E-commerce operation: social e-commerce mechanism design rules

Mechanism is the core of the social e-commerce model. There is a saying that "any brand in this era is worth doing again using the Internet method", so the distribution method on the Internet is a topic that can never be avoided. In this article, I will explain my understanding, thinking, and summary of the mechanism, hoping it will be helpful to everyone.

I. Important Prerequisites of the Mechanism

1. The importance of mechanisms

Regarding the design of the social e-commerce mechanism, it is no exaggeration to call it the core of the core. A platform with good mechanisms may not necessarily succeed, but it will definitely not succeed if it has bad mechanisms.

Why do you say that?

For example, in 2018, when a top domestic comprehensive e-commerce platform was preparing to enter the social e-commerce market, a friend talked to me and said that the platform was preparing with a core team. During the conversation, he believed that with the platform's huge traffic and product resources, it would definitely become a leader in the industry. I just asked whether there was a threshold, and the answer seemed to be no. I said, it’s impossible to do it.

Although my friend doesn't believe it, it is true - the platform first launched a free model, but the effect was very poor and it did not achieve the growth target; half a month after it went online, it iterated into a paid model, which means there is a threshold for purchasing gift packs. The paid model and free model of this platform have also been operated in parallel for a long time, and the result is that the growth effect of the paid model is much better than that of the free model; therefore, the design of the mechanism directly determines whether the growth engine of the model is effective. The specific growth and compliance analysis of the mechanism will be elaborated in detail later.

2. Limitations of the mechanism

The mechanism also has its limitations, it is not everything. Some people ask, if the mechanism is so important, will a good mechanism definitely lead to good growth? The answer is no.

First of all, there is no absolutely good mechanism, only a mechanism that suits your own platform. The first bottom line of a good mechanism is compliance, and the second is to be suitable for your own platform. The mechanism design must match the platform's seed users, overall user profile, and products.

If you adopt the WeChat business hoarding mechanism, it means that the platform will be able to ship better, which can bring high sales and gross profit margins, but this requires a high threshold, which means that the audience will be more niche; if the seed users of your platform itself are more popular and suitable for a low-threshold, no-hoarding model, such a mechanism can allow the number of people to grow rapidly, but it also means that the quality of small B users that come with the low threshold will not be high.

In short, there must be a balance, it must match the target user profile, or the startup user profile, and it must match the products being sold .

Secondly, the mechanism is only a means of growth and falls under the category of marketing. In addition to marketing, the most important thing for a good business is the product itself, which is like the two wings of an airplane. The left wing is the product and the right wing is marketing. Both are indispensable. This is also one of the reasons why a large number of social e-commerce companies grew rapidly and then declined rapidly.

The mechanism can only help it grow, which is a way of playing with traffic; any model that takes traffic as its core competitiveness is just a hot business. If we look beyond five years, it all comes down to whether the products and services have brand value, whether they are sufficiently differentiated to stand out from competing products, and whether they give users sufficient reasons to buy here rather than elsewhere. The product itself is the key to whether this model can last in the long run.

This is also why, starting last year, all major social e-commerce platforms have begun to move towards building their own brands, building their own brand products through OBM or ODM, moving from a joint distribution system to brand building, and shifting from strong marketing to focusing on both marketing and own products.

II. Core issues of the mechanism

The core issues of the mechanism are two: one is growth, and the other is compliance.

There is no doubt about the growth potential. Everyone’s curiosity about the mechanism stems from what can achieve rapid growth. However, only those who really work on the mechanism know that what is more important is compliance, or more precisely, how to strike a balance between growth and compliance. Because you will find that there are some links where the two are contradictory.

1. Mechanism growth

The charm of social e-commerce lies in the fact that timely positive feedback and long-term easy-to-earn goals can be met.

Both are indispensable. If there is a lack of timely positive feedback, most people will not be able to delay gratification and will fail at the first step of action. If there is no long-term goal of making money while doing nothing, most people will not persist, because human nature is lazy. Everyone hopes to have "income after sleeping". If this need cannot be met, many people will not be able to persist during the action.

2. Having a threshold is better than having no threshold

The threshold is very important. For example, if you want to make money, the minimum threshold this year is 1565. In my opinion, the 1565 is not only for profit, but more importantly, it is to screen out a group of right people through the 1,000 yuan threshold. The threshold plays a very important screening role for the community.

