Live e-commerce operation methodology

After nearly two years of rapid development, the competition in live streaming e-commerce has shown a 3+X pattern, namely Taobao Live, Kuaishou e-commerce and Douyin e-commerce.

Judging from the monthly active user scale of several major live-streaming e-commerce platforms, WeChat’s video account has surpassed Taobao, Douyin and Kuaishou, becoming the biggest unknown variable in future changes in the live-streaming e-commerce landscape.

As a year-end summary of live streaming e-commerce in 2021, this article attempts to present my research on the "time value" of live streaming e-commerce from the perspective of brand merchant operations, as well as the operating methodologies officially summarized by different live streaming e-commerce platforms based on merchant practices.

1. Core variables of the two-dimensional retail model and live e-commerce

The two-dimensional model of the retail industry contains six major elements. The three major elements of the first model are "people, goods, and places", and the three major elements of the second model are "efficiency, cost, and experience."

The first "people, goods, and places" belongs to the basic model of the retail industry. In the ever-evolving retail business model, these three elements will appear in different combinations and forms.

In live streaming e-commerce, there are two core types of "people": one is the "anchor" and the other is the "fans"; the "goods" are mainly discounted goods provided by brand merchants; and the "place" is the live streaming room.

The second model, "efficiency, cost and experience", is much more complicated, involving multiple roles such as platforms, anchors, brand merchants and users.

For the platforms, the efficiency of live streaming is obviously inferior to the shelf search model, but the cost investment of Taobao, Douyin and Kuaishou is not small;

For users, although the consumption efficiency of live e-commerce is not as good as the shelf search model, a good experience is the most important, sometimes even more important than getting low-priced goods.

This is also the reason why e-commerce and content platforms such as Taobao, Kuaishou and Douyin are vigorously developing live streaming e-commerce.

Under the dual influence of the platform and users, brand merchants can only follow the rhythm of the platform to join the wave of live streaming e-commerce in the early stage. It was not until the middle and late stages that they began to seriously evaluate the three dimensions of "efficiency, cost and experience" of live streaming e-commerce from 2022. (Due to the influence of multiple factors such as category and brand positioning, maturity, etc., the analysis of "efficiency, cost and experience" by brand merchants is much more complicated and will not be expanded here)

Therefore, the core logic of live streaming e-commerce lies in "people" (anchors) and "experience" (interaction and trust), bringing better user experience through anchors, thereby improving efficiency and reducing costs.

Of course, the premise for this logic to be valid is that there must be sufficient scale to support it, so super anchors such as Li Jiaqi gradually emerged.

Super anchors bring sales scale to brand merchants in a short period of time, allowing brand merchants to see the improvement in sales efficiency, but the ensuing difficulties cannot achieve "cost reduction".

Therefore, businesses are also focusing on self-broadcasting, hoping to cultivate super anchors among self-broadcasting and reduce costs.

So, how do you measure the value of an anchor?

The most important variable, “anchor*time”, needs to be added to live e-commerce.

Since the core element of the live streaming e-commerce business model is "people" such as anchors, and the greatest fairness between "people" comes from "time", that is, 24 hours a day.

Therefore, the cost and efficiency output of live broadcast can be measured through the host’s time value.

2. The “time value” of anchors

A simple formula can be used to calculate:

The host’s “time value” = sales ÷ live broadcast duration.

From the peak sales performance created by the pre-heating event of Taobao Live on October 20, 2021, the Double Eleven, it can be concluded that Li Jiaqi’s "time value" is: sales of 11,538,870,486.22 yuan ÷ cumulative live broadcast time of 12 hours, 26 minutes and 42 seconds = the value per hour is approximately 928 million yuan.

By calculating the average "time value" of the anchor's live broadcast in different time periods (days, months, years), it is possible to measure whether the "time value" of an anchor is appreciating or depreciating.

In order to accurately calculate the "time value" of the anchor, there are two key variables: product selection and number of fans.

