No longer is the West dictating the speed of development in many aspects of the digital world and nowhere is this more obvious than in e-commerce where social commerce in China driven by livestreaming could be the future growth engine of the industry.
It seems that scarcely a day goes by without some mention in the media of how livestreaming is helping boost the online economy in China, and according to a study by Alizila, around 70% of European consumers would also be open for this style of sales. Social commerce (or social e-commerce) is also starting out in the West, however it still isn’t as strongly developed as in China.
This kind of shoppertainment is spreading across the APAC region though, as consumers are eager to purchase even when offline stores are closed.
What are Social Commerce and Livestreaming?
Social commerce is exactly what it says: it’s ecommerce done directly via a social media app. In the West, that would be via Instagram, Facebook or TikTok, however these channels don’t offer the same kind of seamless experience which consumers expect in China. consumers often search for products and the information in one app before going to another to buy and using a third to pay. Chinese consumers would be shocked at how backward and awkward that process is. In China consumers expect to be able to search for information, buy and pay without leaving the app.
According to JingDaily, 11.6% of e-commerce sales in China were made via social app in 2020, which is still small compared to the big platforms, however this form of business has big potential due to the content power of videos & live streams.
This is really the modern equivalent of teleshopping, with the twist of being far more convenient and interactive. It was already a huge trend in 2019 with KOLs (key opinion leaders) earning millions in commission on their sales of beauty or fashion items. eg Viya or Austin Li (“Mr Lipstick”). This tool, whilst being used by the huge ecommerce platforms, is also helping to drive traffic and purchases for social commerce. The trend was especially obvious during the Singles Day 2020 shopping festival.
However with the pandemic, the market evolved, and being able to effectively livestream became a core skill for sales teams across China. But not only for sales teams – during the pandemic several small farmers achieved fame by grannie going live to sell watermelons or other produce, saving their business from collapse.
Which business models are most popular in China for “shoppertainment”?
If you asked me this question in conversation, I’d probably say “it depends…” (I’m annoying like that – I probably get it from my Dad), because different products have different channels & business models, but in broad terms the following 5 models should be considered.
1. E-commerce with social marketing
This would include the “giants” such as Alibaba & Tencent. These platforms sell mostly via KOL (key opinion leaders) or KOCs (key opinion customers) driving the traffic to established brand stores. This model works, partly because the Chinese consumer enjoys spending their free time researching products, and doesn’t treat the online shopping experience as something to be got over with as painlessly as possible.
Case Study: Taobao
I’d say Taobao can rightfully claim to be the original in terms of live streams and shoppertainment. It started off with clothing but now has extended to included pretty much anything that is sold within the Alibaba ecosystem. For the Tmall platform, all TP’s (= Tmall partners, agencies who facilitate brand cooperations with Alibaba) now have to be able to provide livestreaming services, so were forced to build studios in their offices!
Within the taobao live stream consumers can comment and of course buy directly without ever leaving the livestream.
Alibaba group is also running an initiative to help alleviate poverty in rural China by enabling farmers to sell their produce directly via live stream. This especially took off during 2020.
2. Social First Commerce platforms
These include the likes of Douyin, Bilibili, Kuaishou and Red. Here again KOLs and KOCs drive traffic to emerging on-platform stores and branded shops. These are the up & coming contenders who are using the trend of livestreaming & video content to propel themselves into the big league.
Case Study: Douyin
Have you ever considered using TikTok for your business?
Probably not, I’m guessing, but in China douyin is becoming an increasingly interesting proposition for consumer facing brands, having reached a peak of 700 million daily active users around the Chinese New Year festival in Q1.
Now, Douyin has announced that they will introduce flagship store functionality allowing brands to sell directly within the app.
Douyin’s ‘brand official flagship store’ will help brands with a presence on the platform to increase their conversion rates. The feature includes a campaign banner, brand recommendations, vouchers, product recommendations and offline store information. Brands can use the campaign banner to promote new products, popular items, livestreams and more.
Douyin has stated that flagship stores will give brands better product exposure. Compared to the simple product window display, the ratio of product views to total page views from the account’s homepage will increase from 17% to 80%. The platform also said that brands would see their click-through rate of product exposure increase by 250% month-on-month.
3. Social Discounters
The classic example here is Pinduoduo (or PDD) & the model could be compared to Groupon. With this model of group buying consumers are incentivised to social sharing of the the products. For each incremental customer the price gets lower.
This business model can target large groups of price sensitive customers, especially in lower tier cities.
4. Community Buy/S2B2C (= social to business to consumer)
This business model is growing rapidly although fragmented in China. Here individuals receive referral boni or commissions for selling to their friends. Examples include Yunji or Xing-sheng. Brands sell through group leaders who sell via their friends or connections.
Users can join only on invitation and the “membership fee” usually involves them buying a certain selection of products. These kinds of platforms also offer a certain amount of support to their members as to what are popular products and how to sell.
Case study: Yunji & Xing-Sheng
Yunji is a membership based platform, which is purely online. Xing-Sheng’s group leaders are often small community based store owners who are able to buy in bulk through the platform, thus reducing logistic costs to their consumers. This works well with low ticket value items such as everyday care products or fresh produce. It also offers shop owners an additional way to transfer clients between on- and offline offerings.
