Selling on TikTok and Taobao

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As fashion shows go, the one that took place on Facebook Live in April 2021 was unique. The first model to strut down the catwalk was Cindy, a seven-month-old puppy wearing a green and blue canine flotation device. Next up was Mandalay, a tan dog wearing a fleece hoodie with built-in backpack. The omnichannel team at Petco, headed by chief marketing officer Katie Nauman, organized the livestream event, which highlighted canine outfits from two of its house brands. Each item modeled was featured prominently at the bottom of the screen. “If you see something you like, you can just click it and immediately make your purchase,” the host explained. “Get your wallets ready!”

Consumers responded. The event, which lasted just 22 minutes, drew 200,000 live viewers; six months later, nearly 1 million people had watched clips from the show. Sales from the event were twice the cost of producing it; engagement was 2.6 times higher than organizers had expected; and all seven models (provided by a rescue shelter) were adopted afterward. The doggy fashion show was Petco’s first foray into livestream commerce but not its last: Three months later, a livestreamed sports competition for dogs, Petco Field Day, drew 2.4 million viewers and generated twice the return on investment as the fashion show did.

In the 1980s the QVC and HSN cable channels, together with a host of infomercial producers, demonstrated the power of selling on television. Over the past decade the format has migrated to the internet, where online streaming video that offers the ability to purchase in real time—or livestream commerce—is fast becoming the medium of choice. Today brands can sell via video on a host of platforms, such as YouTube Live, Instagram Live, LinkedIn Live, Facebook Live, Twitch, Twitter, and TikTok.

In China, where Alibaba’s Taobao platform provides an app that integrates product demonstration with the ability to purchase instantly, the livestream commerce market hit 1.2 trillion yuan (roughly $200 billion) in 2020, accounting for 10% of the online shopping market. It is projected to account for as much as 20% to 25% of online sales in 2023, according to iResearch China. In the United States, livestream commerce accounted for $6 billion in sales in 2020 and $11 billion in 2021, and growth is increasing dramatically: Revenues in 2023 are projected to reach $26 billion, according to Statista.

In the United States, livestream commerce has proven particularly attractive to beauty and fashion brands. At Nordstrom, for instance, 50% of livestream events were beauty focused in 2021. But a growing range of companies are also beginning to offer products and services via livestream, including Ferragamo and Cartier in luxury goods, Lowe’s in home improvement, and Walmart in multiple product categories. Walmart’s entry in particular illustrates how established brands are embracing livestream commerce as a way to build consumer engagement and present a modern, innovative image to customers. One sign of the format’s potential: Although Walmart has some 4,700 U.S. stores and more than 10,000 worldwide, its chief marketing officer, William White, says, “The future of retail lies in social commerce.” Walmart is scheduled to run more than 100 livestream events in 2022, up from 30 in 2021.

In this article I explore the forces propelling the rise of livestream commerce, explain the motivations of brands experimenting with the format, and offer guidance to companies as they consider the smartest ways to invest in this emerging channel.

What’s Driving Livestream Commerce

In a typical livestream-commerce event, the consumer watches product demonstrations presented by influencers (also called hosts or creators and referred to as KOLs or “key opinion leaders” in China). Hosts are chosen for their personality, influence, or knowledge (or a combination of those factors), and they help to make the experience entertaining for participants.

Some of the excitement around the livestream format stems from its embrace of video. Research has shown that video achieves greater engagement than does text or still photography. Now that traditional e-commerce is a quarter-century old, consumers find it boring. It’s becoming difficult for more static websites to generate much enthusiasm, particularly among Gen Z and younger Millennial consumers. Yes, young people still buy from Amazon—but so do their parents and grandparents. It’s not surprising that they prefer a fresher alternative.

The ubiquity of smartphones and the dominance of social media are also drivers. In study after study, social media is found to have the greatest influence on the buying patterns of Gen Z consumers, with Millennials not far behind. Social media sites are designed to be sticky, and many are designed for, or work well with, livestream commerce. In China, for example, the sheer dominance of Taobao Live guarantees a sizable audience when a company hosts a livestream event. Although most of the large U.S. social-media platforms are embracing livestream commerce, the favored format seems to be TikTok, the short-form platform featuring user-generated video and owned by China-based ByteDance. TikTok has the advantage of being designed for video, whereas other platforms are being retrofitted to accommodate video. People express themselves on TikTok through dance, comedy, tutorials, and wherever else their imagination takes them. Its demographics are young—41% of users are between the ages of 16 and 24, and 90% of those users open the app daily. That means there’s always an audience for brands to sell to on TikTok.