Only accurate product selection and correct price or discount design can make the conversion rate of the live broadcast room higher, and this requires the joint efforts of the anchor and the investment (or product selection) team.

In addition, the anchor obtains fans from the public domain through public relations, short video content, advertising, etc., which turns into private domain traffic, which guarantees the sales scale.

3. Business Methodology of Live E-commerce Platform

The time value of live streaming is not only an assessment of individual anchors, but more importantly, it is a measure of the live streaming management capabilities of brands and businesses.

Judging from the current development of e-commerce, due to the different platform models, the logic of entering live streaming e-commerce is also very different, resulting in obvious differences in the live streaming operations of merchants on different platforms.

The first category is based on traditional centralized e-commerce platforms and builds live streaming as a tool for merchants’ sales operations. Currently, live streaming e-commerce has become a standard feature of merchant stores on Taobao, Tmall, JD.com and Pinduoduo. Merchants only need to follow the platform store's large operating system to engage in live streaming e-commerce.

The second category is content platforms that focus on short videos and live broadcasts, represented by live e-commerce platforms such as Douyin and Kuaishou. While many businesses are planning to use Douyin and Kuaishou, they have raised many questions about how to operate their businesses. Therefore, Douyin and Kuaishou have also officially launched operating methodologies for businesses to implement.

The difference between Douyin's "centralized traffic distribution" and Kuaishou's "decentralized traffic distribution" has led to differences in their e-commerce business methodologies.

Centralization focuses on user growth and user experience. E-commerce is more efficient, but the cost is also higher. At the same time, the platform also needs to balance the content and frequency of live e-commerce. The higher the frequency of live e-commerce, the lower the user experience.

Decentralization focuses on link growth and is characterized by diversity and pluralism; e-commerce has lower efficiency and costs, and the platform does not need to balance the content and frequency of live e-commerce.

Douyin, with "centralized traffic distribution" as its core, launched the "FACT business matrix" methodology based on interest-based e-commerce, which divides merchants' operations into two rhythms: daily operations and product sales explosion.

Merchants’ self-broadcasting and the expert matrix (mid-level) belong to daily operations. The anchors cultivated by merchants themselves are more controllable and can be designed to be highly matched with the brand image, but the possibility of an explosion is relatively weak. Like the mid-level anchors in daily cooperation, the purpose is to maintain stable daily sales.

Marketing activities and top Vs are suitable for large-scale product sales explosions, which can allow merchants to achieve sales explosions in a very short period of time, but the costs are also high. Merchants cannot just blindly pursue explosions, but also need to pay attention to the relationship between the brand’s own maturity and cost, efficiency, and experience, and do a good job in daily operations.

A typical case is Perfect Diary’s financial report for the fourth quarter of 2020: total operating expenses for the quarter were as high as 2.83 billion yuan, of which "sales and marketing expenses" were 1.38 billion yuan (including advertising, marketing and brand promotion costs, and expenses incurred during the development of experience stores).

Looking at the major platforms such as Douyin, Xiaohongshu, and Weibo, Perfect Diary has selected a wide variety of bloggers, ranging from those with tens of millions to those with only a few thousand fans, and they are involved in all walks of life. Even e-sports anchors will insert Perfect Diary advertisements while playing games.

Investing too much money in top influencers will result in high marketing costs. Although brand awareness is improved, it can also easily lead to huge losses for the company.

In fact, for brands, top V influencers are more about increasing brand awareness, while daily sales and management work still needs to be completed through "merchant self-broadcasting" and "expert matrix" so that the brand can develop healthily and steadily.

Based on the "decentralized traffic distribution" mechanism, Kuaishou proposed a trust-based e-commerce based on "content + fans". After more than two years of practice, it summarized the "STEPS Merchant Management Methodology" for brand merchants to carry out live e-commerce on Kuaishou.

