What’s the buzz with social commerce?

BY JAMES WILLIAMSON

Shopping directly via social media platforms - social commerce - has been popular in China for a decade and is set to become hugely popular in the US and other countries, including Australia. It’s a massive change in how consumers interact with brands and how it will shape their shopping experience.

Picture this: A flagship store on TikTok hosts a two hour live shopping event that brings in over a week’s worth of sales. Instagram interactive live streams get 40,000 comments. Augmented reality lenses sold by Meta (see image below) allow users to try on make-up and send the pictures to friends.

Augmented reality (AR) presents new opportunities for companies and customers.

source: Meta

New school vs. old school

‘New school’ social commerce contrasts with ‘old school’ e-commerce. Social commerce is where digital consumers review, ‘try on’, talk about, and ultimately buy products through social media and content creation platforms. On an all-in-one app. Social commerce removes friction from the buying process because the consumer journey is engaging, fast, influencer-centric, purely digital, and critically, gives brands new opportunities to sell products and connect with consumers.

The numbers tell the story. By 2025, social commerce is expected to grow to nearly US$80 billion or 5 percent of total US e-commerce, as the chart below shows. The global social commerce market is expected to grow to more than $2 trillion by 2025. These big numbers will just get bigger.

Already hugely popular in China, social commerce remains a small but rapidly growing segment in the US.

source: McKinsey

Too lucrative to ignore

Social commerce isn’t just Facebook, Instagram, and TikTok. It’s now on all social media channels. Why? Because social media’s segmented, captive, highly digital audiences are just too lucrative an opportunity for brands to ignore. The social commerce honeypot will be a key driver of business revenues in the coming years because Gen Z and Gen Alpha consumers assume their buying experience will be omnichannel (a multi-channel approach to sales to provide consumers with a seamless shopping experience).

Leading brands are working with platforms like TikTok to forge new relationships with consumers. Traditional advertising has shifted to generating content that’s more fun and less promotional. This is where influencers and micro-influencers come in. For example, a celebrity might show you their skincare routine and the branded product you can buy on the platform, be it TikTok, Instagram, YouTube Shopping, or others. Or a sports star might wear their favourite runners in a ‘one on one’ game on the community court, shared on YouTube Shopping.

Live stream takes centre stage

Live stream shopping will generate US$480 billion in China this year. This format provides a digital shopping experience via real time 3D commerce feedback loops between consumers and retailers, sometimes with their favorite influencers. Digitally-native generations want brick-and-mortar-style interaction without the bricks or the mortar. Many live stream retailers are the influencers they watch, which adds more value to the 3D commerce market. Live stream will continue to boom as TikTok, Pinterest, Facebook, Twitter and Instagram up their shopping output to cash in on consumer interest. Fashion, beauty, fitness, and home decor are at the vanguard and home improvement is showing growth. It’s surely a matter of time before services join the live stream trend.

5G changes consumer realities

The rollout and developments of the 5G network will make 5G itself an innovation platform for e-commerce and social commerce opportunities. Seamless, frictionless consumer experiences are enabled by 5G and facilitate trust. The goal is to provide enriched, high quality content in reality and extended reality spaces. eMarketer estimates that the number of augmented reality users will grow from 83 million in 2020 to nearly 102 million people in 2022 in the US alone.

Why is social commerce such a hit in China?

Social commerce has taken off in China because brands have forged partnerships with popular social influencers and participated in live stream shopping. This has been effected through the instant buying of featured products and audience participation via chat or react buttons. Conversion rates for brands are about 30 percent on social platforms. Chinese consumers spend about US$352 billion - 13 percent of total e-commerce - on all social commerce.

Creator content, product discovery, community sharing, and digital-payment infrastructures are all integrated into a seamless one-stop-shop Chinese digital universe.

Social commerce in the US

Social commerce represents an entirely new revenue stream for platforms in the US. By collecting a share of each transaction, platforms can increase their average revenue per user. While growth in the US is not like that of China, for various reasons, in the past few years US social and creator platforms have rolled out an array of social commerce capabilities: Pinterest, Instagram Live Shopping, TikTok Shopping, YouTube Shopping, Twitter Shops, Twitch, and Amazon Live.

Too big for US brands to ignore

Social commerce, already a US$36 billion market, is too big to ignore and could be the best channel for US brands. Social commerce merges marketing and retail channels into a single universe. Brands can thus work with social and creator platforms to better align marketing spend and customer sales, making ad spend more efficient and accountable.

But brands face challenges with social commerce. A key challenge is that the consumer journey stays on the social platform, rather than on brand-owned channels as with ‘traditional’ e-commerce.

Another issue is that brands not adapting to social commerce may miss out on where most of the digital spending will be over the next few years. To be a social-commerce leader and gain share in the digital marketplace, brands should consider some or all of the following strategies: 1) develop a holistic influencer marketing strategy 2) watch for platform winners 3) move to brand-led (social media) accounts 4) add a brick-and-mortar element 5) build a new customer journey 6) anticipate and partner with new creator brands 7) build global capabilities by experimenting in the Chinese market.

Brands must act now

The consumer wallet will follow social and creator platforms as they move rapidly to incorporate innovative buying options. Brands that fail to understand this transformed customer journey, or don’t acknowledge that their traditional website-based channels will lose market share to smaller social commerce-centric brands, will be devalued. Brands therefore need to adapt today with a holistic strategy for influencer partnerships and social-first content.

references: McKinsey, ProductsUp