When Social Media and E-Commerce Collide Social Media and ... · JUNE 18, 2015 !!!! Fung Business...
Transcript of When Social Media and E-Commerce Collide Social Media and ... · JUNE 18, 2015 !!!! Fung Business...
JUNE 18, 2015
1 Fung Business Intelligence Centre (FBIC): Social Media and Retail in China
Copyright © 2015. The Fung Group. All rights reserved.
D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r — H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m N e w Y o r k : 6 4 6 . 8 3 9 . 7 0 1 7
June 18, 2015
Social media is thriving, and China is leading the way.
The Chinese social media landscape is unique, local and fragmented.
Social commerce is gaining traction, with many innovations that might reshape the global business landscape.
Consumers are empowered in the new digital era and retailers should adapt to this fundamental change.
When Social Media and E-Commerce Collide Social Media and Retail in China
JUNE 18, 2015
1 Fung Business Intelligence Centre (FBIC): Social Media and Retail in China
Copyright © 2015. The Fung Group. All rights reserved.
CHINA SOCIAL MEDIA AT A GLANCE …
Social media in China is fragmented with huge active user base. WeChat and Weibo are the major players on the mobile platform.
Most of the social media users in China are active users.
Global social commerce is gaining traction with revenue expecting to grow 50% year over year in 2015.
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Executive Summary Social media is thriving worldwide, and China is leading the way. The rise of social media and the rapid proliferation of smart devices are altering the way people communicate and the way companies interact with customers. Chinese consumers are becoming more sophisticated, their shopping behaviors are evolving and social media is now heavily influencing their purchase decisions. Social media in China is unique, local and fragmented. Different social network platforms attract different demographics. In this competitive landscape, WeChat is emerging as a dominant player in the mobile messaging app world.
China’s social commerce powerhouses are leading the globe in innovation by quickly adopting and offering new functionality for shoppers. Wechat and Weibo are the two major players of the social commerce platform. Three factors are working in the country’s favor: China has the largest social media user base in the world; there is a perfect overlap of groups who actively use social media and consumers with spending power; and social platforms in China are rapidly integrating e-‐commerce capabilities while e-‐commerce marketplaces are rapidly going social.
Social commerce is gaining traction worldwide and mobile is likely to empower social commerce. According to Statista, global social commerce revenue is expected to grow by 50% year over year to USD30 billion in 2015. Retailers should keep a close eye on the innovations taking place in China to get a sense of how e-‐commerce will evolve in the rest of the world.
This report examines how the rise of social media is impacting consumer behaviors and reshaping retail business in China. First, we’ll provide an overview of the social media landscape in China. Then we’ll explore how Chinese consumer behavior is evolving and how the retail landscape is changing in response to changes in social media. Finally, we’ll highlight Chinese social commerce innovations and their implications for retailers.
Figure 1. Global Social Commerce Revenue 2011–2015E (Billion USD)
Source: Statista
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Overview of the Chinese Social Media Market
Social Media Is Thriving in China Over the past few years, social media has experienced phenomenal growth worldwide, particularly in China. According to We Are Social, a global independent social media agency, there were 642 million active Internet users and 629 million social media users in China at the end of 2014, when social media penetration reached 46%. Social media has gained traction in the country because it is a community concept that appeals to the intrinsic culture of Chinese society.
Chinese millennials are some of the world’s most active users of both social media and new technology. They participate in social media daily and freely share shopping experiences and product reviews online. With the growing popularity of smartphones, Chinese consumers can go online anywhere, anytime. They stay connected and informed via social network platforms. Their demands are growing more sophisticated and their shopping behaviors continue to evolve.
Figure 2. Social Network Penetration in China: 2012–2018E
Source: Statista
Unique China Social Media Landscape China’s social media landscape is competitive and continuously evolving, with each social media player offering its own unique features that attract a certain kind of user. For example, Sina Weibo users tend to be in higher income brackets and are more likely to live in Tier 1 cities, while Qzone users are mainly young people from lower-‐tier cities. Social media platforms in China are more local than global due to the restriction of Western social media channels. At the moment, WeChat and Sina Weibo dominate the landscape. At end of 2014, the WeChat mobile messaging app, which offers multiple functionalities, became one of the most popular social network platforms in China, with 500 million monthly active users. Major social media platforms in China include:
• QQ: This instant messaging app offers a variety of services, ranging from online social games, music, shopping and movies to group and voice chat.
