excess supply.China currently dominates Southeast Asian EV markets,accounting for three-quarters of sales.30 If imports from China to the EU are restricted,it may need to find new suppliers,especially since retaliatory measures from China could target German automobiles The concentration of commodities in a select number of countries poses new geopolitical risks as their strategic importance is heightened.As supply is strained,this could lead to new trade tensions,disruption and pricing dynamics.heavily exposed to the Chinese market.31 Meanwhile,the United States maintains a high tariff on Chinese automobile imports,aiming to deter cheap EV influx,and is deliberating strategies to bolster domestic EV production as part of the Inflation Reduction Act.Such moves could trigger a new wave of trade divergence in the global EV market,and bring significant disruptions to the commodities the industry depends on from lithium,cobalt,nickel and graphite as the primary raw materials in lithium-ion batteries,to rare earths,copper,aluminium and steel.24 WTO,2023d25 WTO,2023d26 Carey and White,202427 Sriram,202428 Campbell,202429 European Commission,202330 Yoon,202331 Politico,2023DMCC COMMODITY TRADE INDEX 2024About the IndexThe Commodity Trade Index assesses the role of ten key commodities trading hubs within global trade.The index also assesses which global locations can expect to maintain their status as a trading hub.It incorporates ten indicators to produce an index score for the United States,Netherlands,Singapore,the UK,the UAE,Switzerland,Hong Kong,China,South Africa and Nigeria.The Commodity Trade Index was first introduced in the 2018 Future of Trade report.The Commodity Trade Index looks at three major factors important to commodity trade via ten individual sub-indicators.The data underlying the indicators are taken from sources such as the World Bank or the United Nations.32The ten indicators analysed are:In order to create the index,the data for each indicator were standardised and scaled within the 0%to 100%range.They were also adjusted for outliers and combined to create the composite index.Each of the three sub-categories is given equal weighting.For more detail on how the Commodity Trade Index was created,please refer to the Appendix.In this section,we produce the fourth iteration of the DMCC Commodity Trade Index,to reassess the performance of top trading hubs and compare how their relative rankings have changed over time.A.Locational and trading partner factors1.Headquarters locations of major commodities trading houses2.Proximity to markets(based on commodity export data)3.Commodity trade partner tariffs on primary goodsC.Institutional factors1.Financial services infrastructure2.Attractiveness of the tax regime3.Strength of regulatory enforcement4.Logistics performance CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade32 For a detailed methodology and a list of sources and references,please see the annex.B.Commodity endowment factors1.Tons of oil exported annually2.Hubs share of global commodity trade for coffee,grains,sugar,gold,diamonds,soya bean,tea,cotton,silver,animals and animal products and plastic3.Natural resource rents as a share of GDP3839DMCC Commodity Trade Index results 2024Index Score 2024Institutional factorsLocational and trading partner factorsIndex Rank 2022Commodity endowment factorsCountryUnited StatesUnited Arab EmiratesSwitzerlandSingaporeHong Kong SAR,ChinaThe NetherlandsUnited KingdomChinaSouth AfricaNigeria63w%2%6#(T%8YR)T84%7%3YfixYSB2%0YPFDA84476358910As shown in the table,the United States is the top trading hub on the 2024 index,with a score of 59%.This is one percentage point(PP)above the United States score of 58%in the 2022 report.The UAE maintained second place on the 2024 commodity index with a score of 50%,unchanged from 2022.The United States has now maintained its position at the top since 2020,with robust scores of above 50ross the three pillars.This consistency allowed the United States to achieve the best score without the highest score in any of the individual pillars.The United States ranked second across commodity factors,improving by 9pp from the 2022 index.The economy accounts for a large share of global soft commodity trade,particularly in soya trade.Notably,in 2024,the United States share of gold increased compared to the 2022 index.Overall,the trade of gold saw a marked increase in comparison to the other commodities,driven by the flight towards safer assets amidst soaring inflation across 2022 and the first half of 2023.The United States was one of the four countries amongst the ten that the index covers that saw their share in gold trade increase.The United States also ranked second on the locational index,moving up one position from 2022 and now falling behind only Switzerland.A key factor for this is that many commodities companies are headquartered in the United States.Cargill is in Minnetonka,Minnesota,and Koch Industries is in Wichita,Kansas,for example.The United States lowest ranking pillar in the 2024 index was for institutional factors,where it ranked 6th out of our 10 countries of interest.The countrys relatively high rate of corporation tax weakens its score.However,it does score well in terms of financial services infrastructure.The UAE placed second on the Commodity Trade Index,equalling its performance from 2022.In particular,the UAE has the top score for commodity endowment factors,driven by its large natural supply of oil.The UAE has scored top for this pillar of the index in every iteration of the Commodity Trade Index.The UAE also scores relatively well in institutional factors,which is driven by its attractive tax rates and strong performance in trade logistics.The score for UAE has been impacted by locational and trading partner factors.This pillar did show improvement from the 2022 index,which had a score of 2%but still remains low at 8%.This means that relative to other countries,the UAE tends to export more to countries that are geographically further away,although it has made some improvements in recent years.Switzerland placed third on the Commodity Trade Index in 2024 with a score of 46%.Switzerland moved up one position from the 2022 report.It holds the highest score for locational and trading partner factors and the third best for institutional factors.While it scores relatively weak on the commodity endowment factors,this pillar did see an improvement from the 2022 score.Source:See Appendix CHAPTER I:The Future of TradeCHAPTER I:The Future of TradeFIGURE 104041Singapore moved up three places from the 2022 report to fourth place with a score of 44%on the Commodity Trade Index in 2024.The improvement was driven by the locational and institutional factors.On the locational pillar,Singapore benefits from low tariffs from trading partners.It has the second-best score on the institutional factors with the strongest performance in the strength of regulatory enforcement and logistics of trade.Hong Kong came in at fifth place in the 2024 index,up from sixth position in the 2022 report.Being the top performer in institutional factors,particularly with a strong financial services infrastructure leads to Hong Kongs position on the index.However,the lack of commodity endowments drags the score down.The Netherlands and the UK witnessed the biggest falls in the ranking,falling from third and fifth position in 2022 to sixth and seventh positions,respectively,in the 2024 Commodity Trade Index.For both countries,the commodity endowment remained largely unchanged;however,the rankings were dragged down by locational and institutional factors.The shift in the headquarters of oil company Shell from the Netherlands to the UK caused a big dent in the Netherlands locational score,while the effect of Brexit on the UK is evidenced in this iteration of the index.This is reflected in the increase in tariffs imposed by trading partners on the UK and the decline in trade conducted with countries it is geographically close to,evidenced by the proximity to the markets pillar and its weak performance in trade logistics.The relatively high corporation tax further weakens the UKs score.The overall score for the UK on the Commodity Trade Index was 38%.China ranked in eighth place on the Commodity Trade Index.In the 2024 index,China achieved its lowest score on the commodity endowment factor across all iterations of the index,standing at 28%.This decline was primarily attributed to a decrease in its share of global soft commodities.It also recorded low scores of 34%and 42%on the locational and trading partner factors and institutional factors,respectively.South Africa placed ninth on the index,with an 18%score.It showed improvement in its scores for commodity endowment factors and institutional factors compared to the 2022 index.However,the score on the locational and trading partner factor recorded a 17%-point drop from the 2022 report,dragging its overall score down.Nigeria came in third place for its commodity endowment factors on the 2024 Commodity Trade Index thanks to its large oil reserves.However,its overall score was dragged down by its locational and trading partner factors and institutional factors.While the top two and bottom three performers on the commodity trade index remained unchanged from 2022,there were notable shifts among the mid-range performers in 2024.These changes were largely driven by the impacts of geopolitical conflicts,which led to supply chain disruptions and volatile commodity prices.Eight of the ten hubs saw a decline in their index scores.Even the United States and UAE,who were the two exceptions,were not completely immune to these effects.The United States recorded only a modest 1pp improvement,while the UAEs score remained unchanged from the previous assessment.The gap between the top and bottom performers further widened,with the United States pulling ahead by 9pp,while Nigeria,the lowest scorer,experienced a 6pp decline in its score.Looking ahead,the heightened geopolitical environment is expected to persist throughout the year.Events such as Russias withdrawal from the Black Sea grain initiative and ongoing disruptions in shipping routes through the Suez Canal are likely to pose risks,particularly to wheat and maize prices.Additionally,skyrocketing freight rates and adverse weather conditions will continue to influence commodity prices worldwide.Rank 2020Index Score 2018Index Score 2020Rank 2022Rank 2018Index Score 2022Country58PHADHE2!47635891053SGAEHF3#47635891047VI9TI0 Q367248910Source:See Appendix United StatesUnited Arab EmiratesSwitzerlandSingaporeHong Kong SAR,ChinaThe NetherlandsUnited KingdomChinaSouth AfricaNigeriaCHAPTER I:The Future of TradeCHAPTER I:The Future of TradeCommodity Trade Index results 2022,2020 and 2018FIGURE 114243Each hub is scored based on its performance as measured by the particular indicator.For each indicator,the same set of steps is followed,allowing us to assign a value between 0%and 100%to each hub:In order to account for outliers,each data point is checked to determine if it falls outside of the mean /-2 standard deviations range.The min-max approach is used to assign an index value to each hub.Specifically,the following formula is used(data point series min)/(series max series min).For indicators where a lower figure signified a better performance,the inverse of the data point or its negative equivalent is used.Once scores between 0%and 100%are assigned to each hub within each indicator based on the previous steps,the indicators are assigned to one of three sub-indices(locational and trading partner index,commodity endowment index and institutional index),which are weighted equally to give the overall index score.Commodity Trade Index data sourcesYearSourceSummaryIndicatorLocation of global and regional headquarters of the largest commodities trading companies are analysed and used to assign points to each hub.The sum-product of the share of each hubs commodity exports by trading partner and distance to trading partner is calculated and then assigned an index value.The sum-product of the share of each hubs commodity exports by trading partner and each trading partners average tariff on primary goods is calculated and then assigned an index value.Total annual crude oil exports by weight,by hubTotal annual coffee,grain,sugar,gold,diamonds,soya bean,tea,cotton,silver,animals and animal products and plastic trade by value,by hubTotal natural resources rents are the sum of oil rents,natural gas rents,coal rents(hard and soft),mineral rents,and forest rents.Estimates are calculated as the difference between the price of a commodity and the average cost of producing it.The strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending are used to analyse hubs.Analyses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year,as well as measures the administrative burden in paying taxes and contributions.This indicator looks at the time and cost for resolving a commercial dispute through a local first-instance court,and the quality of judicial processes index.Measures the time and non-tariff costs associated with documentary compliance,border compliance and domestic transport.Headquarter locations of major commodities trading housesProximity to markets(based on commodity export data)Commodity trade partner tariffs on primary goodsTons of oil exported annuallyHubs share of global soft commodity trade for key commoditiesNatural resource rents as a share of GDPFinancial services infrastructureAttractiveness of the tax regimeStrength of contract enforcementEase of trading across bordersSingapore Management University Comtrade World Trade Organization Comtrade Comtrade World Bank World Bank Tax Foundation World Justice Project World Bank Institutional factorsCommodity endowment factorsLocational and trading partner factors2024 2022 Latest(2021-2022)2022 2022 2021 2022 2023 2023 2023 1.United States2.United Arab Emirates3.The Netherlands4.United Kingdom5.Switzerland6.Singapore7.Hong Kong SAR,China8.China9.South Africa10.NigeriaThe ten commodities trading hubs analysed are:Appendix:DMCC Commodity Trade IndexCHAPTER I:The Future of TradeCHAPTER I:The Future of TradeFIGURE 12DRIVERS AND DYNAMICS OF TRADE RESILIENCESECTION FOURTrade is expected to grow in the coming years,but at a gradual and uneven rate,with widening divergences.Considering the array of destabilising forces this is still remarkable and a sign of the resilience of trade.The strategies put in place by governments and industry to mitigate risks against this landscape will be vital to ensure trade continuity.4544China is the worlds second-largest economy and the top trading partner for 120 countries.33 Economic slowdown in China hampers growth in the rest of the world.Chinas property market,which makes up about a quarter of its economic activity,is in crisis and major developers are in default.34Over the next few years,weakness is likely to persist in domestic demand,which remains below the world average.This challenges the countrys aim of shifting to consumption-led growth,an increasingly crucial factor as other countries reassess their supply chains and reduce dependency on Chinese imports.Anaemic domestic demand may lead to weakened investment in the private sector,which could have spillover effects