social commerce

The Rising Tide of Social Commerce – and Why China is Leading It

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. 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.

This trend manifests itself nowhere better than in China, the world’s largest e-commerce market where consumer-oriented innovations are developing at a breakneck pace. Having grown to a RMB1.2T (C$227B) business in the first four years since its emergence around 2015 [1], China’s social commerce subsector already accounted for 14% of China’s RMB9T online retail sales in 2018 [2], serving more than 300 million shoppers [3]. Social commerce has become the most powerful beyond-just-sales channel that no business in China can afford to ignore.

What is social commerce?

A relatively new stream of e-commerce, social commerce is 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.

Whether the engagement happens directly with a person you know or around a key opinion leader (KOL) you follow, the social, interpersonal connection instils trust and a sense of community in the process of shopping, allowing brands to more accurately reach their targeted pool of consumers and successfully encourage repeat purchases.

Some analysts see social commerce as the digital-age version of “fission marketing,” the strategy of using customers to generate more customers [4]. To others, social commerce relates more to the attention-grabbing concept of “new retail” proposed by Alibaba’s Jack Ma, since both models feature an alignment of the consumer’s online and offline experiences. To be sure, 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.

China gets ahead of the game

Social commerce, known as shejiao dianshang (literally “social e-commerce”) in Mandarin, took shape 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.

According to the Internet Society of China’s recent forecast, the segment is poised to comprise more than 30% of the country’s entire online retail business in 2020 [5]. This scale dwarfs the social commerce industry in the U.S., which was worth about C$22B in 2018 – a tenth of the size of the C$227B 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 [6].

A well-developed e-commerce ecosystem was a key reason social commerce thrived so quickly in China. 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 [7]. But what really makes China’s case interesting is the overwhelming 98% of internet users who connect through mobile devices, thanks to the prevalence of affordable and fairly competent smartphones in the country [8]. The almost ubiquitous mobile payment tools and QR (quick-response) codes – the square-shaped barcode that can be read by image scanners such as a smartphone camera to access stored information in the code – in China also facilitate quick and easy transactions and transfer of information, prompting consumers to make more purchases than before.

Another 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, paving the way for its convergence with web-based social networking.

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 [9]. Together, this community forms a vibrant, fast-evolving landscape with room for innovation and diversification. Chinese social media channels often strive to be multi-functional, and are designed to be mobile-focused.

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. 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. Online retailers swiftly embraced them as a new and effective route to sell their products. 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 – from acquiring product information, browsing offerings, communicating with customer service, making payment, and tracking their order, all the way to providing post-purchase evaluation – without having to leave the app. 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 [10].

In time for the rise of next-generation consumers

Undoubtedly, the younger generation of Chinese consumers is leading the rise of social commerce. China’s consumer market is experiencing a radical generation shift. Shoppers born after 1980, 1990, and even 2000 have emerged as the most prominent force driving consumption in the country. According to Boston Consulting Group’s estimation, people age 35 and younger, who are members of the several hundred million Chinese millennials and Generation Zers, are poised to account for 69% of total consumption by 2021 – a ratio hardly matched by the same consumer segment in any other country [11].

Youth in China also have a strong preference for, and even a reliance on, using social platforms for their daily spending. According to a survey conducted by iiMedia, 77.3% of all social commerce users are younger than 35, with those under 24 years old alone making up 35.7% [12]. These digital natives are looking for high-quality products, brands with a story that resonates with them, and one-of-a-kind shopping experiences that seamlessly blend into their techy lifestyle – inspirations of which social commerce is well positioned to fulfil.

Canadian brands fitting into the scene

Although the concept of social commerce may still seem to be foreign to the majority of Canadian retailers and consumer-facing merchants, a number of them have done a good job jumping on the bandwagon in the Chinese market. Athletic apparel retailer Lululemon, known for its well-tested experiential marketing with loyalty-enhancing offline events, added the social commerce layer to its community-building efforts in China. With the country’s burgeoning young, wealthy, and wellness-conscious urban population, Lululemon’s strategy of hiring “yogi” KOLs as brand ambassadors to reach its targeted customers worked even better in China. Showroom visitors and workshop attendees passionately use social media to talk about their experience, and connect within their niche but cohesive community.

Leveraging this online and offline synergy, Lululemon regularly shares tailored content with its friend-like followers on WeChat and links in the shopping function through its mini-program storefront to convert sales. Such strategies allow the brand to maintain a strong presence not only in its customers’ offline activities but also in their digital lives.