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• Qzone: Qzone is a social-‐networking website that allows users to create their own web pages for writing blogs, listening to music, posting photos and watching videos. It has similarities to Facebook: brands can promote their products via fan pages on both sites. Qzone’s active users tend to live in lower-‐tier cities, and students are major users of the site.
• WeChat: Although similar to the WhatsApp social-‐messaging app, WeChat offers far more functionality. It integrates instant messaging, social media, mobile games, mobile payment, e-‐commerce and O2O on one platform. Since its launch in late 2011, WeChat has quickly become the most popular social-‐networking app in China, drawing users are from all walks of life. According to Statista, 40% of WeChat’s users in the third quarter of 2014 were aged 25 to 34.
• Sina Weibo: This platform is China’s Twitter, but with richer multimedia functionalities. In 2014, it launched payment services and introduced its Weimai app, which allows merchants to sell products directly to their followers. Sina Weibo’s users skew young: 90% are between 15 and 34 years old.
• Renren: This Facebook-‐like social-‐networking site’s users are mainly college students.
Figure 3. Major Social Media Platforms In China: Monthly Active Users By End Of 1Q 2015 (Millions)
Source: Company reports, * end of 2014
Understanding Social Media Users in China According to We Are Social, there were 629 million active internet user in China at the end of 2014. And Chinese social media users have some unique characteristics:
• They are more engaged and active in social media than their Western counterparts are. According to a survey conducted by Nielsen, 75% of all Chinese Internet users provide product ratings and reviews at least once a month, versus less than 30% in the US and Europe. An active daily WeChat user spends about one hour on WeChat on average versus 40 minutes for a daily Facebook user.
• China social media users are high-‐frequency users, with more than 58% accessing the social network platform once a day or more. A study from China Academy of Telecommunication Research of MIIT showed that WeChat users tend to access the app more than 10 times per day.
• Product reviews and purchase feedback on social media sites heavily influence Chinese consumers’ purchasing decisions. Chinese shoppers have a high level of trust in their friends and their friends’ recommendations. According to GO-‐Globe.com, 43% of Chinese netizens are interested in products
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shared by friends on social media and 38% make purchase decisions based on recommendations of family or friends on social-‐networking platforms. In addition, each of China’s social media users follows at least eight brands on average on social media.
• As for social media users on mobile, research by CLSA and Nielsen indicates that 62% of Chinese smartphone users engage in social networking once a month, which is comparable to US user rates. Meanwhile, 67% of Chinese smartphone users engage in mobile messaging at least once a month, a rate much higher than in the US.
Figure 4. Frequency of Social Network Use in China: 2014
Source: Statista
Figure 5: Activities Smartphone Users Engage in at Least Once a Month (Percent)
Mobile Messaging SMS
Social Networking
Web Browsing Apps
Video/ Mobile TV
China 67 84 62 75 71 39
South Korea 70 93 55 80 81 44
UK 37 92 63 66 56 19
Italy 35 89 47 37 49 17
Australia 33 94 58 60 59 19
US 28 86 63 82 62 28
India 15 45 26 15 13 8
Source: CLSA and Nielsen
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How Is Social Media Influencing Consumers? Management consulting firm Bain & Company believes that the online consumer journey in China consists of three stages. First, consumers go online to discover and research products. Then, they decide to make a purchase and transaction. Finally, they go back online to share their shopping experiences and product reviews. More reviews lead to more product discoveries, and so a virtuous cycle is created.
Figure 6. The Online Consumer Journey
Source: Bain & Company
In the new digital era, social media plays a crucial role at each stage of the online consumer journey.
l Discover and research: Social media is an important and reliable source of information about products and services, and Chinese shoppers tend to research these via social networks. They seek out recommendations from friends and compare prices before making a purchase. A 2014 survey conducted by KPMG found that Chinese shoppers look to user reviews on social media as their top information source for making purchase decisions.
l Decide and transact: Social media platforms provide an additional shopping channel for the convenience of Chinese online shoppers. They can make purchases on many social media platforms in China.
l Review and advocate: Chinese consumers like to share their shopping experiences and product reviews via social media. And brands and retailers can communicate easily with consumers through social media to offer better products and services. Positive reviews enhance brand awareness and generate more sales.
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How Will the Use of Social Media Change the Retail Landscape?