on inflation and the housing market.Economic slowdowns in China and Europe will weigh on global trade growthMeanwhile,Europes economic stagnation is expected to continue amid high energy prices,costlier credit,constricted shipping through the Suez Canal,and Germanys worst downturn in two decades.35 The euro has fallen by some four per cent against the dollar since the start of 2024,affecting the buying power of European consumers.36 The continued slowdown in Europe will have significant implications for global trade through weakened demand,business and investment confidence.Key to maintain global trade resilience will be the extent to which companies diversify their suppliers and export and production markets beyond China and Europe.North America provides a traditionally large consumer base,while the rapidly-urbanising Asia-Pacific region provides an interesting alternative.Meanwhile emerging economies with strong growth prospects such as Vietnam,Thailand and India can enhance the resilience of global supply chains and reduce reliance on single markets for trade.Countries worldwide are grappling with soaring prices.The surge in inflation,fuelled by COVID-19s economic shock,supply chain disruptions,and the Ukraine crisis,has hit consumers and businesses hard.While inflation rates in the UK,United States,and EU spiked in 2021,theyre now tapering off.However,forecasts suggest theyll stay above targets until 2025.37 Global headline inflation is expected to ease from 6.9 per cent in 2023 to 5.8 per cent in 2024 and to 4.6 per cent in 2025.38InflationWhile the improving inflationary environment could weigh on producer margins,it can also lead to price stability,reduced volatility,and bank rate cuts offering a path to unlock consumer and business spending.This can provide a boost to trade resilience,although the fact that interest rates are expected to remain high will limit the scope of growth this year.Risks remain in the geopolitical landscape and their knock-on effects on commodities and energy prices that can push inflation up.In the face of these challenges,businesses should focus on optimising costs across operations and mitigating supply chain risks such as disruptions in input availability,transportation,and logistics.Inflation rate,annual percentage change,2015-2025P United KingdomUnited StatesEuropean UnionSource:WTO(2024)33 Green,202334 Reuters,202337 IMF,2023a38 IMF,2023a35 AP News,202436 Reuters,2024CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade4647Given that inflation remains above most targets,it is likely that interest rates will also stay higher for longer,since“monetary policy has not yet succeeded in taming inflation”.39 The“higher for longer”stance has been echoed by monetary policymakers around the world.40 The Bank of England and U.S.Federal Reserve have expressed their desire to cut interest rates but they remain high.41This has implications for global trade.Persistently high borrowing costs will dampen investment,reduce consumer spending and can lead to currency appreciation as foreign investors demand more,which will affect the terms of trade between different currency holders.Monetary policymakers will face challenges stemming from recessions and economic downturns in key markets,making it difficult to revive growth without stimulating inflation.IMF figures show that global trade slowed in 2023,attributing this in part to the lagged effects of U.S.dollar appreciation.As the leading global trade currency,a higher U.S.dollar weighs on trade due to the invoicing of products in dollars.42 A strong dollar makes U.S.exports more expensive,reducing demand for those products and services and affecting products that are integrated into U.S.supply chains.A higher U.S.dollar also has a major impact on those countries that have strong reserves of the currency or currencies that are pegged to it.In 2022,the dollar made up 58.4 per cent of the global foreign exchange reserve,ahead of the euro at 20.5 per cent.43 In 2022,the U.S.dollar rose to a 20-year high and remains strong against other major currencies(Figure 14).The relative strength of the U.S.dollar is likely to continue into 2024 Goods trade will remain muted against dollar appreciation,high inflation and interest rates and will remain vulnerable to shocks tied to conflicts and extreme weather events.Trade should pursue carefully calibrated diversification and risk management strategies in their operations and supply chains to reduce single source dependency and foster the growth of alternative production hubs and consumer markets,particularly in the Asia-Pacific and other emerging economies.Meanwhile,the global rise in carbon consciousness has propelled growth of environmental goods production.This,alongside advances of technology and the Interest rates Dollar appreciation and persist until the U.S.Federal Reserve cuts interest rates.This could impact the economic output of emerging markets and declined global trade volumes.Exchange rate volatility will make it increasingly difficult for businesses to operate as they will have to consider macroeconomic risks both at home and abroad.enticing scalability of digital services trade offer the most promising avenues for trade expansion.However,new risks are emerging including trade tensions linked to the production of silicon chips,environmental technology,and the raw minerals needed for their production.Appropriate policies are needed to ensure continued cross-border trade in goods and services.Accelerated regionalisation means governments should prioritise trade liberalisation,promotion and facilitation in bilateral and regional trade agreements.Ambitious frameworks are also essential to harness the transformative potential of technology,including AI,in a way that provides consumer protection without stifling innovation.Exchange rates against the U.S.Dollar,January 2019-February 2023.Indices,2019=10044FIGURE 14U.S.Dollars per EuroU.S.Dollars per YenU.S.dollars per Pound SterlingU.S.Dollars per Yuan RenminbiSource:WTO(2023c)39 WTO,2023c40 John,202341 Michael and Howard,202442 IMF,2023b43 European Central Bank,202344 The chart shows the exchange rate between the US Dollar and the Euro,Yen,Pound Sterling and Yuan Renminbi benchmarked to 2019 rates.CHAPTER I:The Future of TradeCHAPTER I:The Future of TradeRecommendations for governments:Trade is expected to grow but slowly.Following a contraction in merchandise exports in 2023,exports are expected to grow across all regions,demonstrating global trade resilience.Growth will be strongest in Asia,North America and Africa.Services trade will set new records,growing faster than trade in goods for the first time in history.New waves of growth are expected for trade in digital services,underpinned by the dawn of AI that we explore in Chapter 3.Competition will grow between regions,namely the United States and China,around the production of silicon chips and in the race for supremacy in environmental goods and technologies.As a result,the supply of commodities and minerals will become increasingly more 1145633322442Businesses should be prepared to adapt to these changes by building flexible supply chains and exploring new markets and partnerships.Diversification of suppliers and investing in alternative sourcing strategies can also help mitigate supply chain disruptions.Mitigate macroeconomic risks.Against a backdrop of global economic uncertainty,businesses should proactively monitor conditions such as economic slowdowns,currency fluctuations,inflation,Diversify export markets:Despite slow growth,there are opportunities for export expansion,particularly in North America and emerging markets in Asia-Pacific and Africa.Businesses should adopt diversification strategies for their export markets to capitalise Recommendations for businesses:strategic and sensitive,further driving regionalisation.Geopolitical tensions will drive a rapid reconfiguration of trade flows.We will see greater regionalisation as new alliances are formed,with opportunities for emerging economies that can provide alternative production and consumer hubs.Macroeconomic conditions such as economic slowdowns in China and Europe,dollar appreciation,persistently high inflation and interest rates will weigh on global trade,subdue consumer demand and hamper potential growth.Businesses will have to navigate an increasingly complex political and policy environment and will need to be agile to seize opportunities as and when they arise.1Build new trade relationships:Governments should make trade promotion a core policy objective and foster trade partnerships beyond traditional markets.Encouraging exports to regions with strong growth potential can help build new consumer bases,mitigate the impact of slow global trade growth and enhance resilience against economic fluctuationsInvest in digital infrastructure and innovation:Recognising the growth potential of digital services trade,governments should prioritise investments in digital infrastructure and innovation ecosystems.Supporting the development of AI technologies and digital trade platforms can unlock new opportunities for economic growth and competitiveness.Strengthen industry supply chain security:Given the intensifying competition between regions and the strategic importance of commodities and minerals,governments should prioritise measures to strengthen supply chain security.This may include diversifying sourcing locations,promoting domestic production of critical goods,and enhancing collaboration with international partners to ensure reliable access to essential resources.Facilitate regional integration and cooperation:Geopolitical tensions are driving a shift towards greater regionalisation in trade flows.Governments should actively promote regional integration and cooperation initiatives to capitalise on emerging opportunities and mitigate risks associated with geopolitical instability.Creating frameworks for cross-border trade facilitation and harmonising regulatory standards can foster economic resilience and sustainable development.on growth opportunities in these regions.Reconfigure supply chains against geopolitical shifts.Rapid reconfiguration of trade flows due to geopolitical tensions presents both challenges and opportunities.4849KEY TAKEAWAYSand taxation.Strategies should be considered to mitigate risks associated with these factors,including cost optimisation.Invest in digital transformation and innovation.Against a tide of technological advancement,the dawn of AI stands to revolutionise trading systems.Companies that invest in understanding AI and how to build use cases stand to benefit.Those that do not run the risk of losing out to competition.CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade5051Interview:Ralph Ossa,Chief Economist,World Trade Organization At the start of the pandemic,the WTO forecast that the volume of merchandise trade could fall by up to 32 per cent,but trade fared better than expected.With the benefit of hindsight,why do you think global trade was more resilient than originally feared?I wasnt at the WTO at the time that this forecast came out,but I shared that pessimism.It really seemed like a perfect storm at the outset with problems on the demand side and the supply side,as well as increases in trade costs because all sorts of trade restrictions were put in place.Quite early on,we realised that COVID was mainly leading to problems in the services sector,whereas we needed a lot of goods to help deal with the pandemic.Therefore,trade became part of the solution to the pandemic and that is why it has recovered so quickly.Within just three quarters of the downturn in the second quarter of 2022,trade had already recovered,marked by huge increases in trade in medical supplies,personal protective equipment and face masks,as well as trade in home office equipment,exercise equipment and TVs because we all ended up working from home.When people think back to the pandemic,they remember the supply chain disruptions at the beginning but what many people dont remember is that trade was a huge part of the solution,and in fact,contributed tremendously to the resilience of the global economy.We are living in very uncertain times as macroeconomic factors are causing cost of living crises around the world and numerous Do you expect that the huge focus on the drive to net zero could create new trade in green products and enable more countries to enter the international trade network?Absolutely.First,you have exactly what you described:new products,for example,critical minerals,batteries,and so on.The supply and demand patterns are to some extent different than what they were for fossil fuels,so I expect to see a shift there.Trade is also an important factor in making the green transition happen.If a country is abundant in renewable energies but does not have the technology to produce solar panels or wind turbines,then of course you need access to frontier technology from elsewhere,which mostly comes in the form of trade.At the WTO,we make a point that there are not only economic gains from trade but there are also environmental gains from trade.The economic gains from trade come from countries specialising in what theyre relatively good at.The environmental gains from trade come from countries specialising in what theyre relatively green at.Its the same idea as comparative advantage but just applied to reductions in greenhouse gas emissions.But the key difference is that the economic gains from trade tend to materialise naturally,whereas the environmental ones need some help in the form of government policy that forces firms and households to internalise the geopolitical tensions and conflicts continue into 2024.Which factors pose the biggest threat to international trade?While there will certainly be headwinds in 2024,if you take a step back and look at the big picture,you see that we had a pandemic,we have war in Europe and the Middle East,we had inflation at levels that we havent seen in decades and extremely restrictive monetary policy,but overall,trade has been resilient.Looking to the future in the near term,it is the weakness of aggregate demand that stems from monetary policy as well as fiscal policy that Im concerned about,particularly in Europe.People always look to China but Chinas not doing that badly;the economy is not growing at 8 per cent anymore,but it is still growing within the target set by Chinese authorities.In terms of structural issues,I am most concerned about geopolitical tensions,because I do think that they could really distort international trade.With the world becoming more fragmented,do you expect to see more regionalisation?It depends on how geopolitical developments pan out.I think we are at a crossroads when it comes to globalisation,and it depends on the policy choices that are made.I could see us going down a path of fragmentation and regionalisation.But I could also see us going down a path of re-globalisation where we reinvent globalisation and extend it to more countries,people and issues.The latter is certainly the path we advocate for at the WTO.externalities that their choices are causing.This is why it is so important to have carbon prices or other policies that go in that direction to unleash these environmental gains.Lastly,how do you see the WTO playing a role in these very fast-changing,uncertain times for international trade?I do think the WTO can help play a key role as more than 75 per cent of all trade is conducted directly on WTO terms.When we think about the challenges that we are facing,I think firstly we need to maintain peace and security,then we need to reduce poverty and inequality.We also need to build a sustainable economy.I think for all these issues,you need a rules-based multilateral trading system with the WTO at its core.Looking at economic security,for example,we need to ensure 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Development.Available at:https:/unctad.org/news/global-e-commerce-jumps-267-trillion-covid-19-boosts-online-salesUNCTAD.