Livestream commerce also creates a sense of community. While traditional online shopping is solitary, livestream commerce has a communal feel—similar to watching the Super Bowl. Consumers are able to see and be seen in what might be thought of as a meaningful social moment. Moreover, they can gain social currency with friends for attending a novel event. Or they may develop friendships by participating in livestream events. TikTok, for instance, uses an algorithm to connect people with similar interests. QVC, as it has morphed beyond cable to include livestream commerce, now has dedicated YouTube channels that seek to connect people with overlapping interests—whether in beauty, jewelry, food, or home furnishings. When consumers feel that they are among “friends,” they have a more pleasurable shopping experience. Feeling a sense of community may also help buyers to rationalize their purchases, because affirmation is perceived or confirmed when they buy the same things that others are buying. Social imitation is a powerful force.

That is why influencers are so essential to livestream commerce. Marketers have always known the value of personal influence. It is often cited by consumers as the most important reason for a purchase. Today’s opinion leaders may have millions of followers. Walmart’s U.S. Holiday 2020 livestream commerce event on TikTok featured Michael Le, an influencer with approximately 50 million followers, in a variety show featuring national and private-label fashion brands for sale.

What’s in It for Companies

An obvious reason companies are embracing livestream commerce is to drive short-run revenue, but it’s not the only one. According to interviews with executives at a range of companies experimenting with the format, there are five main objectives: generate immediate sales, reach new consumer segments, introduce new products, educate consumers, and create buzz.

Generate immediate sales.

A boost to short-run sales is usually the objective for low-commitment products and services—those that are not too expensive or complicated. Indeed, much of the success of the Taobao Live platform in China comes from livestreaming in these product categories. Events can be surprisingly informal and improvised: Some 60% of Taobao Live sessions are broadcast from stores and use sales associates as the demonstrators and KOLs. Taobao executives like to say that all you need in order to sell on their platform is a camera and a mobile phone. Similarly, in the United States, Nordstrom has had success with livestream shopping events hosted by store employees. These efforts represent true online/offline integration and a new form of the omnichannel approach.

Reach new consumer segments.

Livestream is most popular with members of Gen Z and younger Millennials—attractive target markets for many brands. As Daniella Vitale, Ferragamo’s North America CEO, points out, the demographics for most luxury brands skew older, yet the brands must reach younger consumers to build their future success. To do that, Vitale’s team selects celebrities and influencers and arranges TikTok events that run on influencers’ channels, since those sites are considered “more authentic” than a channel owned by the brand.

Introduce new products.

Livestream commerce has produced some dramatic results for companies launching new products. Jimmy Choo, for example, has had substantial success in Asia launching sneakers at high price points. Helene Phillips, Jimmy Choo’s senior vice president, tells of success using KOLs on a livestream commerce event that reached 16 million eyeballs and sold 300 pairs of sneakers in minutes on Tmall. That may not seem like high demand, but as Phillips explains, scarcity is critical for luxury products: “You want to sell out quickly, and you can’t be too available.”

Educate consumers.

Livestreaming is a powerful means of not only making consumers aware of product alternatives or categories but also of teaching consumers how to use a product. Lowe’s runs livestream commerce events to educate viewers on product usage and to drive online sales. Livestream fashion shows introduce consumers to new styles and encourage sales during the runway event. Livestream cooking demonstrations give participants the ability to purchase ingredients or utensils. Albertsons, the mega supermarket chain, has run its own successful livestream commerce events using the Firework platform. A more direct form of education occurs when consumers can livestream with a sales associate in the store. Using an app such as Hero, a consumer can chat with a sales associate who can explain a product and send photos.

Create buzz.

When done well, livestream commerce events generate buzz thanks to their novelty, the sense of community they can build, and the excitement the hosts create. Mark Yuan, the cofounder of Wonder Live Shopping, a livestream commerce platform in beta testing, explains that when consumers develop a habit of accessing the same influencer channel on the app site, they become loyal to the host and that community. A successful livestream event can lead to more sales after the event—largely owing to word of mouth. This cascade effect depends on the product category: Fashion and luxury brands, for instance, may provide a high social value to consumers who share them with friends and acquaintances. The higher hedonic value of such brands creates more positive emotions that lead to buzz. Alternatively, buzz may be a natural outcome of a passionate enthusiast community. The start-up Whatnot focuses on collector and enthusiast audiences and, according to CEO Grant LaFontaine, when viewers have a great experience, they talk about it because it becomes part of their identity.

