As no small number of sectors of the economy struggle for survival in the sudden, new reality that has been born as a result of the COVID-19 virus outbreak, e-commerce is being met with massive demand, furthering an already-in-process shift from brick-and-mortar retail to digital operations. With consumers across the globe confined to their homes, many have become increasingly reliant on online shopping, and in certain respects, this demand is coinciding with – and in many cases, prompting – significant innovation by brands and retailers. Look to China, for instance, where traditional online shopping is swiftly becoming a thing of the past. Even before people were forced to shelter in place, and spend more time at home, two key trends were already radically changing the e-commerce landscape: social buying and live commerce.
By adding entertainment into the mix of the traditional online buying experience, Chinese e-commerce giants – such as Alibaba, China’s largest e-commerce company, and PinDuoDuo (“PDD”), the country’s second largest e-commerce entity with a valuation of just under $40 billion, which makes it worth more than eBay or Twitter – are actively revamping the way that consumers shop.
The meteoric rise of PDD, which was founded in 2015, has taken many by surprise. Within two years of its launch, the Shanghai-headquartered company had attracted 200 million active users, and had garnered a valuation of $23.8 billion when it made its debut on the U.S. stock market in July 2018. Behind the success of the NASAQ-listed giant? A community-centric shopping experience, in which consumers can buy a product immediately at a market price, or … they can enjoy lower prices by inviting their contacts through social networks to form a joint purchasing team. The more people they can get to sign up, the larger the discount they will enjoy – with discounts sometimes reaching as high as 90 percent.
PDD’s relatively novel approach to retail has prompted comparisons to Groupon. However, unlike Groupon, which made its name by offering limited-time discounted gift certificates to consumers before falling on hard times as it struggled to convince people to register and download its app, PDD had amassed nearly 420 million active buyers and 135 million daily active users as of last year, and was still growing in large part thanks to its practice of tapping into the almost one billion people already using the Tencent-owned WeChat messaging app. (Tencent is PDD’s principal shareholder).
“By sharing PDD’s product information on social networks such as WeChat and QQ, users can invite their contacts to form a shopping team to get a lower price for their purchase,” TechCrunch previously reported. “The mechanism keeps the users motivated and better hooked for a more interactive and dynamic shopping experience.” Add in “other incentives, such as cash, coupon, lottery and free products, and PDD manages to acquire users at a very low cost,” and keeps them engaged by providing “a viral sensation in China.”
While tech media outlets have compared PDD – whose tag line is “Together, more savings, more fun” – to Groupon due to its savings-centric model, Colin Huang Zheng, the former Google engineer who launched PDD just five years ago, describes the company’s business model differently. He calls it “a combination of Costco and Disneyland.” For him, at the core of the company’s success if the social element. After all, the Chinese word pīn (the first part of the company’s name) means to group “together,” a reference, according to Zheng, to the company’s larger goal of providing consumers with more than merely discounts but a social shopping experience.
The company aims to connect its hundreds of thousands of users by offerings discounts to groups of users, as opposed to individual shoppers, and rolling out competitions to engage users in a community setting.
Live Commerce: Infomercials rebooted
Elsewhere in the highly competitive Chinese e-commerce market, Alibaba is revamping the dated infomercial model. Infomercials are a long way from their heyday in the 1970s, existing only on fringe cable channels nowadays, trying to sell items few people need, typically fronted by D-list celebrities. The format is in desperate need of a makeover – and once again, China has offered it by way of live commerce, the convergence of live steaming and e-commerce, which has become very popular with Chinese consumers. During China’s Singles’ Day festival last year, for instance, Alibaba’s Taobao Live event contributed around 20 billion Yuan ($2.86 billion) gross merchandise volume, or about 7.5 percent of the company’s total sales.
According to Chinese financial services firm Everbright Securities, the live commerce market was worth 440 billion Yuan ($63 billion) in 2019, a 220 percent increase on 2018. Around 25 percent of consumers are daily users, while 71 percent watch a live commerce event at least once a week, according to research from iiMedia. Interestingly, the live commerce sales conversion rate is much higher than traditional content-driven platforms. Recent evidence suggests that the popularity of live commerce in China has increased during the COVID-19 crisis as people stay away from shops and showrooms.
Live commerce in China is celebrity driven, not by traditional stars of film or television but largely by online celebrities. These include Austin Li “the lipstick king” (who has 22.1 million followers), and Viya (who has 18.1 million followers). While boasting their own fanbases, from time to time they invite celebrities to join them: in November 2019, Viya welcomed Kim Kardashian-West, who took only a few minutes to sell 15,000 bottles of her KKW-branded perfume.
But this approach us not limited to cosmetics and fragrances; it can also sell high-value items like cars. In one live event featuring Geng Shuai, a kitsch creator, the hosts engaged with 4.5 million viewers and sold 1,623 cars in two and a half hours.
Live commerce hosts use limited-time discounts to encourage quick orders, often with a limited number of products available to increase the sense of urgency for shoppers. Prizes and giveaways are also a popular way for hosts to engage with viewers, with some famous figures giving away products worth tens of thousands of dollars.
Despite the boom in Asia, live commerce has proven slow to catch on in the West, where, for the most part, livestreaming focuses on gaming via platforms such as Facebook or Twitch. Amazon, for instance, launched its Amazon Live, but it lacks many interactive features and has, so far, failed to meaningfully connect with consumers. Meanwhile, Tommy Hilfiger is dipping its toes into livestream events. Proving ahead of the game, the New York-based brand announced recently that it will stage a live shopping event to cater better serve the modern consumer, particularly in light of the COVID-19 pandemic.
Hilfiger, himself, says that “over the past 35 years, engaging with consumers by creating experiences that surprises and excites them has been at the core of what we do. Today we must push our ‘see now, buy now’ philosophy even further to stay relevant with where, when and how consumers want to experience fashion.”
Behind China’s booming e-commerce sector (and some burgeoning efforts in the West) are evolving tools and services that are radically changing online shopping by making it more exciting for the Chinese buyer. Against this background, there is an opportunity now for Western companies to refresh their approach to online shopping.
Jialu Shan is a Research Associate at Global Center for Digital Business Transformation at the International Institute for Management Development.
Michael Wade is a Professor of Innovation and Strategy and the Cisco Chair in Digital Business Transformation at the International Institute for Management Development.