(2022a).COVID-19 boost to e-commerce sustained into 2021,new UNCTAD figures show,United Nations Conference on Trade and Development.Available at:https:/unctad.org/news/covid-19-boost-e-commerce-sustained-2021-new-unctad-figures-showUNCTAD.(2022b).Total trade in services,United Nations Conference on Trade and Development.Available at:https:/hbs.unctad.org/total-trade-in-services/UNCTAD.(2023).Trade and Development Report 2023,United Nations Conference on Trade and Development.Available at:https:/unctad.org/system/files/official-document/tdr2023_en.pdfUNCTAD Stats.(2023).Available at:https:/unctadstat.unctad.org/datacentre/dataviewer/US.IctGoodsShare UNESCAP.(2020).Trade in Goods Outlook in Asia and the Pacific 2020/2021,United Nations Economic and Social Commission for Asia and the Pacific.Available at:https:/www.unescap.org/resources/trade-goods-outlook-asia-and-pacific-20202021US Treasury.(2023).Treasury Releases Proposed Guidance on New Clean Vehicle Credit to Lower Costs for Consumers,Build U.S.Industrial Base,Strengthen Supply Chains,U.S.DEPARTMENT OF THE TREASURY.Available at:https:/home.treasury.gov/news/press-releases/jy1379CHAPTER I:The Future of TradeCHAPTER I:The Future of Trade5455Reuters.(2023).Why Is Chinas Economy Slowing down and Could It Get worse?,Reuters.Available at:https:/ Devesa,T.(2024).Geopolitics and the geometry of trade,McKinsey Global Institute.Available at:https:/ COVID-19 Unlocked the Adoption of E-commerce in the MENA Region,Wamda Legatum Centre for Development&Entrepreneurship.Available at:https:/legatum.mit.edu/wp-content/uploads/2021/03/170321-MIT-Wamda-E-Commerce-COVID19-report-EN-01.pdf WTO.(2020a).Trade Set to Plunge as COVID-19 Pandemic Upends Global Economy,World Trade Organization.Available at:https:/www.wto.org/english/news_e/pres20_e/pr855_e.htmWTO.(2020b).World Trade Statistical Review 2020,World Trade Organization.Available at:https:/www.wto.org/english/res_e/statis_e/wts2020_e/wts20_toc_e.htm WTO.(2022a).TRADE IN MEDICAL GOODS IN THE CONTEXT OF TACKLING COVID-19:DEVELOPMENTS IN 2019-21 World Trade Organization.Available at:https:/www.wto.org/english/tratop_e/covid19_e/med_goods_2019_21_e.pdfWTO.(2022b).World Trade Statistical Review 2022,World Trade Organization.Available at:https:/www.wto.org/english/res_e/booksp_e/wtsr_2022_e.pdfWTO.(2023a).REPORT ON G20 TRADE MEASURES,World Trade Organization.Available at:https:/www.wto.org/english/news_e/news23_e/trdev_04jul23_wto_report_e.pdfWTO.(2023b).Global Trade Outlook and Statistics October 2023,World Trade Organization.Available at:https:/www.wto.org/english/res_e/booksp_e/gtos_updt_oct23_e.pdf WTO.(2023c).Global Trade Outlook and Statistics April 2023,World Trade Organization.Available at:https:/www.wto.org/english/res_e/publications_e/trade_outlook23_e.htm WTO.(2023d).World Trade Statistical Review 2023,World Trade Organization.Available at:https:/www.wto.org/english/res_e/publications_e/wtsr_2023_e.htmWTO.(2023e).Digitally delivered trade chapter 4,World Trade Organization.Available at:https:/www.wto.org/english/res_e/booksp_e/digital_trade_23_ch4_e.pdf WTO.(2023f).Digitally delivered trade chapter 1,World Trade Organization.Available at:https:/www.wto.org/english/res_e/booksp_e/digital_trade_23_ch1_e.pdfWTO.(2024).Global Trade Outlook and Statistics April 2024 World Trade Organization.Available at:https:/www.wto.org/english/res_e/publications_e/trade_outlook24_e.htm WTO Stats.(2024).WTO Stats,World Trade Organization.Available at:https:/stats.wto.org/WHO.(2023)Pandemic prevention,preparedness and response accord,World Health Organization.Available at:https:/www.who.int/news-room/questions-and-answers/item/pandemic-prevention-preparedness-and-response-accord WTTC.(2023).Travel and tourism economic impact 2022,World Travel and Tourism Council.Available at:https:/wttc.org/Portals/0/Documents/Reports/2022/EIR2022-Global Trends.pdfYoon,J.(2023).Chinas electric vehicles threaten to leave Europe in the dust,Financial Times.Available at:https:/ Zhang,W.(2021).Export Restrictions on Medical Supply Amidst a Pandemic,Sidley.Available at:https:/ CHAPTER I:The Future of TradeCHAPTER I:The Future of TradeTHE GEOPOLITICS OF TRADECHAPTER IICHAPTER 2:The Geopolitics of TradeCHAPTER 2:The Geopolitics of Trade5859Geopolitics are challenging free and open trade to a greater extent than they have in a generation.The comparatively secure environment that fostered growth in international trade over the past three decades has given way to one fraught with uncertainties as economies adjust to rapidly changing geopolitical and macroeconomic dynamics.In our survey of 100-plus business leaders,most respondents cited geopolitical tensions as one of the key challenges to trade growth,with 34 per cent stating that China-U.S.tensions posed the greatest threat,followed by nationalism and onshoring(27 per cent).Ideology rather than economic considerations is now driving trade policy in many countries.Economic security is increasingly being cited by policymakers as a driver of trade rules,and industry experts expect this to continue for the foreseeable future.45This quest for security is reflected in a shift to longer-term industrial policies around the world,which will have a significant impact on trade as governments take action to reduce their dependency on trading partners,particularly in critical sectors such as healthcare,agriculture and energy.Our research showed that the multiple and complicated issues at play on the geopolitical stage are proving challenging for businesses.The ongoing tensions between China and the United States remain a central theme.The Russia-Ukraine conflict and escalating crisis in the Middle East and their repercussions including attacks on shipping in the Red Sea are having a tangible and direct impact on trade.Significantly,more than 60 countries representing almost half of the worlds population will go to the polls in 2024.This has raised concerns about a rise in protectionist policies,not least in the United States,where Donald Trump has threatened a 10 per cent across-the-board increase in tariffs should he win the presidency.The U.S.-China relationship has become independent of political party and is now being driven by a bi-partisan consensus on national security Friendshoring and nearshoring are driving substantial changes in supply chains.This is partly a consequence of the COVID-19 pandemic but is also now driven by a re-evaluation of“geo-economic”strategies.Businesses are restructuring supply chains to bolster resilience and to mitigate disruptions caused by conflicts,uncertainty,and policy shifts.By establishing alternative supply chains and forming new partnerships,businesses are proactively reducing their vulnerability to unexpected shocks to ensure trade resilience.However,there are many sectors for which this is not a viable option,such as those that rely on single-source critical materials,making them the most vulnerable to dislocations.In our survey of 100-plus business leaders,most respondents cited geopolitical tensions as one of the key challenges to trade growth,with 34%stating that China-U.S.tensions posed the greatest threat,followed by nationalism and onshoring(27%).NEW ALLIANCES,NEW TRADE ROUTESWhat do you think is the greatest threat to global trade over the next two years?46 Global elections will drive uncertainty and economic nationalismSupply chain restructuring to bolster security and trade resiliencethat overrides the desire for open global trade.Economic nationalism is on the rise,and businesses will need to adapt.46 Note that data collection for the DMCC Future of Trade survey started prior to the conflict in Israel and Gaza and the attacks in the Red Sea,hence why they do not feature in the survey results.45 DMCC Future of Trade Roundtable participants Source:DMCC Future of Trade survey,20246061REGIONALISATION TO REDRAW TRADE ARCHITECTURESECTION ONEOur previous Future of Trade 2022 report anticipated a multi-polar landscape dominated by North America,Europe,and a China-centric Asia.This forecast remains accurate,despite the anaemic economies of Europe and China.However,at the core of this transformation is the diversification of trade partners,as countries increasingly engage with a broader range of economies beyond traditional power centres.This diversification not only opens access to new markets but also reveals a spectrum of trade policies and approaches reflecting the priorities of emerging markets.Rising middle powers,particularly those non-aligned,stand to benefit from expanded trade but must navigate geopolitical fluidity with cautious hedging strategies.Emerging markets face challenges as the United States and China escalate pressure to align,posing dilemmas for their trade strategies.At the heart of this shift is the divergence in trade integration strategies among economies.For instance,ASEAN nations and Germany are deeply entrenched in regional manufacturing value chains,actively participating in cross-border manufacturing processes.47 Conversely,In the Future of Trade survey,82 per cent of respondents said they expect trade to become more regionalised.49 As countries strengthen their economic and commercial ties,regionalisation The rise of protectionism is a risk that will grow as a number of key elections take place in 2024.This could have significant implications for trade growth.Protectionist policies such as export restrictions and tariffs on key commodities are designed to protect domestic industries,but can inflate trade costs and disrupt established supply chains,impacting global market trends,commodity prices,and investment flows.More and more countries New centres of gravity to provide trade opportunitiesTransition to a multipolar trade landscape is reshaping global trade dynamicsRisks to trade remain in protectionism and economic nationalism the United States has prioritised onshoring and nearshoring,with a lower trade intensity due to its vast domestic economy and resource abundance.Despite this,the United States still relies on international trade for various products,favouring partners like Mexico,which has seen export shares increase in sectors such as agriculture and transport equipment.This shift has resulted in goods travelling over shorter distances.48 As can be seen in Figure 16,Mexico overtook China in 2023 as the largest goods exporter to the United States.Such a divergence in trade integration strategies will accelerate regionalisation.The formation of distinct trade blocs with varying levels of integration between North America,Europe,and Asia,could alter traditional trade routes and supply chain dynamics.Meanwhile a patchwork of trade agreements,regulatory frameworks,and geopolitical alliances could set up trade integration at different speeds,creating a new set of opportunities and challenges for businesses to navigate.US total goods imports($bn)2012-2023FIGURE 16US imports from ChinaUS imports from MexicoSource:UN Comtrade Database(2024)$billionare adopting protectionist policies.Among the G20,several export restrictions have remained in place post-COVID,including for critical products such as food and fertilizers,highlighting concerns about domestic disruptions.50 One example is the Inflation Reduction Act in the United States.Signed into law in 2022,the act sought to curb inflation by reducing the deficit and boosting domestic manufacturing.However it has posed challenges for upstream suppliers,prompting EV manufacturers to establish production facilities in the United States to preserve their market presence.51 The challenges of key EV producers in Europe and Asia have added to broader concerns of a trade war emerging from these policies.Protectionist measures shield industries from international competition,which reduces the incentive for companies to optimise operations and innovate.52 This could eventually lead to a decline in industrial competitiveness,which in turn will prompt a reconfiguration of supply chains that will result in fewer connections within the global network.47 Seong et al.,202448 Seong et al.,202450 WTO,2023b51 Banks,202352 World Bank,202349 12 per cent did not expect that trade would become more regionalised and 6 per cent were not sure.grows,fostering new relationships and markets.New production and consumer hubs will emerge.In the coming years we can expect to see new centres of gravity forming in Asia centred around ASEAN,China and India and North America.This is bolstered by relatively new multilateral agreements such as RCEP,CPTPP and USMCA with commitments to reduce tariffs,create a common market and boost regional trade.CHAPTER 2:The Geopolitics of TradeCHAPTER 2:The Geopolitics of Trade6263CONFLICTS AND TENSIONS TO FUEL INSTABILITYSECTION TWOGeopolitical tensions and regional conflicts are having a fundamental impact on global trade,reshaping economic landscapes,and heightening the risk of further supply chain dislocations.Geopolitical tensions have led to major disruption of vital supply routes.The escalating crisis in the Middle East has notably affected key global shipping lanes,with the disruptions in the Red Sea serving as a clear illustration of this impact.53Relations between the United States and China will remain precarious in the near-term.A focus on risk management by both countries reflects the underlying challenges in resolving core tensions over issues such as trade and technology.In the Future of Trade survey,some two-thirds of respondents said they expect U.S.-China tensions to worsen over the next two years,while only 7 per cent think they will become less tense.U.S.-China RelationsCountries with robust trade agreements and significant foreign investment have been able to capitalise on new market opportunities created by geopolitical tensions between the U.S.and China.How do you see US-China trade tensions evolving over the next two years?Source:DMCC Future of Trade survey,202453 Gill and Kose,202454 Cheng,202355 Fajgelbaum at al.202356 The study measures bystander countries as the 48 largest exporters to China,the United States and rest of the world.57 Fajgelbaum at al.2023Policymakers in Washington and Beijing have taken action to lessen the economic interconnectedness between the two countries.This conscious uncoupling is a consequence of former U.S.President Donald Trumps trade policies,which largely continued under the Biden administration in the form of the U.S.Inflation Reduction Act and the U.S.CHIPS Act,fundamentally aimed at reducing dependence on China.Ongoing tensions between both powers will have far-reaching implications for global trade and investment,with the volume of bilateral U.S.