2019 China Social E-commerce Industry Research Report

Core ideas:

Traditional e-commerce traffic dividends have been exhausted, social e-commerce uses social networks to achieve low-cost traffic, and the industry has exploded

Traditional e-commerce has reached middle age, the dividends are running out, and the cost of acquiring customers is rising. Mobile social networking is booming, and the value of traffic is prominent. The business model that integrates social networking and e-commerce provides a good solution for e-commerce companies to reduce traffic costs. The social e-commerce industry is on the rise, and many companies have entered the market, and the scale of the industry has grown rapidly. In 2018, the scale of China's social e-commerce industry reached 626.85 billion yuan, a year-on-year increase of 255.8%, becoming a dark horse in the online shopping market.

Social e-commerce reconstructs the e-commerce market and has obvious advantages over traditional e-commerce

Compared with traditional e-commerce, social e-commerce has unique advantages such as discovery-based purchase, decentralization, and rich scenarios. Users are both buyers and recommenders. Specifically, social e-commerce has the following three advantages: 1) Relying on social fission to reduce traffic costs and improve user stickiness; 2) Multi-dimensional interactive industrial chain, which can achieve zero inventory distribution, precision marketing, C2B customization, and thus improve supply chain efficiency; 3) Decentralized communication network, providing broad space for the development of small and medium-sized suppliers.

Continuous innovation in models, flourishing

According to the different traffic acquisition methods and operation models, social e-commerce can be divided into four categories: group buying, membership system, community group buying and content. Among them, group buying, membership system and community group buying are based on the acquaintance network under strong social relationships, and guide users to spread independently through price discounts, distribution rewards and other methods; content social e-commerce originated from social communities under weak social relationships, and attracts users to buy through the synergy between high-quality content and products. In the future, with the continuous development of the industry, more innovative models combining social and e-commerce may emerge.

Business models are unlikely to become competitive barriers, and the development of social e-commerce still faces many challenges

Social e-commerce is essentially an innovation in the marketing model and sales channels of the e-commerce industry. The business model that relies on social networks to attract traffic provides a guarantee for the rapid development of social e-commerce in the short and medium term. However, this model of innovation is not difficult to replicate and cannot become a core competitive barrier for enterprises. For consumers, no matter what marketing method is used, the quality and low price of goods and the fast and efficient delivery service are the key to whether they can generate loyalty to the platform and be willing to continue to repurchase. As industry competition intensifies, the marginal effect of user growth brought about by the investment in social traffic will gradually decrease, which will pose more challenges to the refined operation and supply chain capabilities of social e-commerce platforms.

Social e-commerce industry development background

Traditional e-commerce is reaching middle age, the dividends are running out, and the cost of acquiring customers is rising

After nearly 20 years of rapid development, China's e-commerce industry has grown from a newborn baby to a mature middle-aged one. In 2018, the scale of online shopping transactions in China reached 8.0 trillion yuan, and the growth rate has gradually slowed down. The growth rate of users of traditional mainstream e-commerce platforms represented by Tmall, JD.com, and Vipshop has continued to slow down to 20% or even lower. Both e-commerce platforms and merchants are facing the dilemma of increasingly fierce competition and rising customer acquisition costs, and are in urgent need of finding more efficient, low-cost, and more sticky traffic sources.

Mobile social networking is booming, and the value of traffic is highlighted

In the era of mobile Internet, social apps represented by WeChat have become the most important traffic entrance on mobile terminals. These social platforms occupy a lot of users' time, have high usage frequency, strong stickiness, and extremely rich traffic value. Taking WeChat as an example, at the end of 2018, WeChat's monthly active users had reached 1.098 billion. The WeChat ecosystem is based on its basic instant messaging function, and has different forms of traffic touchpoints such as Moments, public accounts, and mini-programs. At the same time, with the help of WeChat payment, users can complete social, entertainment, payment and other activities in one ecosystem, providing a good solution for e-commerce to reduce traffic costs. From the perspective of promotion reasons, the communication advantages of social media are as follows: 1. Social media has its own communication effect, which can promote the efficient and spontaneous transmission of retail product purchase information, usage experience, etc. in strong social relationship groups. For users, the information is provided by acquaintances, and they are more convinced of its authenticity, and the purchase conversion rate is higher; 2. Social media covers a more comprehensive population and can better supplement the user group. The effective use of social media brings new opportunities for the further development of e-commerce.