Another example is Toronto-based skincare company Deciem, whose brand The Ordinary rose to popularity in China for being frequently mentioned on China’s female-millennial-populated social commerce app RED (Xiaohongshu). RED is one of those content-focused social commerce platforms where many KOLs share product recommendations and beauty tips by posting photos and videos. Positioned as a storytelling and experience-sharing platform, it became extremely successful in forming communities for credible information acquisition, thereby incentivizing purchases.

The Ordinary labels itself as a brand that keeps its products affordable by not “wasting money” on marketing campaigns – a unique story that easily appeals to RED users. Word of mouth perfectly fills in the marketing void for the brand, and the easy-to-use commerce function of RED helps drive sales, even though Deciem has yet to physically enter the Chinese market.

While the online retail market has been expanding in Canada over the past several years, its progress has been slow, due in large part to our dispersed population. A staggering 40% of internet users in Canada are to some extent uncomfortable with making digital purchases [13], and for those who aren’t, almost 50% of their purchases are on non-Canadian websites [14]. In addition, many Canadian companies, especially our micro, small, and medium-sized enterprises, are not embracing e-commerce as much as they should, as pointed out by the Globe and Mail [15].

Even though some of the favourable market conditions that give impetus to social commerce in China may not be present here, Canadian e-retailers should definitely pay closer attention to the development of social commerce in China and other markets, and consider experimenting with feasible ways to leverage the digital disruptions and power of social networks to better appeal to their consumers at home and abroad.

Endnotes:

[1] Lijuan Yu et al., 2019 Social E-Commerce in China Industry Development Report (Beijing: Microbusiness Working Team, Internet Society of China and Chuangqi Social E-commerce Research Center, 2019), https://www.sohu.com/a/331588486_227320?spm=smpc.author.fd-d.1.1565118971895ipulAlM.

[2] Ibid.

[3] 2018 Social Commerce Retrospect and Prospect (Shenzhen: Forward Business Information Co., 2019), https://bg.qianzhan.com/report/detail/1903041813162935.html [Translation by the author].

[4] 2019 China Social E-Commerce Industry Research Report (Guangzhou: iiMedia Research Inc., 2019), https://www.iimedia.cn/c400/64206.html [Translation by the author].

[5] Lijuan Yu et al., 2019.

[6] Daniela Wei and Shelly Banjo, “The Future of Shopping Is Already Happening in China,” Bloomberg Businessweek, ‎April‎ ‎24‎, ‎2019‎, https://www.bloomberg.com/news/articles/2019-04-24/china-s-gen-z-skips-the-stores-and-shops-on-social-media.

[7] The 43rd China Statistical Report on Internet Development (Beijing: China Internet Network Information Center, 2019), http://www.cnnic.cn/hlwfzyj/hlwxzbg/hlwtjbg/201902/P020190228510533388308.pdf.

[8] Niall McCarthy, “China Now Boasts More Than 800 Million Internet Users and 98% of Them Are Mobile,” Forbes, August 23, 2018, https://www.forbes.com/sites/niallmccarthy/2018/08/23/china-now-boasts-more-than-800-million-internet-users-and-98-of-them-are-mobile-infographic/#4db4783f7092.

[9] “Digital in 2019: China,” We Are Social, accessed August 6, 2019, http://wearesocial.cn/digital-2019-china/.

[10] Tingyi Chen, “WeChat Social Commerce Report 2018,” Walk the Chat, September 30, 2018, https://walkthechat.com/wechat-social-commerce-report-2018/.

[11] Jeff Walters et al., Five Profiles That Explain China’s Consumer Economy (Hong Kong: Boston Consulting Group, 2017), https://www.bcg.com/en-ca/publications/2017/globalization-accelerating-growth-consumer-products-five-profiles-that-explain-chinas-consumer-economy.aspx.

[12] 2019 China Social E-Commerce Industry Research Report.

[13] 2018 CPA Canada Fraud Survey Backgrounder (Toronto: Chartered Professional Accountants of Canada, 2018), https://www.cpacanada.ca/-/media/site/operational/mr-media-releases/docs/mr-2018-0306-cpacanada-fraud-survey-background.pdf?la=en&hash=B9AA8BA48E1D400E663457A297155245AC397D08.

[14] Hollie Shaw, “Nearly Half of Online Purchases in Canada Made at Foreign Retail Sites: Report,” Financial Post, March 22, 2017, https://business.financialpost.com/news/retail-marketing/nearly-half-of-online-purchases-in-canada-made-at-foreign-retail-sites-report.

[15] Qasim Mohammad, “Canada’s E-commerce Ecosystem Continues Its Rise,” The Globe and Mail, July 10, 2018, https://www.theglobeandmail.com/business/commentary/article-canadas-e-commerce-ecosystem-continues-its-rise/.

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