By Franklin Chu, Azoya USA
For a preview of where retail is headed, retail companies in the U.S. and
other Western countries can look to China’s booming market.
Pervasive social media platform WeChat has
attracted an astounding 1 billion daily active users. The platform
signifies seamless, unified and convenient omnichannel retail service. That’s
because it integrates product search, influencers, social commerce and mobile
pay, plus WeChat is growing its e-Commerce ambitions with the booming Mini
Program.
Advertisement
Learn how WeChat
represents the future of retail — and how foreign retailers and brands can win
by using it.
On June 29, after just three years of operations,
upstart e-Commerce platform Pinduoduo submitted an SEC filing to go public on
the NASDAQ stock exchange. A relative newcomer to the Chinese e-Commerce industry,
Pinduoduo now boasts nearly 300 million registered users and generated more
than US$30 billion in GMV in 2017. Its meteoric rise has stunned industry
insiders and forced traditional players such as Alibaba and JD.com to reexamine
their own business models.
Core to Pinduoduo’s success is its social commerce
approach and its leverage of WeChat’s mini-program function, which Internet
giant Tencent rolled out at the beginning of last year.
What Is
Social Commerce?
Social commerce is an evolved form of e-Commerce,
in which platforms rely on current users to “activate” potential users by
sharing promotions and items with them, essentially decentralizing the user
acquisition process. Users are incentivized by steep group-buying discounts and
game-like campaigns that make sharing fun and interactive. In the U.S., brands
may give discounts to customers who share via email, Facebook or Instagram, but
the single-function nature of Facebook News Feed, Facebook Messenger, and
Instagram makes the process less interactive, so social-based commerce still
hasn’t taken off in the U.S. like it has in China.
A prime facilitator of social commerce in China is
WeChat, specifically its WeChat mini-program function. Approximately 65% of
Pinduoduo’s transactions are completed through its WeChat mini-program, which
enables users to share products and make purchases without having to switch to
another app. Mini-program pages are limited to a size of 1mb each and integrate
with WeChat Pay so users can carry out transactions quickly. Users in smaller
cities tend to use cheaper phones, so mini-programs are better suited for this
user base.
For example, on Pinduoduo, a merchant may offer
two prices for, say, a rice cooker. It could be priced at 300 RMB ($45 USD) for
individual customers, or at 200 RMB ($30 USD) for customers that pull in
another user to make a purchase, also for 200 RMB ($30 USD). This promotion can
be shared on WeChat with another friend or family member, thus reaching a potential
customer who didn’t intend to purchase a rice cooker in the first place. This
strategy has proven to be especially effective in smaller Tier 3 and 4 Chinese
cities, where users are more price-sensitive and make less frequent purchases.
Social
Commerce Resolves Pain Points For Merchants In A Saturated Market
Social commerce has provided a solution to
bottlenecks that have arisen from slowing e-Commerce growth in China. With
traditional e-Commerce, users generally log on to a platform with an existing intent
to purchase a certain product or brand. The search function plays the core role
in connecting users with products, and merchants pay to access user traffic
through ads or discount promotions. However, as more and more brands sell
products through marketplace platforms, the market becomes increasingly saturated
and traffic becomes more expensive to access as brands bid up advertising
costs.
Social commerce provides a remedy to this problem
by opening up a new, decentralized avenue in which customers can discover
products through trusted friends and family. Since China e-Commerce is rife
with cases of fraudulent and shoddy goods, many consumers have grown to suspect
the authenticity of online products. Customers are much more likely to purchase
goods recommended by family and friends, and WeChat is instrumental in
facilitating the sharing process. 50% of Chinese customers are willing to
purchase products recommended by friends and family, according to a report on
cross-border e-Commerce by Frost & Sullivan and Azoya Consulting.
In addition, international brands and retailers also
can set up their own WeChat mini-programs and create unique campaigns and promotions
with which they can build customer loyalty. This may finally even the playing
field between brands and marketplace platforms, which raise the bar higher and
higher for brands who want to list their products on them.
Why U.S. Retailers Should Care
Pinduoduo is a prime example of how social
commerce, facilitated by WeChat mini-programs, is revolutionizing the
traditional e-Commerce industry by changing the way brands and consumers
interact with each other. Going forward, e-Commerce will become more
interactive and an ever-present aspect of Chinese social media. As U.S.
retailers continue to struggle in the face of falling foot traffic and
increased online competition from the likes of Amazon, they need to devise new
ways of connecting with their end customers. Infusing a social element into
one’s e-Commerce strategy could be just what they need to revitalize their
online business, and the way Pinduoduo has been able to do this in the China
market provides a useful example of how retailers can do this.
Franklin Chu is Managing Director U.S. for Azoya USA, a provider of turnkey cross-border e-Commerce solutions to
assist retailers looking to expand into China through a cost-effective and
lower risk method. To date, more than 35 retailers in 11 countries are
partnering with Azoya to expand into China with ease, including French fashion
retailer, La
Redoute, Australia’s largest
pharmacy group, Sigma, Europe’s largest online beauty retailer, Feelunique, and United States premier retailer of juvenile products, Babyhaven.