Social e-commerce is on the rise

The industry is growing rapidly

The efficient customer acquisition and fission capabilities of social e-commerce have attracted many companies to join. In 2018, social e-commerce became the darling of capital. The listing of social e-commerce companies such as Pinduoduo, Yunji, and Mogujie has pushed social e-commerce to the forefront. The scale of the industry has grown rapidly. In 2018, the scale of China's social e-commerce industry reached 626.85 billion yuan, a year-on-year increase of 255.8%, becoming a dark horse in the online shopping market. As the integration of social traffic and e-commerce transactions continues to deepen, the proportion of social e-commerce in the online shopping market has also continued to increase. In the three years from 2015 to 2018, the proportion of social e-commerce in the overall online shopping market increased from 0.1% to 7.8% of the Chinese online shopping market.

Compared with traditional e-commerce, the characteristics and advantages of social e-commerce

Relying on social fission to achieve efficient and low-cost traffic diversion, users are both buyers and promoters

Relying on social traffic, social e-commerce can operate more efficiently and at a lower cost throughout the entire life cycle from user acquisition to retention: 1) New user acquisition stage: rely on user social fission to achieve growth and reduce customer acquisition costs; 2) Conversion stage: on the one hand, based on acquaintance relationships, the trust relationship between acquaintances can be used to improve conversion efficiency; on the other hand, users can be naturally divided into structures through social tags, thereby achieving refined operations; 3) Retention stage: users are both buyers and recommenders, and more user retention is achieved in the process of secondary marketing.

A decentralized communication network based on individual users provides a broad space for long-tail products

From search-based shopping to discovery-based shopping, quickly facilitate purchases and improve conversion efficiency

In the entire process of user shopping, the role of social e-commerce is mainly reflected in three nodes: 1) Demand generation stage: stimulating users' unplanned shopping needs through social sharing; 2) Purchase decision stage: quickly facilitate purchases through trust mechanisms and improve conversion efficiency; 3) Sharing and dissemination stage: stimulate users' willingness to share actively and reduce customer acquisition costs.

Social e-commerce classification and model comparison

Different types of social e-commerce have different traffic sources and operating models

Social e-commerce for group buying

Definition

Gather 2 or more users and guide them to share by offering low price discounts

Group buying social e-commerce gathers two or more users and forms a group through social sharing. After the group is successfully formed, users can buy goods at a lower price than when they buy alone. The initiators and participants of group buying often share and complete transactions through WeChat, and stimulate consumers' enthusiasm for sharing through low prices, so that consumers can spread the word on their own. Group buying social e-commerce platforms only need to spend one drainage cost to attract active users to start a group. In order to complete the order as soon as possible, active users will share it to their social circles until the order is completed. During the process of group buying information spreading in the user's social circle, other people may also start a new group, and the number of spreads and orders can achieve exponential growth. Based on the fast and efficient dissemination effect brought by its fission characteristics, group buying has been widely adopted by e-commerce companies as a daily marketing method.

Industry size

In 2018, the scale of social e-commerce for group buying exceeded 500 billion

After years of development, traditional e-commerce giants have entered a period of brand upgrading, forcing a large number of low-end merchants to start looking for new sources of traffic. This part of the production capacity supply is most consistent with the needs of users in third-tier and lower-tier cities. With the help of social traffic such as WeChat, group-buying social e-commerce has filled this market gap and achieved explosive growth. In 2018, the industry scale reached 535.28 billion. Pinduoduo, a typical representative, was successfully listed in July 2018 and grew into one of the three e-commerce giants in just three years.

Business Model Overview

Low-price group buying and sharing-oriented e-commerce based on social relationships

Issues and Challenges

The upgrade process needs to strike a balance between the interests of consumers, merchants and platforms

The positioning of group-buying social e-commerce has determined that the platform has accumulated a large number of small and medium-sized merchants. These merchants have many problems in terms of product quality, which makes the platform labeled as "low price, low quality" in the minds of consumers, making the platform at a disadvantage in the competition with traditional e-commerce platforms. In the long run, strengthening quality control and service and improving the image of the platform in the minds of consumers are issues that the platform must face for sustainable development. The improvement of the brand image of group-buying social e-commerce needs to rely on the entry of big brands, genuine product guarantees and high-quality service experience, and it is bound to need to appropriately concentrate traffic on the top brand merchants. Big brands have many and relatively stable sales channels and strong voice. When brands enter the platform, they will give priority to the overall interests of the brand itself and are unlikely to implement special price policies for social e-commerce platforms. The entry of a large number of brand merchants will also break the low-price advantage created by group-buying social e-commerce platforms through small brands and low-quality products. These changes are actually contrary to the driving force of the platform's early explosive growth, and will inevitably affect the value and interests of the platform's existing long-tail merchants. How to balance the interests of consumers, merchants and the platform itself will become a huge challenge for the long-term development of group-buying companies. In addition, in the process of platform brand upgrading, group-buying social e-commerce platforms will need to face more direct competition from giants.