-China trade forecast to decline even further.In the first half of 2023,trade fell by 14.5 per cent compared to the previous year a drop Chinas ambassador to the United States said was a direct consequence of Section 301 tariffs.54 This decline is part of a broader shift of U.S.trade to other emerging markets.The silver lining is that many emerging markets have filled the gap as alternative sources of production for goods.This can create benefits to global supply chains and trade in the long term,especially as bystander countries have boosted their exports to the United States and the rest of the world,while their own exports to China have remained largely unaffected.55,56 Countries like Vietnam,Thailand,South Korea and Mexico have surfaced as major export“winners”in this shift to alternative centres to Chinese exports.57 Emergence of new production hubs to fill the China gapCHAPTER 2:The Geopolitics of TradeCHAPTER 2:The Geopolitics of Trade6465Many businesses have also taken measures to reduce their exposure.An increasing number of U.S.companies are reconsidering decisions to invest in the Chinese market and are looking to diversify into other regions,including ASEAN.As a result,countries with robust trade agreements and significant foreign investment have been able to capitalise on new market opportunities created by geopolitical tensions between the U.S.and China.This has contributed to a gradual reconfiguration of global supply chains.It is important to note that this strategy is not feasible for all sectors and businesses.While many companies have explored moving operations out of China,other markets cannot compete on price and quality.Many factories in Southeast Asia are also owned by Chinese companies or source materials from China,which undermines decoupling efforts.The United States aims to limit Beijings dominance in high-tech sectors by boosting domestic innovation,focusing on sectors that offer a competitive advantage.58 This involves not only substantial investment in R&D,but also export and investment restrictions designed to reduce the transfer of technology to China.These measures have strengthened under the Biden administration,with the goal of furthering Washingtons supremacy across several key sectors,including battery technology,biotechnology,semiconductors and clean energy.Other factors,including a push for more diversified import sources and attempts to strengthen supply chain resilience,are intensifying this trend.Technology and climate to emerge as new trade battlegroundsWhile imports of certain products like semiconductors and consumer electronics from China have declined,those of laptops,phones,and toys surged during and after the COVID-19 pandemic.59 Selective disengagement between the American and Chinese economies might offer long-term advantages,but it poses immediate challenges like product shortages due to supply chain disruptions and inflationary pressure.Further tariff increases could also lead to higher costs for U.S.consumers.A return of Donald Trump to the U.S.presidency in the 2024 elections could heighten uncertainties in U.S.-China relations and global trade.Increased tariffs would almost certainly reemerge as a central plank of U.S.government trade policy,possibly reigniting a tit-for-tat trade war among partners.Recent comments suggest Trump would impose tariffs in excess of 60 per cent on China.60 More broadly,Trumps diplomatic approach adds to business uncertainty and long-term planning challenges.Nearshoring of critical supply chains in sectors like electronics,pharmaceuticals and steel,driven by domestic tax reforms and import tariffs,could intensify,signalling a resurgence of protectionist policies.However,even under a second Biden term tensions with China will likely endure,with existing tariffs and trade acts like the U.S.Inflation Act and U.S.CHIPS Act driving trade tensions.The impact of U.S.-China tensions on trade varies by sector2024 U.S.elections will test global trade growthGeopolitical tensions and regional conflicts are having a fundamental impact on global trade,reshaping economic landscapes,and heightening the risk of further supply chain dislocations.The unfolding crisis in the Middle East as a result of the Israel-Gaza conflict threatens global trade.An upsurge in attacks against commercial shipping passing through the Bab el-Mandeb Strait,which connects the Red Sea and Gulf of Aden,have led to disruptions,affecting routes critical for the global shipping industry and global trade and raising transport costs.Prolonged hostilities,or an escalation in the conflict involving one or more regional players,may yet unfold and threaten security and trade stability in the region.But for now the risks to global trade appear more contained and short-term in nature compared to other global conflicts.Approximately 10 per cent of global seaborne trade,including key commodities such as grain,oil and liquefied natural gas,passed through the narrow strait of Bab el-Mandeb in 2023.61 In response to the uptick in attacks against commercial vessels,13 shipping operators,including Maersk and Hapag-Lloyd,which collectively account for at least 70 per cent of global maritime freight traffic,announced the suspension of journeys through the strategic waterway or the re-routing of services around the Cape of Good Hope a change that adds an additional 40 per cent to the voyage distance.62The Middle Eas
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IRS218WP499|May 2024RETAILX.EVENTS/CONSUMERXIN PARTNERSHIP WITH2024ConsumerXGetting Inside the Mind of Your Next Customer2|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|INTRODUCTIONContentsIntroductionUnderstanding todays consumer 03Expectations versus reality 05Key themes 07Looking ahead to the next customer 08What is ConsumerX?10Company profile:eBay 11Company profile:Ikea 12Company profile:Next 13Company profile:Screwfix 14Partner perspective 15Conclusion 17Welcome to the first ConsumerX report,which is published alongside the first ConsumerX conference,part of the RetailX 2024 Spring Fair.At the heart of this report is the ConsumerX database,with findings from five years of consumer surveys.Each year,more than 40,000 consumers from over 20 key ecommerce markets around the world respond to ConsumerX surveys that are translated into a dozen languages.Consumers share their opinions with us on subjects covering all aspects of the multichannel shopping journey,from how they decide where to buy online,to their payment and delivery choices,as well as how theyd like to buy online in the future.Attitudes to sustainability,social media and emerging technology are just some of the areas covered by these surveys.Until this year,RetailX has used ConsumerX data only to inform our own publications.The development of the ConsumerX app allows us to now open up access to users across the ecommerce and multichannel retail industry.Our aim is to answer important questions about how shoppers are buying differently,as well as to reveal the main factors driving this change,what we might expect in the future and how retailers and brands can plan for that.Ian Jindal,CEO,RetailXFeaturedP.05We contrast the ways that consumers shop with how theyd like to shopWe identify three key themes that run through ConsumerX researchOur company profiles analyse how key retail businesses organise their services around what customers wantP.07P.113|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|UNDERSTANDING TODAYS CONSUMERWere starting our exploration of modern shopping behaviour by zooming out to find out how and why shoppers in key commerce markets around the world buy online.Our research here is based on the ConsumerX Global Consumer Observatory 2024.This questioned more than 7,700 respondents from 14 countries:Australia,Brazil,Canada,China,Egypt,France,Germany,India,South Africa,South Korea,Taiwan,the UAE,UK and USA.Were also sharing key graphics that illustrate ConsumerX research.Of 7,714 respondents to the survey,only 3.1%say they never shop online.37.8%of shoppers buy online at least once a month or more than once a week(34.1%).When shoppers dont buy online,the primary reasons are simple they like buying instore(29.5%)or feel safer doing so(23.6%).Fewer cite specific concerns,such as around product quality(8.9%),online payment(8.9%)and delivery(4.8%),while 8.0%are simply not familiar with buying online.For those that do shop online,its about convenience and cost.Home delivery(42.8%),saving time(38.4%),cheaper prices(38.6%)and good offers(33.3%)are the top reasons.But a significant number are looking beyond those reasons.A wider product range(26%),the ability to read product reviews before buying(19.7%)and more product information(14.5%)all play a role,while 20.2%say its simply less effort.Safety(5.5%)and health reasons(4.2%)for shopping online are cited by relatively small proportions although,by Understanding todays consumer4|InternetRetailing|May 2024IRS218WP 2024 number,more respondents say they shop online for safety reasons than are buying instore for safety.Across markets,consumers are most likely to buy fashion clothing and accessories online,with 56.1%of respondents doing so,43.4%buying cosmetics or beauty products and 42.6%buying groceries.They are least likely to buy garden products(14.7%),niche or specialist groceries(14.2%)or tobacco or vaping products(13.5%).From the 14-country research,the largest group of shoppers are those that spend between$13 and$130 online each month,followed by the 26.3%whose monthly spend is between$130 and$320.Yet spending varies by country.In Taiwan,for instance,the largest group is the 46.4%whose monthly online spend exceeds$1,300,while in China,the largest group(27.5%)spends between$320 and$640 online a month.Users of the ConsumerX app can refine these findings by country,demographic,level of income and product category.When ConsumerX asked shoppers across 14 countries about online buying habits,most(59.3%)say they find reviews helpful,while 58.7%always research high cost items online.Express shipping is a stated preference for 34.2%,while smartphones are preferred both by the 44.4%who research on them and the 31.4%who order and manage purchases through them.Coupons and discounts are the discovery tool for 38.4%of respondents.35.6%find items on social media,yet only 19.5%say they follow the suggestions of social media influencers.Across traditional channels,30.2%mention TV advertising and 19.2%cite print adverts.CONSUMERX 2024|UNDERSTANDING TODAYS CONSUMER5|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|EXPECTATIONS VS REALITY How shoppers would like to buy can differ significantly from how they actually buy,since shoppers who say they want to behave in one way may act differently when it comes to the moment of decision or purchase.This is likely to be down to whether their preferred option was available in practice and,if so,whether it was too expensive or inconvenient for them to buy.Retailers and brands that address such issues and allow shoppers to buy in the ways theyd like to may well benefit from doing so.This may involve offering new services or reflecting values such as a wish to buy more sustainably.Here are some examples of what ConsumerX research reveals about how shoppers say they would like to buy and how they actually did so.When ConsumerX asked shoppers about their expectations during busy or peak shopping periods,56.5%said they would like free shipping on all orders,34.1%that theyd like flexible payment methods and 44.1%said they would like flexible returns methods.While most would prefer free delivery,they are also willing to pay for speed.56.3%say they have paid extra for same-day delivery 10.3%always do so while 57.7%have paid extra for next-day delivery.Flexible payment options were also popular.While 71.2%of shoppers said they had paid using a bank Expectations vs realityWe examine the gap between how shoppers want to buy and how they actually do it6|InternetRetailing|May 2024IRS218WP 2024 card,53.8%had paid using a third-party checkout,35%a mobile phone app and 32.9%a bank transfer.ATTITUDES TO SUSTAINABILITY ConsumerX research suggests that shoppers want to buy environmentally friendly products and use sustainable delivery methods.When asked how important environmentally-friendly packaging was to them,respondents said it was very important(32.5%)or important(46.4%)to them,while 69.8%said carbon neutral home delivery mattered to them.In the last year,81.2%said they had looked for sustainability information during a purchase 17.6%always,30%most of the time and 33.6%some of the time.65.2%had chosen a different item due to that information,with 9.8%always doing so and 21.4%doing so most of the time.However,76.5%had brought a non-sustainable product because there were no reasonable alternatives with only 23.6%saying they never did this.A similar proportion(72.7%)had bought a product for sustainability reasons despite the inconvenience and expense 11.2%always,24.7%most of the time and 36.8%sometimes.This suggests shoppers may be willing to pay a premium for sustainable items,even when it takes extra steps to do so.ConsumerX research also asks about the categories in which shoppers have made sustainable purchases.It finds that 46.1%have bought sustainable clothing,41.3%sustainable groceries,30.9%sustainable beauty or cosmetics products,39.8%sustainable footwear and 24.1%homewares.CONSUMERX 2024|EXPECTATIONS VS REALITY 7|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|KEY THEMESAnalysis of consumer attitudes gives us valuable insights into shoppers concerns and the values that inform their shopping habits.Here,we report on three key themes that emerge,as well as how retailers are responding to some of their concerns.CUSTOMER LOYALTYLoyal customers are the key to customer lifetime value a KPI(key performance indicator)that many retailers track.Whats the key to customer loyalty?When ConsumerX asked consumers in 14 countries what made them buy again from a company,price(65.9%)was the clear leader,followed by convenient delivery(52.6%)and good customer service(51.8%).Familiarity(49.8%),discounts and promotions(47.7%)and already having set up an account(35.6%)were also cited.Some multi-sector retailers such as Amazon,fashion brands such as H&M and DIY retailers such as Bunnings in Australia,run subscription schemes or loyalty clubs for a one-off cost that include a range of benefits.This helps to build relationships with customers for the longer term at a relatively low cost to the customer.57.6%of ConsumerX respondents say they subscribe to an online shopping premium service,with 75.1%of the 4,189 respondents that have them saying they get free delivery as a result.Key themesHow are retailers responding to key shopper values?VALUEThe cost of living has been front of shoppers minds in recent years,with 89.8%of ConsumerX respondents saying that finding the lowest price is very(48.1%)or somewhat(41.7%)important to them when they buy online.Only 1.4%say that its not important to them at all.Around the world,supermarkets from Carrefour in France to Tesco in the UK and Walmart in the US are emphasising value on their websites.Walmarts website tag line is save money,live better,while