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    Knowledge creation on China, from proven China experts.

  • Faculty & Research

    Knowledge creation on China, from proven China experts.

Tuesday, August 18, 2020

Livestreaming e-commerce: Lasting buzz or will it go bust?

By Lin Chen

During China’s June 18 e-shopping festival this year, livestreaming e-commerce became a key battlefield. At the same time, rumours about top livestreamers losing their influence and scepticism about livestreaming platforms faking data seemed to instil a sense of chill in the frenzy. Is the buzz surrounding livestreaming e-commerce here to stay or will it soon go bust?

In its very essence, livestreaming e-commerce is about peddling products on e-commerce and social media platforms. One dominant feature of livestreaming e-commerce is that it combines marketing and sales. Although traditional television shopping channels also allow viewers to instantly buy recommended items, they don’t allow hosts to respond to real-time comments, nor can television sales data be readily collected to analyse customers’ purchasing behaviours or performance indicators such as repeat purchase rate.

With brand building being a long-term focus while sales campaigns look to immediate results, the two targets will not be achieved at the same time. As such, although it combines marketing and sales, livestreaming e-commerce might not boost a brand’s image.

Price cutting is the most immediate way to increase sales. Therefore, some livestreams try to lure customers by claiming that they offer the lowest price on the market. However, such tactics are by no means sustainable. First, the concept of “the lowest price on the market” is dubious and hard to verify. To live up to this claim, some brands have come up with exclusive livestreaming offerings or use bundle sales to blur the price of individual items, making it difficult for customers to benchmark. Second, even if livestreams offering “the lowest price” boost sales, brands might not be able to identify newly attracted shoppers. Furthermore, such price war approaches can dent a brand’s image and squeeze profit margins, rendering the strategy irrelevant.

Livestreams (particularly those performed by KOLs) are efficient in attracting new customers, but also ones who are hard to retain because most brands only make occasional appearances on livestream shows. If livestreams fail to generate sizeable repeat purchases for brands, chances are they will not become a prioritized sales channel.

What are the limits of livestreaming e-commerce?

The above-mentioned weakness, however, will not write off the long-term value of livestreaming e-commerce. Moreover, by harnessing a number of strengths, livestreaming e-commerce stands a chance to reshuffle the three pillars of retailing (people, products and places):

First, livestreamers’ endorsements boost customers’ confidence in recommended products. In the past, people had to go searching for products. In the era of recommendations, it is now the products’ turn to search for people, where livestreamers share product knowledge with customers, gain their confidence and help them to make informed purchasing decisions.

Second, livestreaming e-commerce offers a better shopping experience than traditional e-commerce. Livestreams are highly interactive and create authentic shopping experiences thanks to the particularly vivid presentation of products.

In traditional e-commerce, brands interact with customers via text messages, which are often generated by automated chat-bots. Such interaction neither draws customers close to the brand nor offers useful information in an efficient manner. In addition, unlike traditional e-commerce, livestreams feature identifiable presenters having real-time interactions with customers and modelling or trying the products they recommend.

From a value creation standpoint, livestreaming is particularly important to e-commerce giants like Alibaba as place for online and offline retail to meet. Livestreams, when empowered by more advanced 5G and AR technologies, will be not only a tool to grow sales, but also a crucial strategy for every e-commerce player. It will help transform the old logic of “customers searching for products” to a new one where “products reach out to customers through livestreamer recommendations.”

Third, livestreaming e-commerce helps connect the dots in the purchase decision-making process. When shopping offline, customers complete the whole purchasing process in store. Online, however, the process has become extremely fragmented. For example, customers may learn about a product on one platform, download a voucher from another platform, purchase the product from yet another platform, then return it (when necessary) to an offline store. Livestreams put all these bits back together, and linking customers’ decision-making loop means easier collection of data to guide further marketing plans.

What challenges confront livestreaming e-commerce?

The biggest challenge to livestreaming e-commerce is making precise recommendations. Matching the right products with the right people requires a deep understanding of target audiences. It is a daunting task for star influencers when their followers run into the tens of millions. Untargeted recommendations will hurt customer acquisition and retention and will result in the loss of brand sponsors. Therefore, it is worth pondering which products to recommend, who should recommend them and in what way.

A second challenge is to secure profit margins and retain customers. High customer acquisition costs, including high commissions for livestreaming platforms, can squeeze brands’ profits from livestreaming deals. Furthermore, brands and livestreamers are misaligned in their goals: while the former wants to direct traffic from livestreams to their stores and retain customers, the latter expects to burnish their personal brand by maintaining the trust of fans and solidifying their position as a traffic gateway.

A third challenge is for brands to streamline and reform their structure so that livestreams (which require multiple business units to co-ordinate) can fit in. It is no easy job and failure would risk not getting the desired message through to their target audience.

Multi-channel networks (MCNs), which act like incubators for new KOLs and online personalities, are not free from challenges either. For example, critics have said recently that Li Jiaqi (China’s top beauty influencer) is losing his influence. While such statements are largely groundless, they mirror MCNs’ concerns over the economic lifecycle and monetisation capability of their “products” (i.e. the influencers they churn out). Driven by such anxiety, some livestreamers have even resorted to reporting fake data and making up fake orders (which are then cancelled after their show).

Nevertheless, there are also positive changes to cheer up the industry. For one, more and more MCNs have started to explore ways to collaborate with brands for value creation, instead of just living off commissions. This requires MCNs to stretch themselves and live up to higher standards. The livestreaming e-commerce market will only prosper in the long run when all stakeholders along the value chain (MCNs, livestreaming platforms and brands) have their interests aligned and engage in an all-win game.