Membership-based social e-commerce

Definition

S2b2c model, leveraging small B-end store owners to achieve rapid fission

Membership-based social e-commerce refers to a business model that connects suppliers and consumers to realize commodity circulation in an S2b2c mode based on social interaction. The distribution platform (S) connects with commodity suppliers upstream and provides a series of services such as supply chain, logistics, IT system, training, and after-sales service to small B-end store owners, who are then responsible for C-end commodity sales and user maintenance. Users become members by paying membership fees/completing tasks, etc., and use social relationships to distribute without intervening in the supply chain, realizing "saving money for self-use and making money by sharing".

Industry size

The scale of membership-based social e-commerce reached 84.21 billion in 2018

Since the rise of membership-based social e-commerce platforms in 2015, the influx of a large number of micro-business practitioners has brought explosive growth to the industry. Many big brands and traditional e-commerce companies have seen the growth potential of this model and have begun to explore the model. In 2018, the scale of China's membership-based social e-commerce industry reached 101.05 billion yuan. In the early stages of development, membership-based social e-commerce platforms strongly rely on the fission and product-carrying capabilities of the store owner to cover more consumers. The competition and cultivation of small B-sides will become the focus of competition for companies at this stage. The number of people with the willingness and ability to distribute is limited. With the rapid development of the industry, after the penetration of membership-based social e-commerce platforms into this group of people reaches a high level, the platform's fission capabilities will gradually dry up. By improving the supply chain and mid- and back-end service capabilities, attracting more users to consume with more affordable goods and high-quality services will become the development focus of membership-based social e-commerce platforms.

From store owner-centered to consumer-centered

The mature stage will face the challenge of balancing product category expansion, membership benefits and gross profit margin.

The operation of membership-based social e-commerce platforms can be divided into two stages: In the early stage, the goal is usually to quickly scale up, and through reward mechanisms and hot-selling operations, seed members are attracted to join and quickly fission. However, the population with the willingness and ability to distribute is limited. After a certain stage of development, the store owner's ability to attract new customers will gradually become exhausted and enter a bottleneck period. The income that the store owner can obtain from the platform will shift from mainly attracting new customers to mainly sales commissions. The platform needs to expand the coverage of categories and achieve sustained growth of the business with high-quality supply chains and refined operations.

A higher commission rate is the core means to motivate store owners to distribute products, but high distribution channel costs will increase sales prices and reduce consumers' purchasing desire. How to achieve a balance between expanding product categories, ensuring member rights and interests, and stabilizing gross profit margins has become a challenge that membership-based e-commerce platforms must face when they develop into a mature and stable period.

Community group buying

Definition

Reconstructing the people, goods and market around the community leader, and comprehensively upgrading the community O2O model

From the perspective of the model, community group buying is also a type of S2b2c e-commerce, with three main parties involved: the community group buying platform provides products, logistics warehousing and after-sales support, and the group leader (usually a mother or a community convenience store owner) is responsible for community operations, product promotion, order collection and final product distribution. After joining the community, community residents place orders through tools such as WeChat applets. The community group buying platform will deliver the goods to the group leader the next day, and consumers can pick them up at their doorstep or the group leader will deliver them up to one kilometer.

Acquaintance economy reduces traffic costs

Pre-sale system breaks the cost bottleneck

The core value of the community group buying model is mainly reflected in: 1) Promoting and selling goods through community group leaders, relying on trust relationships, and reducing traffic costs through the acquaintance economy; 2) Pre-sales in the community, centralized procurement and sales, improving upstream bargaining power while reducing losses with almost zero inventory; 3) The group leader is responsible for the last kilometer of delivery/self-pickup, which greatly saves logistics distribution and terminal operating costs.

Industry size

The industry broke out in the second half of 2018 and is expected to reach a new level in 2019

Since its inception in 2016, China's community group buying industry has developed rapidly in just two years, especially in the second half of 2018, when it began to grow explosively, with the industry scale reaching 7.36 billion in 2018. A large number of platforms continue to receive large amounts of financing in the capital winter, and the monthly transaction volume of several leading platforms has quickly exceeded 100 million. The upstream and downstream of the supply chain are paying close attention, and more and more companies are beginning to join the battle. It is expected that the scale of China's community group buying industry will reach a new level in 2019.

Competition intensifies, and reshuffle begins

The competition among group leaders is a fake one. The key to future competition is still the supply chain.