Carrefour flags up discounts and Tesco features value on its home page in a section that clicks through to its value range.SUSTAINABILITY Being sustainable is increasingly important for consumers.ConsumerX research finds that 75.7%strongly agree(29.3%)or agree(46.4%)that they want retailers to be ecologically sustainable and that 76.2%strongly agree(30.9%)or agree(45.3%)that a companys or products ecological impact should be made clearer to shoppers.Such concerns are increasingly being reflected in retailers approaches to selling online.Patagonia founder Yvon Chouinard has taken the step of transferring ownership of the outdoors equipment business to the Patagonia Purpose Trust and the Holdfast Collective,making Planet Earth its only shareholder.Understandably,sustainability is at the forefront on its website.While Patagonia may be an outlier,other retailers and brands also feature sustainable options on their websites,whether they are retailers that primarily produce sustainable products,or are transforming to circular design models.Global furniture brand Ikea,for example,aims to move to circular product design by 2030,while London department store Selfridges has set the target of making half of its customer interactions about resale,repair,rental or refills by the same date.How UK supermarket Tesco flags up value on its home pageTesco8|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|THE FUTURE CONSUMERTo shop online is to use technology in a way that few even imagined until the very end of the 20th century.In the years since,new retail technologies have quickly emerged while shoppers now have ever-changing expectations of current and future uses.ConsumerX research asks shoppers in Europe and in markets further afield about retail technologies.Some,such as social commerce and augmented reality,are relatively established,while others are still emerging.ConsumerX asked more than 7,200 shoppers in 14 countries what they have used in the past year.Social commerce,used by 27.2%of respondents in the last year,was the most popular technology,followed closely by live shopping(25.8%),where shoppers buy through a livestream video in which presenters or influencers demonstrate and recommend products.As yet,fewer(16.1%)have used virtual shopping assistants AI-powered bots that offer product advice or trialled augmented reality(15.2%)in order to see how an item would look in their home or other space.Voice shopping through devices such as Amazon Alexa or Google Voice Assistant has a low take-up,with 11%having used it in the last year.Even fewer(7.6%)Looking ahead to the next consumerSince shoppers expect that theyll use technology differently in the future,we look at what might change9|InternetRetailing|May 2024IRS218WP 2024 have shopped through the metaverse.Indeed,the largest group are those who did not use any of these technologies in the past year accounting for 45.2%of all respondents.FUTURE TECHNOLOGY EXPECTATIONSWhile most shoppers expect their favourite brands to offer one or more of these technologies in the future,a significant 28.7%dont expect any of them to be available anytime soon.The biggest interest(32%)is in the development of augmented reality features that are already being widely used by brands such as Lego to showcase toys and DFS to present available sofas within a customers home.28.6%expect brands to offer help from virtual shopping assistants in the future,while 27.5%expect to be able to try live shopping soon.There appear to be lower levels of interest in voice(18.0%)and metaverse(16.5%)shopping.SOCIAL COMMERCEAlthough social commerce is currently one of the most well-used technologies in this list,ConsumerX findings suggest that interest may decline over time.Fewer people(25.1%)expect the brands they buy from to offer this as a sales channel in the future a figure down from 27.2%the previous year.Looking in more detail,44.2%say they bought through social media sites in the past year,which is a slightly looser definition than social commerce.The most popular are Instagram,used for a purchase by 51.7%of social media shoppers,and Facebook,used by 51.2%.Snapchat(11.9%)and Pinterest(11.4%)are relatively less used.CONSUMERX 2024|THE FUTURE CONSUMER10|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|CONSUMERXThe new ConsumerX app from RetailX offers more immersive ways of understanding what shoppers around the world think about shopping.Its research draws on five years of consumer surveys,carried out in a dozen languages.Through those surveys,30,000 adults in more than 20 markets have told us each year about how they buy,what they buy,how often and how much they spend.They also tell us about the technology that they use and how theyd like to buy in the future.Until now,this information has primarily been used in RetailX research.Now,however,though the ConsumerX web app,the database is being opened up to members of the ecommerce and multichannel industry and to other businesses,analysts and journalists.This app,viewable on desktop or mobile,enables users to explore the data and to create charts.Basic access is free to all who register,enabling them to see chart packs accompanying RetailX reports as well as to save,share and use those charts in their own work.Attendees at events,including the launch ConsumerX event Inside the minds of your consumers that this report accompanies,have invitation tokens that they can use to access the Premium version.As well as the above functionality,Premium users also have access to the raw surveys,which they can use to compare What is ConsumerX?We explore the new ConsumerX app from RetailXresponses by country,generation or shopping habits.They can also look back through five years of surveys to find the information that they need.In the future,the Premium version will be available to all through a paid-for subscription.INSIDE THE DATAAll survey responses are shown as charts,which cover areas ranging from advertising,channels,customer loyalty,mobile,next-generation ecommerce,packaging,social commerce,subscriptions,payments,pricing and discounting,fulfilment and many more.Consumer X enables users to review interactive charts and data for all RetailX research reports,to see responses by generation,country,income and more and to track attitudes on key topics such as sustainability and loyalty.Sector analysis enables users to explore custom research sets,such as beauty,consumer electronics and luxury consumers,while tracking changes over time.Users can also export hi-res charts for presentations and create lists of favourite charts to share.ConsumerX is one of a suite of research and insight services provided by RetailX,which will also include RetailX DNA.ConsumerX11|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|COMPANY PROFILEWhen ConsumerX research asks shoppers about the emerging technologies they have used in the past year,as well as those they expect to use in the future,live shopping is already among the most popular.25.8%say they have used it in the past year,with 27.5%expecting their favourite brands will start to use it in the future.Marketplace eBay followed that expectation in May 2024 as it piloted live shopping in an event featuring comedian Katherine Ryan and eBay pre-loved style director Amy Bannerman.It is doing so in a popular category second-hand clothing.Clothing tops the ConsumerX list of sustainable purchases made in the past year,with 46.1%having bought a sustainable product in this category and 29.8%having bought a second-hand item of clothing.Since eBays own research suggests that more than two-thirds of items in UK wardrobes are never worn,it is removing fees for selling pre-loved clothing on its platform.Commenting on the sale,Ryan said the event was a chance to clear out her wardrobe for charity by selling clothing including pieces worn in her Netflix series The Duchess.“Im always dressing up for events and am a huge fan of buying and selling on eBay to find fashion gems,”she said.Live shopping was launched on eBays US website in 2022 and it now holds hundreds of events every year.Another recent customer-focused technology update at the marketplace has been its use of AI for a new shop the look feature that is available on both its UK and US iOS websites for shoppers who have viewed at least ten fashion items in the past 180 days.The AI feature learns from what they have looked at previously as well as from its own data in order to showcase a personalised selection of clothing products.“With this approach,”says eBay in a blog launching the service,“we offer a shopping experience that not only understands our customers preferences but also evolves with them over time.eBay is uniquely set up to create this kind of experience because we have decades of data and customer insights and billions of images that we can use to enrich our AI technology and create personalised,magical experiences for our customers.”The marketplace has set up an Office of Responsible AI to oversee its use of this ever-evolving technology.1 www.nextplc.co.uk/media/Files/N/Next-PLC-V2/documents/2024/year-end-results-january2024.pdfeBayHow eBays use of new technologies reflects consumer expectations12|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|COMPANY PROFILEIn recent years,Ikea has seen changes in the way that its shoppers want to buy from it,so it has responded accordingly.These changes extend from the way that customers want to buy and take fulfilment of products,through to ensuring its products are designed more sustainably.As click and collect sales have risen by 48%in its 2023 financial year1 Ikea has expanded the number of places where shoppers can pick up their sales.It is opening more than 70 mobile collection points through a partnership with UK supermarket Tesco.ConsumerX research suggests that collection matters to shoppers around the world.67.1%of those questioned in 14 key ecommerce markets say collection is very important(22.9%)or important(44.2%)to them.As shoppers have returned,post-pandemic,to buying both instore and online,the retailer has also experimented with new city centre stores,locating them in sites including Londons Hammersmith and Brighton.Shoppers here can browse a curated range instore before ordering for home delivery or to collect.In 2023,the retailer reported a million new visits to Ikeas UK stores up 2.2%against 2022 while online sales grew by 19%,accounting for 38.5%of sales.Ikea has set itself challenging sustainability goals by aiming to be a climate positive business by 2030.In order to achieve this,it will reduce more greenhouse gas emissions than it generates across its value chain,while at the same time growing its business.Steps already taken include shifting to 100%renewable electricity use in its stores and distribution centres,generating some of that energy through its Dumfries wind farm.Meanwhile,the Ikea BuyBack&Re-sell scheme gave a new life to 52,380 pieces of furniture in its 2023 full-year 187%more than in 2022.Peter Jelkeby,CEO and chief sustainability officer at Ikea UK&Ireland,says,in Ikeas 2023 full-year UK results statement,that the retailer plans to continue on this course.“Guided by the foundations set out 80 years ago,”he says,“well continue building a business that contributes to better homes for our customers,better lives for co-workers and communities and a better planet for all.”Ikeas willingness to take action chimes with ConsumerX research that finds that 75.7%of shoppers questioned in 14 countries around the world say they strongly agree(29.3%)or agree(46.4%)that they want retailers to be ecologically sustainable.76.2%also say that a business or products ecological impact should be clearer.1 Ikea is responding to its customers changing shopping needs13|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|COMPANY PROFILEFashion and homewares retail brand Next looks to its data to find out what and how its customers want to buy,so that it can respond accordingly.In its full-year results for 20231,it reports on how it has responded as customers buy more expensive items.“There appears to be something of a shift back to investment dressing with customers buying somewhat fewer,slightly more expensive items,”it says.“Many teams have experimented at prices that are higher than those we would normally sell;stretching the boundaries of the brand to new levels of quality and design through improved fabrics,prints,embellishment techniques,textures and trims.This initiative has also opened up new sources of supply previously considered too expensive.”Value for money clearly remains important for both the customer and the brand.At the same time,the retailer is investing in personalisation on its digital platforms,with the aim of“connecting customers with the products they most want to buy.”This,says Next,is important because shoppers buy from a wider Next range,with more than 75k different products produced each year.A wide range is something prioritised by ConsumerX research respondents around the world 26%say that a greater product range is one of the reasons why they go online.Nexts strategy is to ensure its customer service also works for customers,focusing on delivery and fulfilment options more generally.On its website,Next offers next-day delivery to home or to a parcel shop on orders placed before 11pm,at a cost of 4.95,or free with delivery saver scheme nextunlimited(which costs 22.50 a year).Only 16.4%ConsumerX survey respondents in 14 countries,questioned in August 2023,say that next-day delivery had not been a factor in their purchases over the last year.19.7%said it was important for all of their purchases and 32.4%for most of them.The ability to order online and collect an item,either instore or from a collection point,is a popular option for shoppers,ConsumerX research suggests,with 22.9%of respondents describing this service as very important to them.Asked how often they had ordered online and collected an item,29.3%of respondents had done so at least five times in the previous year.1 www.nextplc.co.uk/media/Files/N/Next-PLC-V2/documents/2024/year-end-results-january2024.pdfNEXTHow Next approaches putting the customer at the heart of its business14|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|COMPANY PROFILEHow customers want to buy is reflected in successful retail strategies around the world.One good example comes from Screwfix,a tool counter business with its headquarters in the UK,where it has more than 900 shops and sells online through a multichannel strategy.It has been part of the Kingfisher Group since 1999.In an interview for the RetailX UK Top500 2024,Sue Harries,digital,proposition and data director at Screwfix,set out how the DIY retailer shapes its strategy around its customers needs.“Everything we do starts and ends with the customers,”she said.“Most of the success that weve had has been built by putting the customer at the forefront of the business.”She advises retailers to listen to their customers and,in practice,that has meant seeing how customers use their services,then adapting to their needs.Successful innovations have included one-minute click and collect from store,60-minute Screwfix Sprint delivery and instore digital browsers that replaced the Screwfix catalogue.