Rise of Social Commerce In order to capitalize on the proliferation of social media and the maturing online retail infrastructure, many retailers have established their presence on social platforms, and some are already selling their products directly through them. Social platforms are no longer just social channels—they’re sales channels, a marketplace for social commerce (simply defined as e-‐commerce transactions involving the use of a social network). China is leading the innovations in social commerce, as evidenced by the growing popularity of purchasing via sophisticated social platforms such as WeChat and Sina Weibo.
Figure 7. Worldwide Active Users’ Social Commerce Use: Third Quarter 2014
Source: GlobalWebIndex
The rise of Xiaomi is a perfect illustration of the power of social media in driving e-‐commerce transactions. Xiaomi utilizes social media as its primary channel to engage and interact with customers, from broadcasting new product releases, purchasing to capturing customer feedback. Xiaomi also attaches great importance to the post-‐purchase feedbacks of customers and uses it to refine its products quickly. As a result, Xiaomi successfully creates an online community that attracts over 10mn of loyal fans known as “Mi Fen” and builds up brand awareness via word-‐of-‐mouth marketing.
To capitalize on its successful social marketing strategy, Xiaomi regularly organizes flash sales of its smartphones through its website or social media platform, where batches of 10,000 to 300,000 units usually could be sold out in minutes. In 2014, Xiaomi sold 61mn smartphones and became the world’s third largest smartphone maker by market share although it is founded less than 5 years.
Mogujie: China’s Pinterest Clone for Social Shopping Although online marketplaces in China are dominated by renowned brands and retailers, there are some specialized social platforms for small retailers. Mogujie, previously regarded as China’s Pinterest clone, is a prominent example. It’s one of China’s most popular social-‐shopping platforms for fashion and beauty products, catering to unique boutiques and female users. Users can set up a boutique on Mogujie’s platform, where customers and online boutique owners can share their opinions and ideas on fashion products and fashion trends. In addition, customers can make a purchase directly on the platform.
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Mogujie originated as a pure fashion-‐oriented social online community, but it has transformed into a social-‐shopping platform.
Figure 8. Mogujie’s Social-‐Shopping Platform
Source: MarketingtoChina.com
Figure 9. Share of Mobile Shopping and PC Online Shopping in China, by GMV: 2011–2018
Source: iResearch
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Social Mobile Commerce Is Evolving Shopping via mobile in China is booming and social mobile commerce is gaining momentum. In 2014, China mobile shopping gross merchandise value (GMV) leaped by 240% year over year, accounting for 33% of online sales compared with 14.5% in 2013. And people in lower-‐tier cities are increasingly using their smartphones as their primary tools for network access and online shopping. Forrester Research predicts that spending via smart devices will grow at a 44.2% compound annual growth rate from 2014 through 2019 in China.
Figure 10. WeChat’s Growing Ecosystem
Source: SlideShare
WeChat is the dominant mobile messaging app in China, which, according to On Device Research, is leading the US in terms of mobile messaging adoption. The firm says that 97% of smartphone users use WeChat in China as compared with 46% who use Facebook and 35% who use WhatsApp in U.S. WeChat is far more than a simple mobile messaging app, though. It’s becoming a social-‐networking ecosystem connecting users and merchants directly, and it’s the global leader in social-‐platform innovation, offering a wide range of functionalities, including entertainment, e-‐commerce, O2O and e-‐finance. A survey by the China Internet Network Information Center showed that about 22.3% of WeChat users subscribe to WeChat’s official brand/product/service accounts, while 21.7% browse through shopping goods via WeChat’s social app.
Last year, WeChat partnered with the ecommerce company Jingdong to build up its mobile ecommerce ecosystem. Through the partnership, Jingdong’s e-‐commerce marketplace JD.com becomes the shopping channel on WeChat. Leveraging on WeChat’s huge active user base and Jingdong’s sellf-‐build logistic system, JD.com increasingly serves as an alternative of Tmall for brands and retailers. In 2014, WeChat generated 5% of gross merchandise of volume in JD.com. Recently, the leading global beauty retailer Sephora announced that it would open its first and only Chinese online flagship store on JD.com.
As smartphones have become more popular and mobile payment technologies have matured, Chinese netizens have spent more and more time engaging in social networking and online shopping via their smart devices. China’s social media platforms are rapidly integrating e-‐commerce into mobile, while e-‐
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commerce marketplaces such as Tmall are going social. China is ahead of the rest of the world in terms of social commerce innovation on mobile platforms.
