Transforming 2021

Social commerce has taken over China. Can it do the same overseas?

Platforms like Douyin, Taobao Live and Kuaishou have transformed the way people buy in China, and international networks like Facebook, Pinterest and TikTok are looking to replicate their success.

Social commerce has taken over China. Can it do the same overseas?

Social influencers, including Li Jiaqi on Taobao Live, Xinba on Kuaishou, Aichoumeidegoutianer on Xiaohongshu, and Taobao Live's Viya, have taken over social media in China.

Screenshots: Shen Lu

QVC reinvented home shopping in the 1980s, luring millions of Americans to buy stuff while engaged in their favorite hobby: watching TV. Three decades later, China has married retail to the world's new daily habit: scrolling social media. Social commerce is upending traditional industries and is fast becoming an international poster child for Chinese technological innovation.

Social ecommerce increasingly relies on livestreaming, with the streamer playing a critical role. They link consumers and suppliers, build and grow a loyal following and collect real-time consumer feedback for brands and advertisers. This allows them to optimize production, determining precise demand and reducing inventory costs. Platforms like Douyin, Taobao Live and Kuaishou have all developed their own influencers and integrated algorithms that attract users to spend ever-more time and money while being entertained by streamers. Social commerce comprises more than 30% of China's ecommerce business.

So far, American tech companies have merely dabbled in social commerce; it comprises only 3% of U.S. ecommerce. Amazon launched Amazon Live in late 2019, while Walmart tested the waters with a one-hour live shopping event on TikTok in December 2020. Only last year, Instagram, Facebook, Shopify and YouTube started trying to integrate social and commerce, hoping to generate better user engagement and higher sales conversions on their respective platforms. TikTok is also reportedly testing a livestreaming shopping feature. Total sales generated on U.S. social commerce platforms is expected to reach $36 billion in 2021, according to eMarketer, a market research company.

By contrast, livestreaming ecommerce in China in 2021 is projected to reach $363 billion, nearly doubling 2019 spend. Livestreaming sales started gaining traction in China about five years ago, but exploded in 2020, when the COVID-19 lockdown gave everyone more screen time while effectively forcing them to buy online. The number of merchants using Alibaba's Taobao Live, China's top live commerce platform, more than doubled between November 2019 and November 2020. Taobao's competitor Pinduoduo and social commerce platform Xiaohongshu raced to launch their own streaming services in 2020. During the pandemic, even CEOs of some of China's largest private companies jumped on the livestream ecommerce bandwagon, personally peddling their company's products. Analysts say it's only a matter of time before livestreaming commerce becomes a global mainstream marketing tool.

As U.S. tech companies start to grapple with the potential of social commerce, China offers a thick playbook of strategies and tactics. Below are some best practices that Chinese platforms learned the hard way:

Leverage the power of KOLs

KOLs (key opinion leaders) are a crucial part of China's social commerce success. More than most consumers worldwide, Chinese buyers look within their trusted networks, not at conventional ads, when making purchase decisions. That trust group includes KOLs, who can drive tremendous traffic and brand awareness.

On China's livestreaming platforms, KOLs are not necessarily celebrities in other fields, as they often are in the U.S. Instead, many Chinese KOLs intentionally come across as everyday figures when they start streaming. Over time, as viewers become accustomed to their presence, a livestreamer's persona alone can draw swarms of followers to buy products that person endorses.

To create engaging livestreaming shows, KOLs must constantly interact with followers. Some even adopt a game-show format to keep fans hooked. It's about the format, not a particular type of product: Top KOLs in China sell just about anything, from local specialties to foreign foods, from low-price household supplies to digital and financial services. China's livestreaming queen, the 36-year-old Huang Wei, known as Viya by the millions of fans who tune in to her ecommerce livestreams every day, literally sold a rocket launch service last year. With more than 76 million followers on Taobao Live, Viya holds the record for sales generated in a single day, at $1.6 billion.

Bespoke supply chains

Livestreaming ecommerce in China means mass customization. Some top KOLs like Viya own their own brands and even their own supply chains. They either operate their own factories or have formed exclusive, long-term relationships with factories that produce customized products. A KOL's partnering factories can often ship customized products based on a customer's needs within two weeks.