“If youre not thinking about your customer,youll be designing solutions and experiences that dont really see the customers expectations or solve any pain points they might have,”says Harries.“We can sit and think about it in the office,but the best way to do it is to get it out there in front of customers and see whether they adopt it or not.”Screwfix customers have largely taken to its digital solutions.About 75%of its sales are now digitally enabled,taking place through its website,mobile app or digital screens instore.Its mobile app is its fastest growing channel,with more than 4mn downloads since a 2021 relaunch which added features including Screwfix Sprint and store check-in functionality,used by shoppers collecting their online orders.That strategy fits well with ConsumerX findings that 54.4%of consumers in Screwfixs domestic UK market say same-day delivery is very(15.6%)or somewhat(38.8%)important to them,and that 58.8%say collection services are very(13%)or somewhat(45.8%)important to them.More than half(52.6%)of shoppers say they continue shopping with the same retailers for convenient delivery options.Read the full interview with Sue Harries of Screwfix in the RetailX UK Top500 2024.ScrewfixHow Screwfix builds its retail strategy around the needs of the customer15|InternetRetailing|May 2024IRS218WP 2024 41|RetailX|February 2024RXTUK24RP 2024 B&B Hotels implemented imaginos Customer Data Platform across their four major geographies in just 16 weeks.imagino is the Revenue-First,Composable Experience PlatformScan for more!For marketers who think big,but need to act fast.16|InternetRetailing|May 2024IRS218WP 2024 consumer behaviour insights,ensuring efficient processes and intentional positioning for retailers to navigate the demands of convenience and cost-effectiveness.In conclusion,retailers,the dance floor awaits.Balancing sustainability,convenience and affordability forms a challenging routine,yet mastering them will position your brand as a standout.In a world of convenience,its all about accessing everything you need and nothing that you dont.Convenience has turned the world on its head,weve built a whole society around it.From streaming services to home food delivery to ecommerce,weve brought convenience to our doorsteps.Any retail brand that is not asking themselves whether their brand is convenient enough for their customers,may find themselves playing catch-up in this environment.If you really think about it,convenience benefits the buyer,the seller and the customer.With only a few clicks standing in the way between a craving and the pleasure of a delightful home delivery experience,you begin to realise how impactful convenience has become to the revenue of the modern ecommerce world.To create a convenient experience that is expected from modern shoppers,its time to put yourself in your customers shoes and find out what areas along the retail journey needs ironing out.As time has moved on from the global health crisis,consumers seek both the seamless and comforting embrace of convenience and affordability.Think of it as a dance choreography,where every move needs Balancing convenience and cost Expert insightto be well-coordinated,be it on the digital stage,in the physical store,or the realm of social media and diverse devices.Its a dance that not only requires speed but sustainability as its partner.To align with consumer desires,retailers and brands need to evolve,rather than just adapt.Imagine it as transitioning from a graceful waltz to a swift salsa agile,energetic,and extremely spirited.Firstly,incorporating sustainability into the retail fabric is non-negotiable.Your customers arent just focused on the prices;theyre also examining the eco footprint of each purchase.So,retailers,its time to translate those green aspirations into actions.Sustainable packaging,ethical sourcing make them actionable throughout your customers journey.Secondly,the constant discussion between convenience and cost is like choosing between two different dance styles.Why not choose both?Smart retailers are using technology to simplify the shopping experience without breaking the bank.Efficient supply chains,user-friendly interfaces and the support of AI can transform the customer journey into a seamless,convenient and cost-effective experience.For the brands that are stepping out into the ecommerce or multichannel retailing realm,the future resembles an inviting dance.The floor is expanding,and retailers need to excel at blending online and offline experiences.Embracing the digital space is crucial,but dont overlook the importance of the physical store they are like the perfect duet in retail.Looking ahead,the rhythm of progress wont fade.Ecommerce will evolve and multi-channel retailing will refine its approach.To navigate these challenges and maintain a harmonious retail dance,leveraging effective marketing tools becomes vital.An integrated marketing tool drives personalised engagements through imagino is a revenue-first,Composable Experience Platform.We are disrupting the status quo.As a Composable Experience Platform,we give brands and marketers the agility and flexibility to weave the tools and services they need into one powerful hub to deliver marketing excellence.imagino is the thread that ties together the whole marketing infrastructure.Our products integrate seamlessly with each other,of course!But they also integrate with the rest of your marketing stack to maximise the value of your existing investment.We offer a host of market-leading products,including a Customer Data Platform and Campaign Management tool all uniquely designed to provide equal value and benefit to both marketing and IT The dance of retail is most effective when it brings online and offline together,says Stphane Dehoche,CEO of imaginoCONSUMERX 2024|PARTNER PERSPECTIVE17|InternetRetailing|May 2024IRS218WP 2024 CONSUMERX 2024|CONCLUSIONThis report may not be stored in a retrieval system,distributed or sold in whole or in part without the publishers express permission.Fair quotation is encouraged,with a link to the reports URL on RetailX.net.All charts and figures marked with RetailX 2024 are provided under the Attribution-NoDerivatives 4.0 International(CC BY-ND 4.0)license(https:creativecommons.org/licenses/by-nd/4.0/).You are welcome to use these in full with a link to this report,retaining the copyright notice This report is based upon our reasonable efforts to compile and analyse the best sources available to us at any given time.Opinions reflect judgment at the time and are subject to change.RetailX at InternetRetailing Media Services Ltd27 Clements LaneLondon,EC4N 7AETel: 44(0)20 7062 2525 Printed in Great B RetailX 2024RESEARCH:Researcher Anna Segarra FasFor questions about our research and to send feedback,please email the team via:Research Director Martin ShawCEO Ian JindalEDITORIAL:Editor Chloe RigbyProduction Editor Cam WinstanleyManaging Editor Jonathan WrightDESIGN:Art Editor Lauren CoburnCover Design Freny AntonyMARKETING:Marketing and Circulation Addison Southam SALES:Commercial Director Andy James Group Creative Solutions Director Marvin Roberts ConclusionConsumerX research has proved invaluable to RetailX editors as they seek to understand what shoppers want,as well as how well retailers,brands and marketplaces are meeting their demands.Now were opening up our source material to professionals in the broader ecommerce and multichannel retail industry.By doing so,we aim to share our insights into customer demand and how these have evolved over time.For,as weve seen in the pages of this report,while shoppers prize convenience and low costs,they are also thinking about how they might buy in new ways and about innovative services and technologies they can use to buy now as well as in the future.The RetailX research team is always keen to ensure that our research answers your questions.If you have suggestions of new questions that we should be asking,then do get in touch at .As always,our graphics are free to share under the Creative Commons licence detailed to the right on this page and we encourage you to do so.Chloe Rigby,EditorDownload at partnership with
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Chinas Samples Economy2024Sample category sizing and trends2.10About us6.33Chinese samples consumer habits3.17Samples distribution channels4.25CONTENT OUTLINEHypotheses 5.312Behind the craze for samples in China1.03Behind the craze for samples in China1.Image source:Xiaohongshu user grape88842024 DAXUE CONSULTINGALL RIGHTS RESERVEDChinas samples economy is flourishing thanks to a conducive ecosystem6 key drivers fueling the samples economy in ChinaLow brand loyaltyNovelty crazePackaging size preferencesCute economyLogisticsConsumption downgradeChinas delivery sector experienced fierce price competition,with many e-commerce platforms lowering the free-shipping minimum orders,making it advantageous to buy samples online without extra shipping costs.Recent trends like consumption downgrade(消费降级),low-profile living(低配生活),minimalism(断舍离/极简主义),and low material desire(低物欲)have boosted the samples economy.As consumers aim to spend less and buy fewer items,they increasingly turn to samples to meet their needs.In 2024 Q1,64%of Chinese consumers expressed willingness to switch brands,with Gen Z emerging as the least likely demographic to advocate for brands,turning samples into a great way to test new brands.Besides having low brand loyalty,Chinese consumers love trying new things.This has made samples popular,as they allow consumers to experiment with new products and try those advertised by KOLs with a low investment.In product categories like skincare,makeup,perfumes,and snacks,Chinese consumers lean towards smaller,portable packaging for ease of use or consumption.This preference for compact sizes makes samples a convenient and attractive option for everyday use or consumption.Chinese consumers are drawn to cuteness,evident in the Meng”(萌)culture,which favors cute and tiny designs.This preference translates into a willingness among many online users to invest in adorable and collectible items,further driving the popularity of samples.In China,the astonishing popularity of sample-sized products has given rise to a thriving samples economy which has not seen similar growth in the West.Chinas samples economy benefits from the unique circumstances listed below.Sources:SCMP(2023),Chnbrand(2024),BCG(2023)There is no one-size-fits-all approach to product samplingBrands use samples for promotion,brand awareness,enhancing R&D,creating a positive brand image,and fostering consumer loyalty.However,product samples in China are evolving,they are becoming a packaging option rather than a promotion tactic,and brands will have to adapt to Chinese consumer preferences of directly purchasing sample-size items.52024 DAXUE CONSULTINGALL RIGHTS RESERVEDGift with purchaseSamples offered to customers as a gift when buying a full-size product.They can be related or unrelated to the purchased item.ReferralGiven to existing customers who refer new customers to brands.Pilot Provided to consumers for feedback on product(s).Promotional Distributed as part of a marketing campaign or as giveaways at events,trade shows,anniversaries,or similar occasions.Media Sent to journalists,bloggers,influencers,and other media personalities for review or coverage.Main samples types and marketing purposesVIPReserved for select customers,often those who are part of loyalty programs or high-spending customers.Widely availableLimited access Building brand awareness CRM purposes Improving R&D CRM purposes Crafting a positive brand image Fostering consumer loyalty Building brand awareness Crafting a positive brand image Fostering consumer loyalty Building brand awareness Crafting a positive brand image Fostering consumer loyalty Creating a sense of belongingPurposeTypeChinese consumers will pay for samples,so brands now sell them directlyChinese consumers increasing appetite for samples has led to a market shift from free to purchasable samples.Previously,third parties often distributed them without the authorization from the brand,but more and more brands are now seizing the opportunity by directly selling samples themselves.62024 DAXUE CONSULTINGALL RIGHTS RESERVEDIncrease of online sales of sample-size products between 2019 and 2023 Drop in samples prices between 2019 and 2023Samples sales grew 4-fold in 4 yearsx4.3-20%Source:JD(2023)Image source:Xiaohongshu,TmallEste Lauder and LOccitane directly sell product samples on their e-commerce and social-commerce channels in China.Product samples play a role in every phase of the marketing funnelIn an omnichannel market environment where customers interact with brands across multiple platforms and channels,the role of samples in the marketing funnel has to adapt and expand,offering various touchpoints for engaging potential customers.AwarenessConsiderationConversionRetention Samples allow consumers to try products/brands advertised by KOLs and social media.At the same time,KOLs and streamers frequently use product samples to introduce new products to their audiences.E-commerce platforms such as Tmall Heybox provide samples to induce consumers to try new products or incorporate samples in their shopping festival campaigns to attract customers.Offline stores and pop-up stores utilize samples to attract foot traffic and create buzz.Samples provide consumers with a smaller-sized option,appealing a wider pool of consumers.They enhance sensory experience in the online customer journey.Sample-size products enable brands to offer a higher value-for-money product format and a cheaper way to test new products/brands in times of more practical consumption.Brands often include samples in both online or offline orders,either for free or for a nominal extra fee to enhance the perceived value of the transaction.Samples with cute packaging can drive impulse buys and conversions by appealing to aesthetic preferences and cultural trends.During this phase,samples create a sense of exclusivity,pampering,and community,particularly when the offer is tailored to meet the needs of the consumer.Samples are often integrated into loyalty programs on WeChat mini programs to consistently re-engage and retain the loyalty of Chinese consumers.By using samples as alternatives to full-size products,consumers can develop a deep affinity with the brand,potentially converting into brand evangelists.2024 DAXUE CONSULTINGALL RIGHTS RESERVED7Samples enhance brand awareness and penetration in lower-tier citiesMiddle class consumers in lower-tier cities allocate more of their budget to daily consumption,along with a focus on practicality and convenience.They also tend to compare options before purchasing,suggesting a strong potential for the samples economy.Moreover,in lower-tier cities,samples fill the gap that offline stores do not reach.First-tier cities21%Second-tier cities24%Third-tier cities11%Fourth-tier cities10%Rural areas34 23H1 sample sales volume by city-tier82024 DAXUE CONSULTINGALL RIGHTS RESERVEDSales in Tier-3 and lower-tier cities exhibited a remarkably high growth during 2023H1,of 42%,45%,and 73%,respectively.Source:JD(2023)Over 70%of consumers in lower-tier cities prioritize firsthand product experiences,often comparing options through personal trials and seeking information from friends,online reviews.Indeed,unlike Tier-1 and Tier-2 cities,consumers in these markets are more prone to compare brands and prioritize convenience over brand loyalty.Source:Accenture(2022)Tier-3 and-4 cities are projected to see the largest rise in middle-class and above population,with around 47%of that demographic residing in these cities.Source:BCG(2023)Luxury brands targeted strategies to avoid brand dilutionLuxury brands prioritize giving away samples for free over selling them,opting for methods that preserve exclusivity and perceived value while ensuring targeted distribution.This approach maintains brand integrity and encourages deeper customer engagement.92024 DAXUE CONSULTINGALL RIGHTS RESERVEDGift-with-purchaseOffering samples as gifts with purchase ensures a better targeted samples distribution and encourages higher spending.31Brand activation campaignsLuxury brands distribute promotional samples during brand activation campaigns,such as pop-up stores,events or co-branding initiatives,to engage with consumers.Loyalty programsBrands sell or give away for free sample sets to members of their loyalty programs,promoting exclusivity,engagement,and encouraging repeat purchases.4VIP giftsLuxury brands often reserve samples of some of their products for exclusive events like VIC gatherings,maintaining exclusivity by controlling access and ensuring targeted distribution.52Holiday setsDuring holidays,luxury brands often sell blind box sets featuring sample-sized products.For instance,advent calendars have become increasingly popular in China in recent years.Sharing the Dior Prestige VIP private event Attending another Dior event!Theres a tea break,DIY candles crafting,tarot readings,one-on-one skincare sessions,and exquisite giveaways.Its filled with interactive gifts and a sense of ritual!