Staff Reporters
Nov 8, 2019

Rising e-commerce ad costs steer brands toward social commerce in China: WPP

TOP OF THE CHARTS: WPP's 'Content, Conversation & Commerce' white paper outlines best brand approaches for all-important social commerce scene in China.

Rising e-commerce ad costs steer brands toward social commerce in China: WPP

As Singles Day approaches, brand marketers in China are undoubtedly enduring sleepless nights as critical e-commerce campaigns roll out across China's digital networks.

Given China's high social media penetration rates and the rise of casual shopping, brand social commerce initiatives have become more crucial than ever before.

So on the eve of the big event, WPP China has released an in-depth report looking at the impact and best practices of China's social commerce scene. 

Noting China’s social commerce market is forecasted at RMB 2 trillion (US$287 billion) this year, with more than 48 million users and a growth rate of over 60% on-year, according to the Internet Society of China, fueled by e-commerce events like Alibaba’s Singles Day and the increased adoption of digital wallet usage within rural China.

"Chinese shopping habits differ from the rest of the world, due to the tremendous reach of e-commerce and high penetration rates of social media. With unique functions such as Key Opinion Leader (KOL) live-streaming, social activations, content sharing and referral selling, social commerce is challenging the status quo of traditional commerce,” said Patrick Xu, CEO of WPP China.

While WeChat's rapid user growth slowed down by 2017-2018, the GMV per active user continued to increase rapidly with its more than 1 billion active users by the end of 2018. 

Yet with figures below CNY 700 GMV per active user, these figures sit much lower than Tmall/JD/Kaola that each average above RMB 3,000 ($430), indicating plenty of room for social commerce growth on WeChat. Similarly, Xiaohongshu, a leading product curation platform, is steadily increasing its average GMV per active user, the report says, indicating social-driven purchases are progressively adding to e-commerce growth.

Some of the factors encouraging brands to focus on social commerce are cost-driven, including the rising operational costs of running e-commerce platforms (see below).

Meanwhile the cost of buying advertising on e-commerce platforms is also rising sharply, with paid media CPMs rising 286% between 2015 and 2018, leading brands to look for alternatives, like leveraging user-generated and promoter-generated content.

Social commerce approaches

So with more incentive to turn to social commerce approaches, what are brands' main options? The report outlines six of them: vertical content, KOL product launch, group buy promotions, gifting driven occasions, membership-driven purchases and new retail.

The report says brands should choose their approach according to their product category, brand maturity and product availability.

"Brands need to find more efficient ways to connect with consumers. A strategic approach using data and technology would allow brands to tap into the full benefits of social commerce. Should brands rely exclusively on ‘classic’ commerce activities for growth, they may risk long-term brand equity in exchange for short-term gains," said Xu.

Meanwhile, new entrants like Little RedBook and Douyin are looking at how to capitalize on their audience growth by linking user growth to purchasing power, the report says. It adds marketers will have to see how they can best leverage both of these platforms to either help create awareness or support penetration of new products within lower-tier markets. Yet while there is some evidence of success these platforms require more careful monitoring for now.

Among the report's other key learnings:

The 'now' consumer is here. These are shoppers who are quick to browse, bookmark products and buy. Chinese consumers today are better informed and feel more empowered about their purchase decisions. A recent Kantar survey found that consumers’ insights are most effective in influencing purchase decisions. Consumers are more trusting of knowledge that is self-sourced, especially those based on other users' reviews. 

New ways of interaction. The 'now' consumer follows trends and has unplanned brand experiences and retail interactions. They can be shopping while at home, at work, on the go, or just before bedtime. In fact, it is this behaviour that is driving the need for new approaches to planning social commerce.

Social-first customer conversion. Brands are challenged to go beyond traditional marketing strategies. From a desire to buy to making an actual purchase, the customer conversion process now has to be augmented by social-first approaches. These include user-generated and promoter-generated content (UGC/PGC) and live broadcasting. Social commerce channels have had a late start but they are steadily catching up. Wechat Commerce has grown seven-fold since 2014, while other platforms like Pinduoduo has doubled its sales in just two years.

Measurable customer ‘voice’. User reviews are verbatim and customer ‘voice’ measurable on e-commerce channels. Such feedback better informs brands on how to build their content and messaging strategy to impact sales conversion. Through these, brands are also rewarding consumers for their referrals and for being brand advocates.

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