Social Commerce – China Ahead of the Game

The recent buzz around “social commerce,” a concept that emerged from the intersection of social media and e-commerce, is already changing the way people shop …

Merchants investing most of their time studying how to do business on the leading electronic commerce platforms in Asia may soon find themselves falling behind the latest advancements in the online retail space.

Social commerce has become the most powerful beyond-just-sales channel that no business in China can afford to ignore :

Having grown to a RMB1.2T business in the first four years since its emergence around 2015, China’s social commerce subsector already accounted for 14% of China’s RMB9T online retail sales in 2018, serving more than 300 million shoppers.

Is social commerce more than simply adding a “buy” button on your social media posts ? 

It’s about social interaction and user-generated content becoming integral parts of a consumer’s shopping journey. Unlike the traditional e-commerce model where consumers generally initiate the search and then filter out a huge amount of excessive information, social commerce lets the product “find its way” to consumers through peer-to-peer sharing and recommendations.

The social, interpersonal connection instils trust and a sense of community in the process of shopping.

This allows brands to more accurately reach their targeted pool of consumers and successfully encourage repeat purchases — whether the engagement happens directly with a person you know or around a key opinion leader (KOL) you follow.

Some analysts see social commerce as the digital-age version of “fission marketing,” the strategy of using customers to generate more customers …

Social commerce places people rather than products or platforms at the centre of the purchasing cycle, thus demanding the redesign of business and marketing approaches in today’s retail, consumer-facing industries.

Where did social commerce take shape ?

Social commerce, known as shejiao dianshang (literally “social e-commerce”) in Mandarin, started to appear in China when the traditional e-commerce industry was facing a bottleneck. An overly saturated market, intensified competition, and rising consumer acquisition costs were eating up profit margins. Social commerce emerged as a solution to decentralize sales and marketing channels, and has been growing in popularity and variety since then.

The segment is poised to comprise more than 30% of the country’s entire online retail business in 2020 : 

This scale dwarfs the social commerce industry in the U.S., which was worth about $16.5B in 2018 – a tenth of the size of the $170B industry in China. America’s social commerce subsector is also a much less significant component of its e-commerce market, and only made up 3% of last year’s total online sales.

Why social commerce thrived so quickly in China ?

A well-developed e-commerce ecosystem was a key reason. The internet market in China is the world’s largest, boasting 829 million users – or close to 60% of the country’s population – at the end of 2018.

What paved the way for the convergence of online shopping with web-based social networking ?

An important part of the e-commerce infrastructure is the nationwide logistics system, with low labour costs and concentrated urban consumption making possible speedy deliveries with incredibly low charges. The country’s tech giants are also racing to advance their own logistical networks with cutting-edge technologies, such as cloud computing and artificial intelligence. All these factors created a highly convenient environment for people to form a habit of shopping online …

The other side of the story is the rapid uptake of social media in China in recent years :

Despite western mainstream social media sites such as Facebook, YouTube, and Instagram being blocked in the country, China’s homegrown social platforms have been quite successful in gathering some 600 million users and over one billion active accounts. Together, this community forms a vibrant, fast-evolving landscape with room for innovation and diversification.

Take WeChat as an example :

This “super app” (an app that does everything for you) was first launched in 2011 as a WhatsApp-like messaging tool, but has gradually evolved to incorporate a story-sharing stream, an e-wallet, online shopping, financial management, charitable giving, gaming, taxi hailing, medical appointment booking, fitness tracking, and many more functions on one single platform.

Why online retailers swiftly embraced the “mini-programs” as a new and effective route to sell their products ?

Introduced in 2017, the mini-programs (xiaochengxu) are essentially sub-apps embedded in the WeChat app that can be accessed almost instantly and require no separate installation.  With the mini-programs, brands can set up e-commerce storefronts in the WeChat ecosystem, allowing customers to shop while they chat.

With the support of other WeChat functionalities, consumers are also able to move through their entire shopping journey, without having to leave the app … 

From acquiring product information, browsing offerings, communicating with customer service, making payment, and tracking their order, all the way to providing post-purchase evaluation.

The power of convenience is further multiplied by WeChat’s one-billion-strong user base. 

— Half of whom were not on the traditional e-commerce websites ! And as businesses rushed in to leverage that untapped market potential, the growth of social commerce through mini-programs exploded : gross revenue has been expanding at a quarterly rate of over 100% since 2017.

With the words of Xiaoting Maya Liu, in her publication “The Rising Tide of Social commerce – and Why China is leading It”, for the Asia Pacific Foundation of Canada.

Written by Policy Factory™

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