#Dior#DiorPrestige#SalonDIYSample category sizing and trends2.Skincare,F&B,and baby care are dominating the conversations on samplesChinas samples economy boasts impressive diversity across industries and product categories,extending beyond beauty products to include sectors like baby care and food&beverages.112024 DAXUE CONSULTINGALL RIGHTS RESERVEDSkincare26.7%Food&beverages24.4bycare21.3%Makeup11.7%Personal care10.7%Others5.1%What are the most discussed sample categories on social media?2023 Jan-2023 OctHome care4.2timesPersonal care3.2 timesFood&beverages3.0timesGrowth in the number of sample products in each category(H1 2019-H1 2023)Source:JD(2023)Skincare&makeup3.0timesBaby care2.6timesPet care2.6timesData source:Daxue Consulting social listening analysisThe high volume of conversations and mid-range growth show that the demand for beauty samples has not reached saturation yet indicating potential for further expansion.Growing health awareness,more rational consumption,and low saturation are driving demand for home care and personal care samples.Beauty:Samples help consumers address pain pointsBeauty samples empower consumers to explore new products and find the best fit for their skin type and tone at minimal cost.They address issues related to frequent changes in skincare routines,cater to entry-level and busy consumers,and provide a portable option for always looking impeccable.122024 DAXUE CONSULTINGALL RIGHTS RESERVEDTop 5 most mentioned skincare samples Jan 2023 Oct 2023Top 5 most mentioned makeup samplesJan 2023 Oct 2023Serums21.4ce creams15.1ce masks10.3%Toner/lotion8.5%Sunscreen8.4%Foundation25.3%Makeup removal11.8%Primer10.1%Lipstick9.6%Eye shadow3.8ta source:Daxue Consulting social listening analysis,percentages correlate to portion of conversations about samples on the topicSamples that include more than one color are often highly appreciated,as they allow consumers to test various shades and find the best fit.Moreover,makeup samples are attractive to consumers with minimal needs.As serums contain the highest concentration of active ingredients and are often the most expensive skincare product,consumers want to ensure they suit their needs and skin type before making a purchase.Daily Advice|Buying foundation samples is enough!(.)I used to wear makeup all the time back thenliterally my peak makeup days.()Even with all that,I still had so much left over after it expired!Then,I started buying foundation samples on Tmall.()I rarely wear makeup now.()I just checked my shopping records and realized that I havent even finished a small sample in three yearshow funny!The best part is you can try high-end brands easily!Hidden gem oil serum,will definitely repurchase!I got totally hooked on this Hanaumi oil serum thanks to a recommendation from a Xiaohongshu blogger!I started with a sample and didnt expect much,but wowIm obsessed!Wish Id found it sooner!Having sensitive skin means I have to be super careful with products.This brand focuses on sensitive skins,so I decided to give their serum a try.Its so comfortable,super light,and absorbs quickly.()Since I started using it,all my other oil serums are just sitting unused,lol.F&B:Coffee bean samples won the heart of Chinese consumersAs coffee consumption spreads in China,consumers are actively seeking information on coffee types,flavors,brewing methods,and brands.The online popularity of trial-size coffee products is noteworthy,witnessing a remarkable 142.39%year-on-year increase between January and October 2023.132024 DAXUE CONSULTINGALL RIGHTS RESERVEDMost mentioned F&B product samplesJan 2023 Oct 2023Coffee7.9%Tea6.3%Soft drinks5.2%The coffee craze in China has led to the emergence of coffee bean samples.These samples not only allow consumers to try them out but also cater to Chinese consumers desire for variety and exploration,enabling them to experiment and change more frequently.Sophisticated coffee connoisseurs can also try sought-after,high-quality beans to make hand drip coffee at home.Related hashtags#咖啡豆推荐咖啡豆推荐#coffee bean recommendations(170 million views)#咖啡豆分装咖啡豆分装#coffee bean samples(270 thousand views)#咖啡豆小样咖啡豆小样#coffee bean samples(31 thousand views)Image source:XiaohongshuData source:Daxue Consulting social listening analysisBaby care:Classy mums(精致妈妈精致妈妈)trailblaze sales of baby care samples142024 DAXUE CONSULTINGALL RIGHTS RESERVEDMost mentioned baby care product samplesJan 2023 Oct 2023Diapers29.7by formula16.2%Maternity pads8.9%Disposable changing pads8.5%When it comes to maternity pads,its difficult for a new mom to utilize all the pads contained in a large pack.Many find it more reasonable to buy samples.Moreover,sample-size packs are an ideal option for travel,hospital stays,and post-partum recovery(坐月子).Between 2016 and 2022,the percentage of maternity and childcare items purchased online rose significantly,from 22.6%to 34.6%This rise in online shopping makes samples even more important for ensuring the right product choice.Source:iResearch(2023)While sample-size packs of diapers and baby formulas are used to find the one that better fits ones babys needs,maternity pads and disposable changing pads samples are mainly bought for convenience.Data source:Daxue Consulting social listening analysisDespite the declining birthrate between 2016 and 2023,Chinas maternity and childcare sector grew to around RMB 4 billion in 2022.This growth was fueled by consumers focus on quality,higher spending per child,and new needs,driven by health and safety awareness.Sample sales of maternity and childcare items are also on the rise.152024 DAXUE CONSULTINGALL RIGHTS RESERVED14 8FFFpppf 202021202220232020-2023 pet household penetration rate in China,the US,and the EUChinaEUUSSource:iiMedia(2023),APPA,FEDIAFCat food samples dominated pet care-related social media conversations from January to October 2023,mainly because cats can be pickier eaters than dogs.Owners want to make sure their furry friends like the food before buying a big pack.Some(especially students)also look for samples as a cheaper way to feed their cats.Source:JD(2023)Declining marriage and fertility rates,the rising cost of raising child,and the shift from functional to emotional pet ownership are driving the growth of the pet economy in China.Although pet ownership in China has not yet reached the levels seen in the US,theres still significant potential for growth.Top 3 pet care sample products by sales growth2019H12023H11.Cat snacks x162.Pet supplementsx123.Dry cat foodx3Data source:Daxue Consulting social listening analysisNew category:Growing pet craze drives samples of pet food and supplementsWith the rising number of singles opting to raise pets,the sales of pet food samples,particularly cat food,are on the rise.The growing popularity of independent yet cute and insta-worthy pet cats has contributed to this trend,with their numbers reaching 69.8 millionan increase of 6.8%from 2022outpacing the growth of dog owners.New category:Dietary supplements samples sales rose 4-fold in ten monthsOnline conversations surrounding supplements samples experienced a notable surge between January and October 2023,marking a substantial fourfold increase compared to the previous ten months.162024 DAXUE CONSULTINGALL RIGHTS RESERVED15.7.9.1.5.2.9!.8&.25.58.6%Fish oil/kril oil/algaeVitamin B-12ProbioticsCollagenVitamin AVitamin MixProtein powderVitamin B MixVitamin CCalciumTop 10 most popular supplements in China in 2023(N=1,000)Source:Daxue Consulting survey(2023)Most mentioned supplements samplesJan 2023 Oct 2023Medicinal wine(保健酒)Fish oilEye pillsBlack sesame ballsIron pillsMultivitamin pillsVitamin D pillsCalciumGrowing health awareness is leading Chinese consumers to rediscover traditional medicinal wine,renowned for its preventive and energy-enhancing benefits.womens healthFrequently mentioned by women seeking for healthy snacks.Frequently mentioned by women seeking for healthy snacks.New moms are the main group discussing them.For women who are trying to have a child(lack of Vitamin D3 is associated with infertility).Frequently mentioned by women seeking for healthy snacks.White-collar urbanites in big cities account for the main consumers of such products.Data source:Daxue Consulting social listening analysisChinese samples consumer habits3.Beyond testing,daily use and collecting drives sample salesThe predominant reason for consumers purchasing product samples is trying out new products before making full-sized purchases.An emerging trend sees samples being utilized as daily alternatives and sought-after collectibles,further driving the demand for samples.182024 DAXUE CONSULTINGALL RIGHTS RESERVED45%Testing Many people purchase samples to try out new products and determine their suitability before committing to full-sized purchases.21ily alternative Consumers increasingly opt for cost-effective and convenient samples(especially when it comes to beauty)for daily use,prioritizing variety and flexibility in their routines over full-size products.13%ConvenienceSamples offer a convenient and portable option,ideal for travel or incorporating into busy lifestyles,highlighting their practical appeal.12%CollectionCollecting cute samples has become a hobby,showcasing their allure beyond functionality.4%CuriosityConsumers seek samples to explore new brands and products out of curiosity,often driven by KOL endorsements.3%GiftingSamples are seen as convenient and practical gifts for both oneself and friends,because of their versatility appeal.3%RefillConsumers purchase samples as refills for their favorite products,converting them into a cost-effective solution.Data source:Daxue Consulting social listening analysis,percentages correlate to portion of conversations about samples on the topicWhy sample-size products make their way into daily routines192024 DAXUE CONSULTINGALL RIGHTS RESERVEDWhy Chinese consumers prefer sample-size productsWow,I never realized 5ml could be so much!Never buying full-size again.Bought a sample of foundation,picked the wrong shade,so I might as well swatch it all!Turns out 5ml is actually enough.For someone who doesnt wear makeup often,full-size products are pricey and expire before finishing them.Using samples instead seems like a great idea!Sisters,lets embrace this mindset.Light needsSample-sized products are perfect for those who find full-size options too bulky.They offer just the right amount,fitting seamlessly into minimalistic lifestyles and lighter needs.Posts source:XiaohongshuBudget-friendly&convenientSample-sized products provide consumers with a cost-effective alternative to full-size options,offering affordability and convenience for on-the-go use.I really like buying samples I really love Taobaos U先试用 sectionMost of the samples there are from flagship storesAfter buying a lot,I found its even cheaper than buying full-sized productsEspecially foundation,since I can never finish a full-sized versionIf I dont like one of the samples,I can just throw it away without feeling guiltyFlexibilitySample products cater to Chinese novelty-seeking consumers,enabling them to continually experiment with new items and easily switch brands/products.Life hack:perfume samples are more than enough!You can never finish a full-sized bottle!A 10ml sample can last a long time,and its cost-effective,so you wont feel bad when buying it.The best part is that you can stock up on different scents,and its convenient to carry in your bag when you go outmayliii千禧香馆D姑娘早安iSome Chinese consumers prefer using sample-sized products as alternatives to purchasing full-sized ones due to their convenience,ease of changing products frequently,and appropriate product volume.This trend is particularly evident in beauty but is also popular in categories such as baby care,personal care,and perfumes,among others.Hospital14.2%At school4.0%Everyday outings15.8%Samples allow consumers to always have their favorite productsSample-sized products provide practical and convenient solutions for travel,office use,hospital stays,and everyday outings,meeting the needs of young urbanites,while also indicating a strong need for more compact packaging in a range of product categories.202024 DAXUE CONSULTINGALL RIGHTS RESERVEDIm the kind of person who carries a whole bottle of foundation with her every day The ultra-mini foundation bottle is my favorite among all foundation samples.Paired with a mini foundation brush,its really convenient.Foundation:MAC Studio Fix Fluid Foundation 1.6mlBrush:Included into Chanel Bubble Foundation Sample#MiniCosmetics Images source:XiaohongshuMost mentioned occasions when consumersneed product samplesJan 2023 Oct 2023Post-partum confinement3.5%At home11.6%Travel18.5%At work29.3%Private hospitals can be key spots for distributing product samples.Data source:Daxue Consulting social listening analysis,percentages correlate to portion of conversations about samples on the topicSports&fitness3.1%China-specificCraze for cuteness converts miniature products into sought-after collectiblesMiniature products are prized for their cuteness and attract a pool of consumers eager to collect them.In some cases,consumers buy full-sized products solely to obtain the accompanying gift-for-purchase sample.212024 DAXUE CONSULTINGALL RIGHTS RESERVEDThere is a segment of consumers who purchase beauty product samples mainly due to their cute and charming packaging.Enthusiasts are even buying full-sized products solely to add the adorable samples to their collections.The samples which