Social media is the biggest introducer of new-age products for modern consumers. With just one swipe you can browse through multiple reels selling a wide variety of products and often you might come across something that seems like the answer to your prayers. The product fits your needs, desires and aspirations, the brand resonates with you as an individual and you are about to hit purchase but suddenly realize the product is overpriced and not even available in your country. That’s when Chinese consumers introduced Daigou into their lives.
Understanding the Daigou Phenomenon
15% of luxury goods consumption in China comes from Daigous, with cosmetics from top international brands accounting for more than half, followed by luxury bags, watches, and jewellery. The word Daigou in Chinese can be broken into 代购, Dai = to replace, and Gou = to buy, simply explaining that Daigou is Chinese for “buying on behalf of others”. In interpretation, it refers to the informal transborder market in which individuals buy products abroad to resell them in China for a profit. Initially, Diagou (also understood as overseas personal shopper) was used to refer to Chinese people who were just living overseas and who were locally buying goods they sent by postal services to Chinese people in mainland China and often as a favour to a friend or relative.
Origins and Evolution of Daigou
The Birth of Daigou: A Necessity Born from a Crisis
The trend emerged in China in 2008 when a massive public health scandal hit the country, called the Sanlu incident, wherein toxic substances were detected in powdered milk for infants. The public health crisis in 2008 led Chinese consumers to question the quality of local products. As a result, they began looking abroad for safer alternatives, which sparked the rise of Daigou. This informal transborder market grew out of necessity as Chinese consumers sought products they trusted, especially from international brands.
Daigou grew out of the demand for products, particularly luxury goods, that Chinese consumers could not access locally, either because they were unavailable or overpriced. This demand extended to luxury bags, cosmetics, and jewellery, driven by the desire for higher quality and exclusivity.
This phenomenon is not restricted to just food but has impacted all industries, especially since 2016, in what is also called the "Era of Shopping by Universal Procurement" ("全民代购时代" in Chinese). The luxury product Daigou trade became extremely popular in China, and according to figures from "The Daigou Index" report published in 2020 by the Re-Hub platform, the Daigou market is valued annually at around 400 billion yen RMB (57 billion US dollars).
Social Media’s Influence on Chinese Consumer Behavior
The Daigou trade has evolved as a particularly efficient way of marketing and into a new industrial e-commerce channel that is addressed all across mainland China. Initially, it relied heavily on informal networks, but platforms like WeChat became key channels for Daigou agents to connect with buyers. Today, the trade is becoming more formalized, with online platforms like Dewu providing larger retailers with tools to sell directly into Chinese marketplaces. While this more formal form of Daigou can help retailers and wholesalers move inventory from markets like Europe, where consumers are battling high inflation and a weak economy, it can also mean missed opportunities for brands to sell directly to consumers.
Diagou's success can be linked to three factors i., proof of genuine products, the opportunity to obtain products and goods not available in the country, and affordability by escaping import duties.
In 2019, Chinese authorities in a bid to regulate the Daigou grey channel introduced stronger Cross Border E-Commerce policies which led to a rebrand. Daigou integrated all the actors of its unofficial channels (personal shoppers to the logistic firm) into single entities. The market also adapted its methods as to avoid being spotted by the authorities and centred back on social networks (their initial niche channels). They now show the products through sketched instead of pictures or don't mention the brand's names.
Increasing international luxury product online sales has been a great way to counter Daigou due to the well-established online marketplace for luxury items and also otherwise through big players like Alibaba, Tmall, and JD.com accessible internationally and the willingness of consumers to purchase jewellery and affordable luxury products online. It is no longer necessary to travel to buy a luxury item from a French brand and brands can sell directly to consumers
The Impact of Daigou on Luxury Brands and Markets
How International Luxury Brands Are Affected by Daigou
One key factor driving the popularity of Daigou is the significant price difference between luxury products in the Chinese and European markets. For example, the price of a Celine Triomphe canvas shopping bag is significantly higher in China ($ 3'675) than in Europe ($ 2'616), i.e., 40% higher than in France. One of Louis Vuitton's most popular bags, the Neverfull, is sold for 30% more in China ($ 2'280) than in Europe ($ 1'690), according to the Lectra platform's "Retviews data barometer" report. Daigou agents will, therefore, prioritize buying luxury goods in tax-free zones and reselling them on Chinese territory with a comfortable margin while remaining competitive. Bernard Arnault, Chairman and CEO of LVMH, had voiced his opposition to this form of informal trade, which he even qualified as fraudulent, underlining the negative effects on the brand image during an online conference announcing the 2022 annual results.