First of all, Kuaishou hopes that merchants can conduct product testing and content competition through expert distribution. This method can effectively improve the conversion rate and repurchase rate of selected products, while retaining high-quality content to increase fan stickiness.

Secondly, after the testing is completed, just like the methodology of Douyin, daily operations are also required through self-broadcasting by merchants and distribution by influencers (the store climbing stage of S&T).

The third stage of private domain operation is based on Kuaishou’s decentralized fan system, which is different from Douyin’s recommendation algorithm mechanism. Combined with the daily operations and traffic boosting work in the store’s climbing stage, through “marketing support”, that is, the platform’s marketing activities and advertising, to enhance brand awareness and achieve the goal of becoming an “industry KA brand”.

Finally, Kuaishou’s methodology proposed the definition of “SKA brand”, hoping that brand merchants and Kuaishou could achieve in-depth cooperation in “sales customization” and “advertising annual frame”, combined with the “service system” provided by Kuaishou, to cooperate with brand merchants at the strategic level and realize a sustainable business strategy of deeply binding the brand.

From Kuaishou’s “STEPS Merchant Management Methodology”, it can be seen that Kuaishou did not mention the top V celebrities like Douyin e-commerce. Does this mean that Kuaishou is gradually downplaying the top V celebrities, or even does not want the emergence of top V celebrities?

The third category is live streaming e-commerce based on social tools combined with content. Video live streaming relies on WeChat. As one of the private domain conversion tools, it has become an important part of WeChat's construction of full-domain operations for brand merchants. Since it is still in the exploration stage, the operating system of live streaming e-commerce is not mature enough, and the official does not yet have a complete methodology to guide merchants' operations.

4. The future of the live streaming e-commerce industry

Judging from the three black boxes of the future, namely “technology, capital and policy” (for detailed analysis, please click “The Impact of the “Three Black Boxes” on the Future of Live E-commerce”), live e-commerce will enter a mature stage and become normalized, with both merchants’ own live broadcasts and expert anchors becoming important parts of the industry.

• On the technical level, with the accelerated popularization and maturity of 5G, more and more merchants and consumers will participate in live e-commerce, and the development of technology will evolve into more forms, such as virtual anchors, AR scene live broadcasts, etc.
• At the capital level, the landscape of live streaming e-commerce platforms is becoming increasingly stable. Technology companies, MCN agencies, and live streaming service providers still have the opportunity to gain the favor of capital and obtain investment, but there are more conceptual changes. For example, the "metaverse" may be monetized through live streaming e-commerce with "virtual anchors."
• At the policy level, as Sulli and Viya were fined, the industry will continue to become more standardized, competition will become more fair, and more innovations will emerge.

In addition, super anchors still have their value, but as they grow older and have less energy, the length of their live broadcasts will inevitably decrease, and their "time value" will inevitably depreciate.

Every super anchor has a "life cycle" as a human being, so the constant replacement of super anchors is inevitable.

As for mid-level anchors, they will not necessarily be easily replaced as super anchors depreciate. After all, they have the same "life cycle".

Live streaming e-commerce is very different from traditional sales forms. Traditional sales forms can continue to achieve high growth by replacing younger employees and executives in an organizational way, and can also surpass giants when they fall.

For MCN companies that rely on super anchors, there are four feasible ways to maintain sustained revenue growth:

1. You can start training younger anchors to become super anchors when the super anchor's "time value" reaches its peak;
2. The layout of traditional sales forms (shelf-type retail e-commerce channels), such as Li Jiaqi's private domain operations, the company behind it, Meione, not only built many fan groups, but also developed small programs for advance reservations of live broadcast products.
3. "Brand" the super anchor and launch your own brand.
4. Provide "merchant self-broadcasting and data services" to other brand merchants.

These four methods allow the most important MCNs in the live streaming e-commerce industry to still have a lot of room for imagination and growth. Looking forward to live streaming e-commerce in 2022!

Author: I am Zhuang Shuai

Source: Zhuang Shuai Retail E-commerce Channel