Back to social e-commerce, the threshold has the following two functions:

First, the reward effect of the threshold. The threshold directly rewards fissioners and is the primary driving force for growth.

Second, the screening function of the threshold. Just as high-quality communities require high entry fees, the threshold of social e-commerce also has a screening effect. The thresholds in mechanism design also help you screen out a group of people who become role models and leaders of the community. The leader of the community directly determines the quality of the community and its continuous fission growth.

The first point about the reward function of the threshold is actually very easy to understand. Setting a threshold means that you have fees that can be directly rewarded to the inviter and the inviter's inviter. Such costs are much higher than selling goods directly; therefore, the motivation to provide users with timely positive feedback is strong enough. People all need timely positive feedback. If you make 2 yuan by selling a product with a dry mouth, or make 100 yuan by selling a product with a dry mouth, there is no doubt that the latter will be better.

In any social/community growth model, interest point design is the key. That is, you need to give clear feedback on what you want users to achieve, whether it is 0 yuan purchase, old customers bringing in new customers, or social fission growth. The stronger and more timely the interest points are, the greater the stimulation that can be given and the better the effect.

In the social e-commerce model, the rewards given to people who directly invite others are usually hundreds of yuan. This is to directly incentivize the most critical and lowest-level users. The rewards are large enough and the incentives are strong enough. And it is a high-value and timely feedback.

The second point is the screening function of the threshold, which many people may not realize. When we look at the threshold settings of different levels on different platforms, we will see that some thresholds are very low and some are very high; and those with low thresholds often use their low thresholds as an advantage, such as being promoted to one level by inviting only 10 people, etc.

In fact, a promotion threshold that is too low is not necessarily conducive to growth. Because the low threshold means that users are not that capable, and as mentioned in the previous article, in addition to timely feedback, social e-commerce also needs to give people long-term goals of making money without doing anything. In the community, such a goal should be achieved by setting examples through benchmarking, and then achieving success by learning from the examples and then having more role models, forming a positive cycle.

If the promotion threshold is set too low, on the one hand, it means that users with good enough abilities cannot be screened out; when users are given corresponding rights and levels without sufficient abilities, they will find that they have been promoted but have not achieved their desired goals, and will feel lost, and will no longer work hard. Then the positive cycle of the community of "role model - action - becoming a role model - inspiring more people to act" cannot be established.

3. More layers are better than fewer layers

In terms of mechanism design, if we only consider growth, multiple levels are better than fewer levels. (Of course, from the perspective of compliance, multiple levels are not compliant, which will be explained later), this is because, on the one hand, more levels mean more rights and interests, which is easy to understand; on the other hand, multiple levels will give users the motivation to continue to grow and move forward.

In my past work, I found that users who reached a high level would actually churn away, which puzzled me. After all, why would they churn away when they had already achieved the optimal profit?

Later, during the review, it was concluded that when users have not reached the highest level, they will always be motivated to continue to improve. After reaching the highest level, there is suddenly no next goal to strive for, and it is impossible to obtain further benefits, which leads to the loss of core users.

The inspiration for us is that even if we cannot design multiple levels under the premise of compliance, we should still give users higher sense of honor, achievement, belonging and other advanced rights through honors and other forms, and constantly motivate users to have more motivation to move forward.

4. Not breaking is better than breaking

One thing that cannot be avoided in the mechanism is that when you cultivate a user at the same level or the same level as you, many mechanisms will be broken or the benefits will drop off, which is a major factor hindering growth.

The team that users have worked hard to bring up can only enjoy a period of benefits but not long-term benefits, which will greatly dampen user enthusiasm. In this regard, various classic mechanisms have designed similar training bonuses, but no matter what, the benefits of the team that leaves will always decline.

So in the entire model, how to ensure that users can maintain their income without decline after cultivating an excellent team and find the second curve of income is the core issue of the mechanism or the entire product marketing strategy.

5. Less adjustment is better than more adjustment

Once a mechanism is established, it is not suitable for frequent changes. After all, the mechanism is the core rule of the platform. Users need to work hard under stable expectations, rather than having the platform constantly change the rules of the game after working hard for a period of time, which will greatly damage users' trust in the platform.

When the mechanism has to be adjusted, as many positive adjustments as possible should be made to offset negative adjustments, communicate with users in advance, listen to user suggestions and even include users in discussions on adjustment plans; when communicating, communicate in detail at each level to avoid problems caused by unclear communication.