How Brands Are Navigating the Daigou Effect
For assessing the positive effect for brands, it is observed that Daigou offers brands the opportunity to expand their market presence in countries where they may not have a direct sales network. Daiguo agents assist in brand market expansion, reaching new audiences and making a stronger presence in countries or regions where brands may not have a direct presence or sales network. Daigou agents are also great promotional agents for brands as they do it in a localized way within their network and often in opaque markets. They can also be informative when it comes to knowing more about its new audience which has emerged for the brand through this market. It can help brands understand and better penetrate the local markets, gain market shares and navigate their presence accordingly in those regions all by saving money on advertising and marketing since the cost-efficient promotion by the Daigou agent works wonders. Daiguo trade also promotes loyal customers, as affordability often leads to repeat purchases.
And for understanding how it can bring about negative effects, it is noted that Daigou can also be problematic for brands, as it tarnishes their brand value and image when products are sold at much lower prices than the original retail price. This not only diminishes the exclusivity of luxury products but also poses risks related to counterfeit goods, damaging brand image and reputation. Counterfeit products and expired cosmetics sold by Daigou agents have raised significant concerns, causing brands to worry about regulation management and product circulation. While it’s difficult to pinpoint the quantitative loss, the impact of Daigou on demand in Chinese stores and the potential damage to a brand’s reputation due to counterfeit products is apparent. Brands are thus faced with the challenge of balancing the benefits of market expansion with the risks posed by Daigou agents.
Decline of Daigou and Changing Consumer Preferences
Regulation and the Future of Daigou Trade
This decline in Daigou is further accentuated by a shift in consumer habits. More citizens are opting for in-store shopping or choosing legitimate e-commerce channels and duty-free malls. This changing landscape has contributed to the diminishing influence of the Daigou industry in the Chinese market. Another intriguing effect since the end of pandemic-related restrictions in China is the "Reverse Daigou" phenomenon. Every year, luxury brands spend vast amounts of money using law firms to manually locate and deal with unlicensed sellers of their products. One solution could be unifying prices globally across all brands and reducing the price disparity. But this solution would require luxury companies to seek common ground and agreements, which is unlikely and also make their products all the same in the market in terms of perceived value. Daigou trade was strongly reduced during the COVID-19 pandemic and travel restrictions. Today, it is active but in a lesser way. Therefore stronger regulations can control it to a certain extent. Since 2019, the Chinese government has implemented regulations and systems to fight against Daigou, including verifying the online buyers' identity, reinforcing border regulations and surveillance of foreign purchases, and establishing blacklists of people and companies involved in fraud at the borders in response to which brands have also been taking
measures to improve distribution in China.
Increasingly, Chinese consumers are turning to legitimate e-commerce channels or in-store shopping. Platforms like JD.com and Tmall offer a robust marketplace for luxury products, making it easier for consumers to purchase goods directly from brands, reducing reliance on Daigou agents. Cartier, Prada, Louis Vuitton, and Estée Lauder are some brands who have been working to improve digital presence since the pandemic through these e-commerce platforms. The JD Luxury platform features over 300 major brands and some 50'000 products.
The Rise of 'Reverse Daigou': A New Trend
In an interesting twist, the "Reverse Daigou" phenomenon has emerged since the end of pandemic-related restrictions in China. Chinese agents now buy products made in Shenzhen that are difficult to find elsewhere and transport them to Hong Kong for resale. Several factors have contributed to the rise of Reverse Daigou. The end of pandemic-related travel restrictions between China and Hong Kong has reopened borders, making cross-border trade more feasible. Additionally, Shenzhen’s booming manufacturing sector has led to the production of items that are unique to China or difficult to source in Hong Kong, creating demand across the border.
Reverse Daigou is still in its infancy but shows signs of growth as it taps into the competitive pricing and vast manufacturing output of China. If this trend continues to expand beyond food and low-cost items, it could have broader economic and market implications, especially in sectors where Chinese manufacturing is dominant.
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