Some brands have transferred a part of their above the line branding budgets to these kinds of consumer incentives. As often with e-commerce promotions, the pricing can be tricky to control so it can be an idea to create product lines or bundles especially for these channels. This can help stop the issue of channel leakage that otherwise may occur.
5. Social Direct to consumer sales
This kind of sales model isn’t in the public domain, but takes place in the so-called “private traffic” environment of WeChat groups or mini-programs. Brands as well as KOLs/KOCs engage with consumers in their own WeChat groups and convert them to sales either via mini-programs or the brand’s own platform. Here the challenge is in how to gain the consumers’ attention in the first place so that they join your groups as they can’t just stumble across a livestream as on the public domain platforms.
For brands this model offers the advantage of being quick and relatively cheap to set up, plus having full transparency about the consumers who are in their groups. As with the S2B2C model above, you can also integrate online and offline shopping experiences which in turn gives you even more options to maintain customer loyalty.
Chinese beauty brand Perfect Diary has been very successful using this model.
How can brands leverage social commerce for their success?
Firstly, as with any other business model, it’s important to be strategic and consistent in your approach. You need to know how to really manage each piece of the customer journey as it’s no good generating traffic if you are not able to convert that to sales. For each of the models that you intend to use, do you have your processes in place for:
- how to acquire consumers (bought traffic, referrals, traffic exchange from e-commerce platforms)
- managing groups or communities once you have acquired consumers
- developing your social content (it needs to be a mix of brand messages, user generated, KOLs etc. Don’t neglect the lifestyle element – 100% advertising is a turn off for Chinese consumers)
- your CRM infrastructure – as I’ve mentioned in other posts, the Chinese consumer is possibly the pickiest in the world so you need the infrastructure in place to support your consumers
Get your messaging clear
You need to have a crystal clear overview of your full messaging house for the Chinese business (this may have substantial differences to the one you are using in your home markets). This messaging needs to be also handed to each seller of your products so that the brand name, value proposition, messaging, main key words etc are consistent across all channels. These social commerce channels allow you as a brand a more direct exchange with their consumers, which on the one hand can result in a more collaborative sales process but where you need to take especial care that the brand message doesn’t get diluted or distorted.
KOLs or KOCs
Think about how your strategy here needs to look and plan your budgets accordingly. Many brands are more successful by working with 100s of KOCs rather than placing all their budget on a big name influencer. In that way you can achieve more consistency or livestreaming than if you have 1 person who occasionally for big festivals will do a mega-show for you. Of course, it’s likely that you need some kind of mix of the two.
Keep your pricing under control as far as possible
If you’re selling in a variety of channels in China (or any market) you need to keep a close eye on your pricing structures. The referral type sales models described above often require less direct marketing spend than traditional business models, but have higher margin expectations. If you don’t adjust your pricing structures to take account of this, it will result in chaos on the market with your products being sold as vastly different price points across different business models. This is bad for the brand image so it’s important to reduce this kind of cross-channel leakage to a minimum.
Don’t pump too many goods into the market. For China it’s never a good idea to flood the market with your products as you want to create at least a hint of exclusivity. Otherwise, as soon as there is a surplus in your channels, the prices will be under pressure and you don’t want that.
Agility at China speed
When starting out with social commerce in China, you’ll probably be working at a smaller scale. During this beginning phase it’s important to rapidly test and iterate different activities to really see what works best for your brand. As with everything else in China there are no cookie cutter solutions that work for every brand in the same way so it’s essential that you allow the local teams the space to experiment here. That should be within the confines of the messaging house defined above, but they need to be able to take decisions at speed and not to have to always refer back to head office.
Social Commerce in China as the Future Growth Engine of Ecommerce?
In the last 5 years, this business model has experienced triple digit growth and is certainly disrupting the existing digital landscape. Admittedly the total value is still at a much lower level (around 13% of all e-commerce) than the traditional platforms at present, but as often happens in China, the business models are becoming hybrid to offer new opportunities.
The more mature sales models in E-commerce are now “only” growing at around 25% per year, although this is of course from a much higher baseline. However, for new brands who are looking to enter the market, social commerce offers a channel with lower immediate market entry costs than say Tmall or JD.
Livestreaming is fuelling this growth, which was accelerated by the increase in mobile time last year during the pandemic (don’t forget China is to all intents and purposes a mobile only market and the AVERAGE time spent daily on the mobile is over 7 hours per end 2020!). OF course, livestreaming is being used across all platforms but it is the defining feature of the social channels, who’s sales are really being pushed by video content.
For the next year or so at least, it seems that this explosive growth in social commerce in China will continue. It also allows store owners & brands to integrate into omnichannel solutions, which they perhaps otherwise couldn’t finance immediately.
Just one caveat to end with. It’s unlikely that your consumers will purchase your products via a simple linear customer journey. In the complexity of China’s digital ecosystem one of your greatest challenges as a marketer is likely to be how to really track your consumer’s behaviour across platforms and media in order to analyse which content triggers which behaviour. That challenge isn’t limited to social commerce though – you have that everywhere if you are doing China business.
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