People, products and places in livestreaming e-commerce

People: customers and livestreamers

Many customers buy on impulse. A recent Nielson’s survey revealed that 82% of respondents have made unplanned purchases, of which 61% were triggered by recommendations. This lays a good foundation for livestreaming e-commerce to thrive.

Moreover, 47% of Nielson respondents said they have a habit of checking products in brick-and-mortar stores before clicking to buy online, and 36% said they would visit an offline store before making a purchase even if it was more than 3km away from their home. Livestreaming e-commerce can take care of such needs to some extent.

So, why do people like to buy from livestreamers? Many customers purchase products recommended by livestreamers to save the trouble of having to make decisions. Therefore, it is the livestreamers (rather than the brands) that they are loyal to – a fact which makes it difficult for brands to retain newly acquired customers.

While promoting sales via livestreaming, brands need to strike a balance between catering to the livestreaming shoppers, who might not stay and become their loyal customers, and taking care of their loyal client base. When a high-end sports brand offered heavy discounts during a top KOL livestreaming show, for example, it left a bad impression on its loyal fans, who thought the practice tarnished the brand’s high-end positioning.

The key role of livestreamers boils down to finding the right people to match their products and making deals happen. All of their work, including selecting products, negotiating prices, bringing in traffic and interacting with viewers, serves the same goal. Surveys reveal that 70% of customers agreed that social media content has impacted their online purchasing decisions. According to a recent report on livestreaming eco-system development trends, the average conversion rate of Taobao livestreaming was above 65%.

When it comes to product selection, academic research has shown that KOL livestreams are more effective in promoting brands that have a relatively small number of SKUs. This is why blockbuster items, lesser-known brands and new products tend to garner better sales. But, hiring top livestreamers, who charge high commissions, is not cost-effective for small brands.

Products: the hinge of product selection

Academic research shows that on online platforms people like to discuss expensive, status-indicative products that are more likely to engage large audiences. However, in livestreams, influencers tend to promote lower-priced items, because customers’ inclination to stockpile them will translate into high repeat purchase rates.

Scholars have also found that customers want to get a close-up look at the lower-priced products, like lipsticks and snacks, before purchasing, because such products contain uncertainties and are hard to evaluate. Interactions with livestreamers can help reassure customers, and friendly prices are also a contributor to quick purchasing decisions. One thing brand owners should heed, however, is that sometimes newly acquired customers might return the purchases they bought on impulse in large amounts.

Places: a closed loop from “planting grass” to “pulling out grass”

“Planting grass” and “pulling out grass” mark the beginning and end of the consumption loop: customers get to know a product and develop a desire to buy it (planting grass) and quench the desire by placing orders (pulling out grass). In this way, customers might become loyal followers of a brand. As such, brand owners have a lot to gain if they can piece together all the links in the consumption loop. This is where livestreaming e-commerce comes in and can help brands collect data and feedback to form more targeted marketing plans and bring customers closer to them in the future.

What is the future for livestreaming e-commerce?

To have a viable long-term future, livestreaming e-commerce players should break free from the price war and build a holistic service ecosystem centred on creating value.

In many ways, current e-commerce livestreamers resemble tour guides. While tour guides share knowledge about traveling destinations to keep their customers informed, livestreamers share product information to push customers closer to the intended destination – making purchases. While tour guides are paid salary plus sales commissions, livestreaming platforms survive on slotting fees and commissions. Just as travellers rarely frequent one place, livestreaming customers don’t tend to buy the same item repeatedly and sales are often one-offs.

Although the one-off “tour guide” model will not sustain livestreaming e-commerce in the long-term, a “travel agency” model might. Unlike tour guides, travel agencies operate as distribution channels that design travel packages, provide after-sales services, and collect useful feedback for their sponsors. They generate multiple income streams by brokering travel products, earning commissions, selling their own products, and earning exclusivity fees and advertising revenue. Going forwards, livestreaming e-commerce may draw inspiration from this business model and launch exclusive livestreams to paid users, sell their proprietary products and hire livestreamers as product ambassadors.

In order to pull off this transformation, livestreaming e-commerce platforms need to bridge customers and brand owners and offer professional advice in matching “people, products and places”. In other words, they should position themselves as one-stop service package providers, rather than promotion and marketing channels stuck at the lower end of the value chain.

Moreover, in order to survive and thrive, livestreaming e-commerce platforms must hone their operational prowess by offering precise solutions, becoming rational and providing customised services.

Brand owners that want to enter the fray of livestreaming e-commerce should understand that the ultimate goal of livestreaming is not to simply grow sales, but to acquire new customers, create value and improve purchasing experience. Therefore, they must develop their own digital muscle to cover all links and touchpoints along the purchasing process, instead of relying on livestreaming platforms or they will fall easily to the trap of price wars and channel conflicts.

Ultimately, livestreaming e-commerce is maturing and still has ample room for growth in matching people with products, collecting consumption behavioural data, creating authentic shopping scenarios. However, brands must not bet all their chips on livestreaming e-commerce. Instead, they should, while including livestreaming e-commerce in their arsenal as a powerful tool to integrate marketing and sales and manage customer relations, focus on developing a holistic, omni-channel strategy.

Lin Chen is an Assistant Professor of Marketing at CEIBS. For more on her teaching and research interests, please visit her faculty profile here.