6. Having a goal is better than having no goal

This summary is mainly aimed at a criticism that many mechanisms are prone to, that is, when users have reached a high level through early efforts, they will sit back and enjoy the fruits of their early efforts in the later stages, truly "making money while lying down" and no longer working hard.

From the platform's perspective, these silent users no longer directly bring any growth, but take away a large part of the profits, which is not cost-effective in terms of input-output ratio; therefore, in mechanism design, we must pay attention to giving users the motivation to always work hard.

Common practices include setting assessment thresholds, where a minimum threshold must be reached each month to enjoy benefits; or further incentives, such as additional benefits if there is a month-on-month increase; or directly using each month's performance as an assessment rather than a one-time thing, which means that users have to start from zero every month, and so on.

7. Mechanism Compliance

As mentioned earlier, the compliance of the mechanism is more important than the growth of the mechanism. After all, we all want to be a socially responsible company, and our aspiration is to create value for society. Whether the mechanism is healthy and compliant also directly determines whether the enterprise can survive in the long run.

So, in order to achieve compliance, we need to know what the mechanism of non-compliance is. To sum up, there are three points:

• 1) Capitation fee;
• 2) Team-based compensation;
• 3) Tiered commission

Here I would like to add a few words why it is not compliant if these three conditions are met. The historical background goes back to the 1990s, when the country allowed direct sales companies such as Amway, Perfect, and Mary Kay to operate in China in a multi-level distribution model.

The original intention may be to move towards a market economy, or to solve the employment problem of laid-off workers, etc. I don’t know the specific original intention; but unfortunately, while this type of model has been developing rapidly in China, it has also brought about huge and serious adverse consequences - at the beginning, the prices of goods were constantly increasing, and the sales price and cost price were even dozens of times different, seriously violating the price law and damaging the interests of sellers; later it became worse, not only various counterfeit and shoddy products appeared, but even worse, it directly developed into illegal pyramid schemes without real products, becoming an outright Ponzi scheme.

This huge negative impact continues to this day, making people terrified when talking about pyramid schemes. Therefore, in order to stop the loss in time, in April 1998, the state made a one-size-fits-all decision and issued the "Notice on the Comprehensive Prohibition of Pyramid Selling Activities", which banned all models involving capitation fees, hierarchical commissions, and team-based compensation.

Of course, the companies that were first introduced, such as Amway, Perfect, and Mary Kay, were very dissatisfied, so they opened the direct sales channel.

Looking back at history, we will understand that the distribution compensation model was not a scam in China at the beginning, but the problem was that the supervision and management of this model was too difficult and could not keep up. At the same time, this model was too easy to develop in a direction that violated business ethics, such as price gouging, counterfeit and shoddy goods, and even Ponzi schemes, which further increased the difficulty of supervision and management. Therefore, in this context, the best way to regulate things may be to treat both the good and the bad in the same way.

Returning to the social e-commerce that began to emerge in the past few years, it is still in the large field of distribution, so it must comply with compliance requirements. From my personal perspective, when using the "weapon" of distribution, we must first grasp a few principles:

• 1) To be a socially responsible enterprise, we must truly create value for society.
• 2) Compliance, that is, avoiding capitation fees, hierarchical commissions and team-based compensation.
• 3) It must be based on the premise that the product itself is excellent enough, has sufficient commercial value and user demand, and is reasonably priced.
• 4) Growth methods should match the products rather than being separated from them.

If distribution is simply used as a means of growth and is designed without regard to products, then firstly, the model will not last long and secondly, there will be more compliance risks. This also answers from another perspective why major social e-commerce platforms are shifting from focusing on general supermarket goods to operating their own private brands; because in the categories of daily department stores and general supermarkets, growth and goods are somewhat separated. Growth is growth, goods are goods, and the longer-term model should be a deep integration of the two, with growth serving the sales of goods.

So how can we achieve compliance?

For example, regarding the per capita fee, a common method is to use platform points instead of currency as rewards; that is, for each person invited, it is not rewarded with cash, but with platform points. The points can be offset by shopping on the platform, but cannot be exchanged and circulated with cash; this retains the timely stimulus effect of growth while avoiding the risk of non-compliance. And so on.

Author: Xiaohui

Source: Xiaohui