Weidian: A Social Mobile Commerce Innovation
WeChat allows its users to sell products directly on its platform through three channels: official accounts, its e-‐commerce platform and O2O. Last year, WeChat introduced Weidian (“mini-‐shop”), which was another revolution in Chinese e-‐commerce, allowing merchants to set up in-‐app mini-‐stores using its public account. With WeChat’s strong social-‐networking platform, merchants can engage in the social selling of goods to their friends or followers. It provides opportunities to retailers to reach out to new customers by leveraging WeChat’s large user base. Compared to traditional e-‐commerce platforms, Weidian is a decentralized business model that could reduce the entrance threshold and traffic acquisition costs for merchants.
Figure 10. Weidian
Source: WeChat
Marketplace Going Social At the same time that social media platforms are moving into e-‐commerce, China’s e-‐commerce giant, Alibaba, is going social by integrating social media into its mobile e-‐commerce platform. In 2014, it launched a social-‐networking platform named Fun that has brand-‐tagging capabilities. It’s built into Alibaba’s Tmall mobile app and allows users to upload photos of themselves and place tags on what they’re wearing in the photos. The brand-‐tagged photos can be shared on other social networks, such as Sina Weibo. When a user taps on a tag, he or she can be redirected to a brand’s web page, and users can shop within the Tmall mobile platform as well. This new feature can enhance brand awareness and drive sales.
Weidian Allows In-‐App Purchases
Merchant Mini-‐Shop on WeChat’s Public Account
Products on Mini-‐Shop Can Be shared with Friends on WeChat or Qzone
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Figure 11. Fun in Tmall Mobile App
Source: DevStore
Integrated Social-‐Shopping Experience Across Multiple Channels Given the rapid rise of e-‐commerce, some retailers in China have been developing omnichannel retail strategies that integrate all sales channels, including physical stores, online platforms, mobile platforms and social media, to provide seamless shopping experiences.
Intime Retail, operator of department stores that target mid-‐ to high-‐end customers, is an example. In addition to connecting and engaging with customers through public accounts on Sina Weibo and WeChat, Intime launched a program called Guimiquan on WeChat in 2013 in order to enhance customers’ shopping experiences and stimulate sales. Guimiquan is a social-‐sharing platform where circles of close friends can share shopping experiences. There are normally three to six members in a circle, usually close friends or family members. Through the circle, members can share reward points or coupons and purchase Intime products both online and offline. The program integrates social media with multiple channels, boosting sales.
Though it was launched only two years ago, Guimiquan already has more than 55,700 total members. It’s estimated that the average spend of a Guimiquan VIP is more than 100% more than a typical VIP. In the first half of 2014, Guimiquan contributed more than 5% of Intime’s total sales, compared with 2% in 2013.
Conclusion Consumers are empowered in the new digital era, and they stay connected and informed via social networks on mobile devices. Retailers should be aware of this paradigm shift and adapt to the changes. While the integration of social media platforms and mobile connectivity is disruptive and challenging, it also provides new opportunities for retailers and brands that can successfully tap into the power of social media.
Brand Tagging
Adidas Brand Page
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With over 600 million smartphone users active on social media in China, social media allows retailers to reach an immense number of potential customers and specifically target customers through specialized social platforms. Social media is not merely an online advertising channel; it’s also a marketing and customer service channel through which retailers can engage and interact with customers. Social conversation with customers can help enhance brand awareness, improve product offerings and generate more sales at a lower cost. Most important, the social platform has evolved into a direct sales channel, providing an additional shopping option to online shoppers.
Social media platforms on mobile are rapidly integrating e-‐commerce capabilities, while e-‐commerce marketplaces are going social. Social mobile commerce in China is powering ahead, and we’re seeing many innovations in the space. Retailers should integrate social media as part of their overall strategies and across different channels to provide consistent, personalized and seamless shopping experiences.
Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: +852 6119 1779 [email protected] Cam Bolden [email protected] Sunny Chan [email protected] Marie Driscoll, CFA [email protected] John Harmon, CFA [email protected] Aragorn Ho [email protected] John Mercer [email protected] Charlie Poon [email protected] Kiril Popov [email protected] Stephanie Reilly [email protected] Lan Rosengard [email protected] Jing Wang [email protected]