appeal to these consumers are miniature versions of full-sized products,often referred to as Q-versions(Q版).Originating from the manga and anime world,this term used to indicate action figures and cartoonized miniature characters.The letter“Q”sounds similar to the English word“cute”.Who is using such lovely sample-sized perfumes?Bought a lipstick for the accompanying gift!Images source:XiaohongshuIn China,cuteness is a powerful marketing tool,captivating consumers attention,driving sales,and giving rise to the emergence of the 萌萌(cute)economy.Its not that I cant afford the full-size product,its that the Q-version has higher value-for moneyConsumers find refilling with samples more cost-effective than buying new ones222024 DAXUE CONSULTINGALL RIGHTS RESERVEDYou guys always say that samples are small After 4 months of effort,Ive finally managed to refill a bottle of eye cream.Six 2ml samples perfectly filled up the 15ml regular bottle.Though there might still be a few air bubbles inside,I believe this amount should be enough.While some argue that samples are too small,I cant help but wonder if its because its tricky to squeeze out all the cream from the tube.With samples in jar,I can scrape them clean,even using the leftover residue on my feet and neck.Videos showing how to use samples to refill empty full-size products are popular on Douyin.Images source:Xiaohongshu,DouyinOnline discussions about netizens using samples to refill their empty full-sized products are more common than one might expect.In fact,due to the low cost of delivery,purchasing many samples,especially through unofficial channels,can be cheaper than buying a new product.Sample gift boxes offer a cost-effective gift without compromising prestige232024 DAXUE CONSULTINGALL RIGHTS RESERVEDThe most viral mini liquor gift box of 2023,featuring 17 bottles of baijiu The most popular gift box of 2023 has arrived!Chinese mini baijiu gift box including 17 mini bottles of baijiu Its simply stunning,exuding luxury and elegance.Featuring top Chinese liquor brands such as Maotai,Fenjiu,Wuliangye,Shuijingfang,Gujing Gong,Luzhou Laojiao,Shedao,Langjiu,Dongjiu,and more.Ideal as a gift for bosses,elders,fathers-in-law,parents,as well as for display and collection purposes.Absolutely perfect,beautiful.Images source:Xiaohongshu,DouyinSample gift boxes are praised for their convenience and affordability,ideal for both self-enjoyment and gifting.They provide a low-cost access to high-end products at a fraction of the cost and allow for exploration of many cute and fancy items.Moreover,they cater to all consumer needs,from trying out products to seeking daily alternatives.Who spent RMB 800 on a set of mini samples?Oh,its me.Recently,Ive been really obsessed with Diptyque perfumes.After doing a lot of research and seeing everyones varied opinions on the scents,I was especially worried about picking the wrong one.So,I ordered a classic set of eau de toilette minisfive 7.5ml samples.They werent cheap:I could have almost bought a 100ml full-size bottle with a bit more money.But I wanted to try all the scents,and as a socially anxious person,I really didnt want to go to the store to test them.So,I bought the set.As it turns out,each scent is quite unique.Packaging matters when it comes to samplesIn Chinas mature samples economy,samples are much more than just product trials.As a result,consumers are picky about packaging,favoring miniatures and sample sets over sachets and basic samples.242024 DAXUE CONSULTINGALL RIGHTS RESERVEDSachet/small samplesDeluxe sampleMiniature/travel sizeSample setDescriptionSmall single-use packetLarger than standard sample sizeSmall-scale version of full-size product,ideal for travelCollection of multiple samplesAdvantagesEasy to carry and hygienic due to their single-use natureAllows for extended product testingConvenient,big enough,and the best-lookingProvides variety for testing multiple products.Good as giftDisadvantagesSmall amount,Single-useLow value-for-priceIt can be priceyPossible mismatch between samples and user preferences/needs%of discussions3%5%of positive comments14Q%Sample distribution channels3.Image source:Xiaohongshu user DingggggVending machines and duty-free are the fastest-growing channels for samplesOnline platforms account for two-thirds of sample distribution,while offline flagship stores emerge as the single most popular channel,followed by social commerce and marketplaces.Conversations overlapping samples with vending machines and duty-free storesincreased by over 5 times and 3 times,respectively,during the first 10 months of 2023.262024 DAXUE CONSULTINGALL RIGHTS RESERVEDOnline66%Offline34%How users obtained their samples,as discussed online(Jan 2023 Oct 2023)Images source:XiaohongshuHeres the ultimate guide to YSL duty-free shopping in Sanya!Dont miss out on this opportunity during your trip to Hainan.Its a great idea to set aside a whole day for duty-free shopping-the deals are unbeatable,especially with the in-store promotions!With the establishment of the Hainan Free Trade Zone,duty-free has become a key channel for luxury sales.This is also reflected in the realm of samples,with a 3.7-fold increase in posts mentioning duty-free stores samples compared to the previous 10 months.Images source:XiaohongshuB emerges as the fastest-growing online channel,driven by brands changing their not-for-sale policy and growing concerns about counterfeit samples spreading online.x5.5 times posts mentioning samples vending machines between January and October 2023 compared to the previous 10 months.Data source:Weibo,Xiaohongshu,Douyin Harmays woes highlights need for official samples sales channelsThe warehouse-style new retail brand Harmay(話梅)both surfed and fostered the samples economy in China,meeting the burgeoning demand for beauty samples among young consumers.Nevertheless,the scarcity of authorized samples and reliable sourcing channels poses a significant obstacle to this business models sustainability.272024 DAXUE CONSULTINGALL RIGHTS RESERVEDHowever,in 2022,the multi-brand retailer was fined by the Shanghai Municipal Administration for Market Regulation over RMB 800k for lacking essential information on sample labels.This incident underscored the potential risks associated with selling and purchasing samples sourced from unofficial channels and engaging in grey zone business practices.Currently,the demand for product samples exceeds supply,increasing the likelihood of encountering potentially counterfeit or ambiguously sourced samples.Initially born as an online store on Taobao,the multi-brand cosmetics retailer Harmay turned beauty samples into one of its core businesses.The chain currently operates 11 offline stores in 8 cities in China.Harmay is famous for selling samples of international beauty and perfume brands at bargain prices.Image source:HarmayGosh,Harmay is so cheap!After browsing around,I feel like Ive been such a loser for always buying full-priced items.Not only is there a wide variety of products,but there are also many samples available.Its so convenient to buy samples.There are even products that are consistently 60%off.They even have brands I frequently buy,like Maison Margiela and Avne.No wonder everyone grabs a basket when they come in.Its impossible to resist buying!Even though Harmay accounts for just 1%of social media posts about samples,Chinese consumers instinctively associate its name to beauty samples.Sample swaps highlight increasing demand for personalized sample offersChinese social media users are open to exchanging samples that dont align with their preferences,reflecting an untapped demand for tailored free samples to match customers purchasing histories and habits.5%of sample-related social media posts refer to swapping.282024 DAXUE CONSULTINGALL RIGHTS RESERVEDI dont use these anymore.What would you like to swap them for?#swap#makeup swap#perfume swap#spare samples swap#Q-version perfumesGirls,please dont reply if not interested.Images source:XiaohongshuLets swap some spare samples!If youre bored of yours and looking for a change,swapping is totally an option.Do you want to swap?Which one do you want?Between January and October 2023,posts about sample swaps surged by 102%compared to the previous period.Swappers seek to exchange samples they no longer like,wont use,or have too many of,potentially expiring before use.They typically switch samples via delivery,searching for ones that better suit their preferences.Though niche,hotels are an important distribution channel for high-end samplesDistributing branded sample-size products through hotels enables better consumer segmentation,facilitates reaching a broader consumer base,and leverages the hotels reputation to enhance the brands exclusivity.This win-win approach preserves consumers sense of ritual,creates a memorable experience,and helps both brands and hotels stand out from the crowd.Gain validity in new market292024 DAXUE CONSULTINGALL RIGHTS RESERVEDImage source:XiaohongshuI love every hotel providing LE LABO complimentary toiletries like Edition and Park HyattCompared to the one in Edition hotels,I still prefer the Santal 33 scent,as it makes me feel like at home.Pros of the Park Hyatt in Beijing:Close to Xinrongji,near to Guomao for shopping.Cons:Average view(perhaps not to blame on Park Hyatt).Providing branded samples in hotels is a win-win strategyMaintaining a sense of ritualSample-size products enable guests to continue their skincare or grooming routines away from home,promoting a sense of comfort and continuity during their travels.Creating a memorable experienceIncorporating sample-size products into a hotel stay elevates the experience,fostering and completing a sense of luxury and pampering.Extended branding exposureWhen offering branded sample-size products in hotel rooms,guests are likely to take these items home,prolonging their engagement and interactions with the brand over several days.Goals satisfiedShowcase brand valueTap into new consumer baseCommitment,value,and efficacy doubts hinder beauty sample subscriptionsChinese consumers appetite for novelty fueled a craze for blind boxes across many industries.However,while flower subscriptions thrive,beauty sample subscription boxes face structural challenges.302024 DAXUE CONSULTINGALL RIGHTS RESERVEDChinas blind box economy leaped from RMB 2.3 billion in 2015 to roughly RMB 15 billion in 2022,recording a x5 growth in 7 years.The blind box craze impacted a wide range of industries,from beauty to F&B and travel.Recently,flower subscription-based blind boxes have quietly gained momentum online,offering consumers the opportunity to receive fresh bouquets on a weekly basis.Despite the popularity of blind boxes,there are some factors hampering the success of beauty samples subscription boxes,such as:Monthly flower collection|One flower per week!199 RMB for four times a monthLittle surprises in ordinary days Carefully selected fresh seasonal flowers every week 1.Longer minimum subscription periods2.Uncertain value-for-money3.Concerns about skin sensitivity or allergies4.Lack of personalization in a market where efficacy is paramountWith 45k followers on Xiaohongshu and 31k fans on Douyin,Nikibox stands out as one of the most popular beauty sample blind box subscriptions in the country.To overcome challenges inherent to this model,Nikibox reveals some of the items within the blind box and their price points in advance,and it offers consumers some degree of choice.Subscription-based beauty sampling programs have yet to gain traction in ChinaHypotheses on the future of Chinas samples economy 4.322024 DAXUE CONSULTINGALL RIGHTS RESERVEDHypotheses on the future of the samples economy in ChinaThe direct-purchasing of sample-sized products indicates a need for smaller packaging and product volume which could cause beauty brands to adapt their China strategy accordingly.1.Brands will reclaim their potential for samples by selling them through their own channels.2.Daigous(代购代购)and unregulated trading will rise as a threat to brands image.3.We will start seeing IP collabs and limited-edition sample-sized products.4.Samples will become a key aspect of brands strategies in non-Tier-1 cities.5.Big data and CRM will enable tailored sample strategies,enhancing engagement.6.Sample packaging will become more sophisticated and convenient,driven by increasing consumer demand for practicality and aesthetic appeal.7.Chinese consumers appetite for niche brands and products will further boost the samples economy.8.322024 DAXUE CONSULTINGALL RIGHTS RESERVEDABOUT331A China-origin growth-centric advisory firm helping companies uncover hidden opportunities in East Asia2700 projects since 2012,60%from returning clients3Research-intensive strategy consulting440 strong globally-educated multi-cultural team with local understanding of each target country550,000 mentions of our work on the internet6We are creatively analytical and analytically creativeDaxue Consulting in 6 characteristics2024 DAXUE CONSULTINGALL RIGHTS RESERVED34Our mission2024 DAXUE CONSULTINGALL RIGHTS RESERVED35Our mission is to help companies uncover and harness hidden opportunities in uncharted territoryThrough our market research and strategy consulting,we equip businesses with the knowledge and guidance to achieve growth in East AsiaWhat we do2024 DAXUE CONSULTINGALL RIGHTS RESERVED36STRATEGIC RESEARCHPricing Competitive BenchmarkingSensory(Taste&Test)Consumer UnderstandingMarket SizingTrends ReportBrand AuditSALES&DISTRIBUTIONRoute-to-market Distribution MappingBrand Activation ToolkitRetail SafariChannels StrategyBRANDING&STRATEGYNamingBrand BookBrand PositioningBrand Activation ToolkitCo-branding StrategyChina Messaging Strategy LocalizationMANAGEMENT CONSULTINGMarket Entry StrategyBusiness PlanLearning ExpeditionPMOGrowth ModelsProspective And ForesightProduct/Market FitOur values2024 DAXUE CONSULTINGALL RIGHTS RESERVED37Freedom enriches creativity&responsibility Freedom to manage and envision her or his mission increases the sense of responsibility to that mission.Our clients goals are our goalsWe see ourselves as an extension of our clients business in China or their target country,hence,we advise them as if we were in their shoes and investing along with them.Embrace change enthusiasticallySimilar to how markets are constantly changing,our mindset is also always evolving.We value routine only when it helps us improve and we value change because it helps to keep pace with the times.Intellectual humility gives clarity Only through the lenses of humility can knowledge be seen clearly.At Daxue Consulting,we are humble toward science and the truth.We interpret data in a way that lets it speak for itself,even if contradicts our hypothesis.Knowledge is meant to be sharedWhile our projects team dives deep to provide catered research to clients,the media team shares insights publicly.At the same time,we foster a culture of sharing knowledge in our team,each individual works to increase their own knowledge and freely share ideas with each other.400 clients since 20122024 DAXUE CONSULTINGALL RIGHTS RESERVED38A recognized Asia market expert,quoted in the media2024 DAXUE CONSULTINGALL RIGHTS RESERVED39Follow our weekly insights or get in touch with 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