China leads the pack
According to Goldman Sachs, China’s total e-commerce market is forecasted to reach over USD$1.7 trillion by 2020, of which social commerce is expected to take up more than 30% of the total e-commerce market. China has seen tremendous results in their ecommerce scene from the development of social commerce due to the vast advancement of their social media technology as well as the demographics of their population. With that, the demand of ecommerce will be largely coming from Asia.
What is social commerce?
Social commerce is a subset of ecommerce that leverages on social media to generate social interaction and user generated content to promote the buying and selling of products and/or services. Unlike traditional e-commerce where consumers have to sieve through chunks of information online, social commerce allows the product to “find” consumers via re-sharing and recommendations on social media instead.
How is it more superior than traditional ecommerce?
In social commerce, the consumer purchase journey is massively shortened while conversion rates are significantly raised.
Traditional ecommerce purchase journey tends to be complex as a result of consumers being redirected from one platform to another. For instance, a user clicks on a product promotion email link and is directed to the retailer’s website. However, once she enters the website, other product promotions often also appear, which distracts consumers from completing their intended purchase.
In contrast, social commerce places consumers in the driver’s seat when their purchase intent is at its peak by providing a seamless purchase experience where consumers can simply cart out on one platform.
Capitalising on users shopping behaviour
Other than focusing on the convenience, social commerce also addresses the psychology aspect of consumers during purchase. As more consumers, especially the younger ones, start shopping digitally, online reviews have become more effective in influencing consumers purchase. Product reviews by other consumers are perceived as more genuine as compared to paid advertisements or email marketing, which aids in reducing scepticism and increasing consumers confidence in the brand.
In addition, social selling exploits the fears of consumers missing out on a good product or bargain.
“If everyone has bought the product and they like it, you should too!”
China’s homegrown social media platforms have been remarkably successful, garnering 600 million active users. (We Are Social, 2019)
With a huge pool of social media users, the potential for brands intending to sell online in China is tremendous.
What are the various social commerce channels available and how do they differ from one another?
1) User generated content (UGC) social media platform
*user generated content is any form of content that is create and shared digitally by users rather than brands.
In this digital age, consumers are spending majority of their time on social media such that they get the information from their social networks. According to Social Media Today, 64% of consumers will actively seek out reviews before they trust a brand to make a purchase which shows the substantial impact of UGC in influencing consumers’ purchase decision.
The Little Red Book – (小红书)
Over the years, Xiao Hong Shu has evolved from a UGC social media platform into a social e-commerce platform, garnering over 200 million monthly active users in January 2019.
Initially, it was started as a social media platform where users post about their overseas shopping experience and tips as well as predominantly beauty and fashion related product reviews . Xiao Hong Shu’s users’ demographics are largely urban females that have relatively high purchasing power who value quality, with more than 60% of them being 30 years or younger.
The key to their success is the high quality and authentic user generated content that provides seemingly more candid and trustworthy product reviews. Besides that, product endorsements from celebrities comes with a special touch of authenticity as the information are shared together with snapshots of their daily lives behind the “spotlight”. This aspect has significantly increased the appeal of the products, driving brand recognition and eventually conversion.
A classic example would be Fan Bing Bing, who has 9.9 million followers on Xiao Hong Shu – every face mask that she has endorsed would be sold out on the platform.
In summary, with relatively high conversion rate and substantial organic traffic among the young and affluent female users, luxury beauty and fashion brands stand to benefit most from this blooming platform. Despite that, it is still crucial for brands intending to use Xiao Hong to use it as a marketing channel instead of a sales platform.
2) e-Commerce marketplace
There are many online marketplaces around, however, many of them are merely providing a platform that facilitates transactions between brands and consumers. Therefore, the ability to create stickiness and retain users is crucial for ecommerce platforms to generate sales.
Unlike Xiao Hong Shu, Pinduoduo is a hybrid between an ecommerce marketplace and group buying. It combines elements of group buying (e.g. Groupon) and e-commerce retail (e.g. Taobao, Amazon) to create a unique social shopping experience. As of March 2019, Pinduoduo already has 444.3 million active buyers. (Pinduoduo, 2019)
To avoid competition with established players, Pinduoduo initially targeted tier 3 and 4 cities in China. As a result, Pinduoduo consumers are more price sensitive and less brand conscious.
Pinduoduo attempted to raise stickiness in the users by consistently offering discounts and free gifts. Through these discounts and free gifts, Pinduoduo capitalises on impulse buying behaviour by offering rewards even for just opening the application, believing that merely looking at daily deals could potentially drive purchases. Additionally, discounts are also given to group purchases of at least two buyers motivating users to share links with their social networks, thereby, propelling Pinduoduo’s viral growth.
3) Messaging platform
The importance of messaging application is the social connectivity that users get as they can communicate instantaneously with their social circle. As compared to social media apps, messaging apps have also surpassed social media apps in terms of monthly active users.
WeChat, also known as the social media app that does everything in China, which includes user generated content, instant messaging, ecommerce platform, payment gateways etc. With more than 1.1 billion users, it is undoubtedly one of the most powerful platforms for social commerce.
The WeChat mini-programs keep users in WeChat while accessing app-like functions such as games and e-commerce, making WeChat an integrated social commerce platform. In order to tap into the large pool of WeChat users, JD.com and Pinduoduo also have their own WeChat mini-programs where users can share products on their WeChat moments or to other users.
For users to add each other on WeChat, one of the parties must either have access to their WeChat ID, contact number or WeChat QR code. Therefore, the connections that users have on their WeChat account would be at least a personal connection. This raisesthe effectiveness of social selling through WeChat moments or direct WeChat message as the trust level is much higher.
In early 2019, WeChat released a new feature – The WeChat Good Products Circle where users can save products that they found on WeChat mini-programs on their shopping list. Users can view recommended products from their WeChat friends or create a “Circle Group” which functions like a private group for users to share product recommendations. If this new feature is successfully adopted by the masses, brands will have to innovate and attempt to reach these groups.
Other apps and platforms are also jumping onto the bandwagon
Apart from the abovementioned integrated social commerce platforms, TikTok, which boasts 500 million active users per month, has also paved their way into social commerce. They launched a new feature which allows some users to attach links that direct their followers to ecommerce websites. With the constant update of user generated content and the massive user base, TikTok has the potential to substantially change users’ experience in social commerce.
With video content gaining massive popularity in China, iQiYi – known as the Netflix of China, has recently started working for a share of social commerce. Users can purchase products, costumers, apparels that they see on TV shows by clicking on links.
Social commerce is the tool to unlock the next generation
This trend is here to stay, in fact, with the rise of middle class, emerging countries will be catching on as well.
For retail brands or companies intending to enter the online retail industry or seeking to develop your ecommerce business further, social commerce should be one of your focus, especially if your target audience are the next generation of consumers.
Increasingly, we are likely to see M&A activities for companies who are looking to scale fast. With that, social media platforms/applications and marketplaces might be acquiring or integrating into one another. On the other hand, for social media platforms and marketplaces that wants organic growth will integrate downstream or upstream to create a social commerce ecosystem for their users.
All image sources: Google Images
Written by Shuang Yu Yap, marketing associate and consultant of KeyHole Insights.
A marketing enthusiast who explores the combination of insights, content, design and analytics to create value for businesses and consumers.
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