In 2016, the community group purchase model began to take shape. With the help of capital, it has exploded in just three years. In addition, the industry itself is not very difficult to enter, which has attracted hundreds of companies to join. The "pre-sale + hot-selling" model of community group purchase determines that it is impossible to have "small and beautiful" in this industry. Scaling is the key to improving bargaining power with upstream commodity suppliers and reducing logistics costs. Some platforms have begun to grab land by increasing commissions for group leaders and engaging in price wars. However, for this business model of to small B, neither group leaders nor users have any transfer costs, and it is not easy to form loyalty to the platform. Good quality and low price products are the key to attracting users to buy, and more orders can further increase the income of group leaders. Therefore, in the final analysis, the industry is still competing for supply chain and refined operation capabilities. The money-burning model is unlikely to continue for a long time, and a group of companies with insufficient strength will soon be eliminated.

Content-based social e-commerce

Definition and connotation

Driven by consumer demand, content and product supply chain collaboration

The scale of online shopping users continues to grow, and the younger generation has gradually become the main force of online shopping. Social and content applications are loved by the younger generation of consumers and occupy most of their leisure time. A survey by BCG in 2019 showed that nearly half of consumers mainly pay attention to brand dynamics through social media and other digital media represented by KOLs, brand-owned advertisements and social advertisements, and more than 70% of young people under the age of 30 are easily influenced by different types of KOLs. In order to meet the fragmented and personalized shopping needs of the younger generation of consumer groups, e-commerce and content industry chains have begun to develop in a coordinated manner, connecting consumers through content, influencing the value decision-making system, and further guiding consumers to shop. Content social e-commerce refers to an e-commerce model that guides consumers to shop through various forms of content, realizes the synergy between goods and content, and thus improves the marketing effect of e-commerce.

Content-based social e-commerce is a complementary choice

E-commerce is in urgent need of traffic portals, and social content needs monetization channels

From the supply side, the emergence of content-based social e-commerce is actually a complementary choice jointly promoted by content and e-commerce parties. On the one hand, after years of development, the growth rate of traditional e-commerce has slowed down, and it is urgent to find new sources of traffic. Content, as a medium, plays an obvious role in improving e-commerce user stickiness and consumer experience; on the other hand, the booming social content platform has also experienced a life-and-death leap from traffic to profit. Many platforms have begun to actively seek to realize diversified commercial realization of their social traffic through e-commerce transactions.

The value of short video marketing is highlighted

Gradually becoming the focus of major content-based social e-commerce platforms

High-quality content plays an increasingly important role in attracting users and improving conversion rates for e-commerce platforms. Among the many content forms, short videos have attracted more and more attention due to their outstanding features of wide adaptability, large carrying capacity and strong communication power. In 2017, a total of more than 370 million fashion short videos were produced, and more than 35.62 billion views were generated. It is expected that more and more e-commerce content will be carried in the form of short videos in the future.

Development Trend

Social marketing will become the standard for e-commerce companies

Intensified competition will lead to a rapid decline in the marginal effect of social traffic investment in user growth

The rapid development of social e-commerce has made all parties in the upstream and downstream of the industry chain see the huge value of social traffic. Brands, merchants, and e-commerce platforms have begun to try to reduce customer acquisition costs and improve user stickiness through a variety of social marketing methods. Group buying, distribution, and content have gradually become a common means of e-commerce marketing. More and more participants will quickly exhaust the traffic dividend of social platforms, and the marginal effect of user growth brought by the investment in social traffic will gradually decrease.

The model itself cannot become a competitive barrier

Refined operations and supply chain capabilities remain the core

Social e-commerce is essentially an innovation in the marketing model and sales channels of the e-commerce industry. The business model of attracting traffic through social networks provides a guarantee for the rapid development of social e-commerce in the short and medium term. However, this model of innovation is not difficult to replicate and cannot become a core competitive barrier for enterprises. The sources of traffic for social e-commerce are relatively fragmented and subject to social platforms. Changes in policies or rules of social platforms may have a devastating impact on them. In addition, the traffic of social channels comes and goes quickly. Consumers generating transaction flows on the platform does not mean that consumers and the platform have stickiness. How to settle these flows and stimulate their purchasing power in the future will pose a huge test to the platform's refined operation capabilities.

For consumers, no matter what marketing method is used, the quality and low price of goods and the fast and efficient delivery service are the key to their loyalty to the platform and willingness to continue to repurchase. Social e-commerce platforms that started with traffic will eventually evolve into two different paths: one will still focus on traffic operation, cooperate with e-commerce giants, and become the entrance for e-commerce companies. Under this development path, companies have no control over goods and their profit margins are relatively limited; the other will continue to deepen the construction and investment of the supply chain and enhance their own product fulfillment capabilities. Under this development path, companies need to make large investments and will have to face the competitive pressure from giants after they develop to a certain scale.