Social commerce, or shejiao dianshang (社交电商) in Chinese, is a new trend to online shopping that has quickly developed in recent years especially in China. This approach as suggested by the term, is a fusion between an e-commerce and a social network, but it is not as simple as it seems.
Social commerce platforms are not simply social media apps linked with an e-commerce, they are something more and they revolutionized the customer journey of Chinese customers. In traditional e-commerce, users searched for what they were looking for, and after seeing different products made their purchase decision. With social commerce the process is reversed, products reach users with a system based on peer-to-peer sharing and recommendations. Now consumers can interact with people they know and follow their advice on products or listen to KOL (Key Opinion Leaders) suggestions. With these interactions the mechanism is perceived as more reliable by the consumer and at the same time, brands can reach in a more accurate way their targets.
Social commerce has grown exponentially in the last few years in China. Only in 2018, the GMV (Gross Merchandise Volume) reached 626.85 billion Yuan with an incredible increase of 255.8% since the previous year, and it is expected to reach 2.86 trillion yuan in 2021.
Source: iResearch Global Group
But which are the factors that boosted this growth?
First of all, a well-established E-commerce ecosystem was at the base for the spread of social commerce platforms. This united with the pervasive online payment systems facilitating transactions and transfer of information plus an astonishing nationwide logistics system that guarantees quick deliveries at an incredibly low price created a very favourable habit of shopping online shaping Chinese consumer behaviour.
Another key element in this equation was the rapid growth of social media usage in China, which registered more than 700 million users in 2019. The combination of all of these factors made the country a natural container for the development of social media commerce.
The younger generations are the key consumer groups shopping on social commerce platforms. Chinese millennials and Gen Z represent the biggest share of the market. In particular, 64% of the customers have less than 30 years old, and those under 24 years old alone represent 35,7% of the market.
Source: iiMedia Research
Social commerce platforms share some commonalities. They are marketplaces in which customers can look for products, compare them and purchase them while sharing their experiences with other users, and express their preferences while exchanging recommendations. Having said so, it is possible to divide them into three main categories: content-sharing platforms, membership-based platforms, and team purchase platforms.
Source: Fung Business Intelligence
As implied by the name, these platforms focus on content, shared by KOLs or other users, who display products and report and their user experiences. The greater part of User Generated Content is usually shared in very interactive ways with short videos or live streaming, and followers through a “see now buy now” method can directly purchase through embedded links in the posts or videos. Currently, Douyin (TikTok) and Xiaohongshu (Little Red Book) are among the most popular content-sharing platforms in China.
Prada official account od Douyin
These platforms are based on a system of registration to generate profit, retailers must pay a registration fee in order to be able to sell, and usually the S2B2C (Supplier to Business to Consumer) formula is used. This means that brands sell their products to micro-stores, which in turn sell them to customers. Micro-stores are put in contact with brands only after having successfully registered, and they can earn money from purchases but also by bringing new users in the platform either as ordinary consumers or micro-store owners. The platform manages the distribution, logistics, and also the training and after-sales services of its members. Right now, Yunji is one of the most used platforms of this kind in China.
Yunji product page
In team purchase platforms, customers can buy at items at a reduced price if the purchase is made in groups of two or more people. After having set up a purchase order, those who started it can share it on their social networks to their contacts, and propose them to participate in the purchase, in this way the cost of the product for each customer will be lower. With this method, products can reach many potential customers, and for brands these platforms are useful also to give away unsold inventory while still making a profit. This purchase method is particularly suitable for consumers in lower-tier cities and more in general those who are more price-sensitive. At the moment the most used team purchase app in China is undoubtedly Pinduoduo.
Pinduoduo women’s clothes
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