Traditional e-commerce is outdated, as well as social networks. A new trend has emerged in China and is now spreading abroad. It is social commerce: the format that is changing how we do and conceive shopping
Over the past three years, social commerce has boomed in China. Over 80% of online shoppers purchase their products through this kind of online commerce, posing a threat to traditional e-commerce players like Alibaba and JD.com.
According to a report released by China Internet Watch (CIW), the market size of China’s social commerce sector is expected to reach $302 billion in 2019, an increase of 63.2% year-on-year. Moreover, its gross merchandise value is expected to continue the fast growth and exceed $181 billion in 2019 and $400 billion in 2021.
The data compiled by CIW report that the annual growth rate of social commerce companies is 100.6% with an 11.9% increase in their penetration rate. With a growing penetration rate of mobile phones and the internet in the Middle Kingdom, social e-commerce’s explosion in the country is increasing and it could change the balance between China’s major e-commerce giants.
But what is social commerce and how did it manage to gain so much popularity in the Dragon?
© Unsplash. E-commerce in China is an entertaining and engaging experience. Therefore, social commerce’s strength is that it combines online shopping with social media features.
Social commerce is a direct result of the recent drastic change in Chinese consumers’ behavior. Indeed, with the rapid penetration of smartphones into Chinese lives, many aspects of the daily activities have changed and the one that changed the most is how they do and conceive purchases. What we knew as e-commerce – an act of purchase by the user who chose to buy through an online platform – is now changed into a social activity closely linked to social networks.
This new way of doing online shopping can no longer be defined as e-commerce. Today we talk about social commerce or conversational commerce, a “hybrid” that comes from the combination of social networks, messaging applications, and shopping platforms. In particular, in China, it means getting in touch with people who share the same interests rather than just an act of purchase. Online shopping is thus perceived as a way of doing social engagement.
The pervasive use of smartphones among mainland China’s population is a key factor enabling social commerce. “Almost everybody has a smartphone now and shopping is not only cheap but fun,” said Shaun Rein, the managing director of China Market Research Group.
This new form of online shopping is getting so popular that a report issued by the Internet Society of China and Chuangqi Social Commerce Research Center reveals that the sales revenue from social commerce platforms will account for 20% of the country’s online retail market this year. And this proportion will amount to more than 30% in 2020. According to this report, the number of people engaged in the social commerce field is expected to reach 48.01 million in 2019, up 58.3% year-on-year. Experts thus claim social commerce has definitely become a driving force of the booming e-commerce sector.
As mentioned before, social commerce platforms combine both social media features and e-commerce options. Therefore, the social networks that integrate e-commerce features and those marketplaces that combine social elements into their sales processes, they all belong to the social commerce landscape.
Tencent’s WeChat belongs to this landscape since it responds to the users’ need for social engagement with the development of a communication-based ecosystem. This is the first to have created a real system of conversational commerce, a term coined by Chris Messina to define this hybrid of messaging and shopping.
However, besides WeChat, there are some other Chinese applications that are less popular in the Western world but that represent the real forerunners of social e-commerce as we now know it. These are Pinduoduo and Xiaohongshu.
© 123rf. Although Taobao and JD.com are still the e-commerce market leaders, Pinduoduo is the app that benefits from the highest loyalty rate.
Pinduoduo is the fastest-growing e-commerce app in China’s history. Founded in 2015 by a former Google engineer, Colin Huang, it has been China’s third most popular shopping app since July 2017 thanks to a platform that combines social interactions and elements of social media. However, today, Pinduoduo’s daily active users have outnumbered JD.com’s for at least the past 12 months, turning it into China’s second-biggest e-commerce company by the number of users.
The company’s name can be roughly translated as “buy more together” and it, in fact, allows users to participate in group buying deals. The consumer can buy an item at full price or get a discount if he invites other people to join the purchase. It is much more than a simple digital marketplace and is the perfect example of Chinese social commerce.
Therefore, Pinduoduo allows consumers to form groups or take part in existing ones, to purchase an item for a discounted price. Moreover, like many other successful e-commerce platforms, Colin Huang has built a complete ecosystem of short-term-coupons, red envelopes, lotteries, and free products in exchange for sharing.
All these options work as an incentive to lure friends to buy a certain product but also encourage more social engagement among users. Pinduoduo has thus developed a system that makes the most of the sharing-with-friends potential, creating a viral environment.
Another example of social e-commerce that is successful in China but less known in the rest of the world is Xiaohongshu, literally Little Red Book, founded by Charlwin Mao in 2013. It started as a community for like-minded users who share their advice and recommendations on various products by using photographs or video content. However, it has soon become a place where potential customers could look for shopping tips, before turning into a real marketplace.
Currently, this app ranks first among cross-border shopping apps and mostly attracts women aged 18 to 35 who want to buy luxury products from overseas, discover new trends, exchange shopping tips and share their shopping experiences. According to the data on the website, Xiaohongshu reached more than 200 million registered users in January. But above all, it has set a model that owns a high imitation rate by foreign platforms.
Both Pinduoduo and Xiaohongshu, have their platforms linked to Chinese social media networks, such as WeChat, QQ or Weibo, where users share posts or invite their friends. But their social commerce model is not the only one in China. Video streaming platforms like iQiyi now work as social commerce platforms and this trend is taking off both in China and abroad.
“The potential of social commerce is huge because people like to buy what their friends recommend. Increasingly, in China’s e-commerce landscape, people don’t know what sales channel to trust, but if they see their friends purchasing things on social commerce sites they are more likely to buy,” said Rein.
© Unsplash. Chinese social commerce helped to shape a brand-new online shopping trend, which is now witnessing a high imitation rate by foreign companies.
The trend of mixing social activity and shopping is just at its early stages but it is already changing how online buyers shop online. Today’s consumers, who have become multitasking and interactive, no longer stop at the single act of purchase but evaluate the experience that is created around them wherever they are and whatever device or means they use.
Therefore, they now demand more personalized purchasing experiences, especially since Chinese digital activity is so integrated into people’s lives that many online services are not only communicating but also blended together, satisfying every need with an omnichannel strategy.
The growing enthusiasm for social commerce is going to drastically grow in the future as also worldwide users now start to express interest in this kind of e-commerce.
Social commerce has thus spread far beyond national borders. Today, even the most popular social networks, as well as major e-commerce websites, are striving to merge entertainment, social engagement, and retail into a single platform. Some more successfully than others.
From Facebook to Taipei’s HandsUP service, the Chinese way of doing e-commerce is setting a model that other countries are trying to copy. However, foreign attempts not only come slowly but also have a less social impact.
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