"American tech companies can learn from Chinese social commerce platforms to connect small and medium-sized business owners and ecommerce channels through KOLs," Xiaofei Han, a doctoral candidate at Carleton University who researches livestreaming ecommerce, told Protocol. "It's a win-win situation where both the platform and small, local businesses can benefit."

Integrated marketing

KOLs outside the top tier are always selling two things: their products and themselves. Each uses storytelling to fashion a specific persona and narrative that appeals to a target audience. For example, Laijiang, a fashion influencer who has over 500,000 fans on the social media and ecommerce platform Xiaohongshu ("Red" in English), is a 30-year-old Chinese tech worker living in Tokyo. She attracts mostly affluent, urban young professionals with a taste for minimalism. The videos where she demonstrates products are carefully framed and perfectly lit. In captions, she shares the background music tracks and the camera model she uses in the video. She writes posts about products, but also about her own life, her hobbies and her years of experience as an expat living in Tokyo. All these efforts combine into a holistic personal brand that her fans see themselves in.

Being a KOL is hard work. The average livestreaming sales show lasts three hours. KOLs must remain fully engaged with their audience throughout each show, demonstrating products while answering questions in real time. KOLs weave in storylines and occasionally educational content. For example, many streamers on Douyin and Taobao who claim to come from rural China tend to tell tales of their previous careers as factory workers doing hard manual labor.

Integration of content and commerce

Chinese social commerce apps have fully integrated content and sales, a strategy that Instagram and Shopify are starting to explore. Xiaohongshu — one of the largest lifestyle focused social commerce platforms in the world that caters to fashion-forward young women — is a prime example of how to utilize social content to make more accurate product recommendations.

Not all social commerce relies on livestreaming, either. Xiaohongshu, for example, only launched its livestreaming capacity during the pandemic. The platform's killer app is instead "notes," multimedia product reviews or shopping lists that often contain text, short videos and images. If a KOL forgets to leave a link to a featured item in a note, a parade of followers will ask where they can buy it. Viral reviews — which users call baokuanbiji (爆款笔记), or "explosive notes'' — can garner tens of thousands of likes, and conversion rates can be as high as 20%, Laijiang told Protocol. In 2020, each day, Xiaohongshu raked in 8 billion views on average on hundreds of thousands of review articles churned out by influencers and regular users alike.

Platforms like Xiaohongshu, Taobao Live and Kuaishou say they have a "stickiness" that the world's other big social-plus-shopping apps can't match. Their powerful algorithms don't push ads based on past searches or purchases, but instead predict trends to determine what users want to buy, based on what they've been reading, saving and commenting on. Because of the more targeted nudges, users tend to linger on those platforms longer than elsewhere. For instance, in December, each Xiaohongshu user spent 40 minutes per day on the platform on average — almost three times longer than Pinterest users spend on the site. Xiaohongshu users also opened the app more than four times each day, according to Beijing-based analytics firm Analysys.

What's next?

Brands, not platforms, may hold more of their own livestreams

Buoyed by the explosive growth of livestreaming ecommerce, KOLs and the agencies that have sprouted up to represent them are changing ever-higher commissions. Top KOLs now take cuts as large as 20%. While livestreaming is expected to play an even bigger role in the ecommerce market, Coresight Research expects more merchants to host their own livestreaming sessions in 2021, instead of working with independent KOLs, to reduce marketing costs.

Short-video platforms will see more ecommerce growth

China's largest short-video platforms, Douyin and Kuaishou, have established themselves as huge ecommerce platforms over the past two years.

Short-video apps saw a growing number of users in 2020, buoyed by the pandemic. As of September 2020, Douyin and Kuaishou captured 80% of all livestream viewers in China. According to LatePost, ByteDance's 2020 ecommerce transaction volume exceeded $77.2 billion, more than triple that of 2019. Kuaishou, which raised more than $5 billion in Hong Kong's biggest IPO, said gross transaction volume for the 11 months through November 2020 grew nearly eightfold compared to the previous 11 months period, to $51.7 billion, in its prospectus.

Analysts expect that in China, the massive popularity of short-video platforms will attract more brands to market on Douyin and Kuaishou in 2021. And in the U.S., eMarketer analyst Man Chung Cheung says TikTok will likely be the frontrunner in the space, if just because of the expertise it can draw from its Chinese progenitor, Douyin.

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