A Guide for Companies

Particularly in the United States, livestream commerce is still an experimental channel, and no single company has yet cracked the code. As your company begins experimenting with it, here are the key factors to consider.

Integrate it into your marketing strategy.

Companies will follow different paths to achieve livestream commerce success. But the first principle for all of them is that livestream must be part of the overall marketing strategy. Livestream is not an independent marketing vehicle—it’s just a new channel. What is presented on livestream must be compatible with product line plans, brand positioning, and overall communication objectives.

For many companies, livestream commerce is proving particularly effective as a way to build rapid awareness and to try out new products or test new markets. Because the focus is on immediate purchases, customers tend to buy more quickly while watching a livestream event than when browsing in a store. Amanda Baldwin, CEO of Supergoop!, says that when it launched in China, livestream commerce gave the brand immediate visibility, which is atypical for a brand of its size just starting out.

After an event, other elements of marketing strategy come into play to generate repeat purchases and long-term loyalty. Social media, direct mail, and advertising build and extend customer engagement to generate (more) buzz and reach additional customers.

Recognize the learning curve.

As with any new go-to-market vehicle, success won’t happen instantly, and managers must ask questions to fine-tune their approach. Are we reaching the correct audience? Are we using the right technology? Is the content appropriate for the audience? Executives conducting livestream commerce events generally say that their first efforts were suboptimal but that they learned from them and built successful processes for future events. “It can’t just be a camera in a store,” says Ferragamo’s Vitale. “Production values are critical to reflect the status of luxury brands.” Brands in various product categories will learn different lessons from their initial forays.

Run livestream events when there is news.

Novelty or newness is highly correlated with sales success. Offering a special product available only during the livestream is one way to create novelty. Newness can be created by seasonality—marking holidays or special times of year like back to school. Many brands build their livestream commerce schedule around holidays that are meaningful for their product categories. This sort of promotion planning is familiar territory to most brands. Nordstrom Senior VP Fanya Chandler suggests that brands should identify a regular cadence for livestream commerce events so that consumers can plan when to attend.

Select optimal platforms.

Many players are racing to build livestream commerce solutions. Retailers have a range of options to choose from.

Native social platforms, such as TikTok, Instagram, Facebook, and YouTube, are layering new functionality for livestream commerce into their existing platforms, hoping to capitalize on their massive audiences.

Marketplace platforms, such as Amazon, are building livestream capabilities (such as Amazon Live) into their existing e-commerce infrastructure to give buyers and sellers a new way to interact. Additionally, start-ups such as Whatnot and NTWRK are building marketplace platforms with the objective of providing a seamless experience for buyers and sellers to make transactions within a livestream video format, similar to Taobao in China.

Licensed software providers, such as CommentSold, Bambuser, and Firework, are enabling companies to run livestream commerce events on their own websites and apps, giving companies more control over their customers’ experiences and data.

Livestream commerce has a communal feel, which may help buyers rationalize their purchases. Social imitation is a powerful force.

Although all three approaches hold promise, competition is intense, and each has its own challenges. Social media platforms have the advantages of reach and scale, but their ad-based business models and natively social tech design are inhibitors to optimizing the livestream experience for consumers. Alternatively, e-commerce marketplaces are more tailored to selling, and therefore may be better positioned to integrate livestream commerce. But Amazon, at least, has famously prioritized efficiency over user experience on its site. Marketplace start-ups are laser-focused on experience and capturing communities of enthusiasts to gain traction, but they rapidly must scale their double-sided marketplaces (brands and consumers) to win adequate share. Lastly, licensed software allows for companies to embrace livestream commerce while closely controlling the experience and resulting data, but this approach limits reach to audiences already engaged on their own websites.

For companies, the choice of platform is largely driven by which market segments are the priority, because the different platforms have different demographics. Consideration also must be given to the typical content featured on the platforms. NTWRK, for example, is particularly strong in streetwear and gaming, and might be the right choice for brands operating in that space.

Select your influencers wisely.

There should be a match between the brand’s persona and the persona of the influencer. Brands utilizing more than one platform may need to choose a variety of influencers. The size of the influencer’s following is, of course, a significant variable. Brands should ask, What number of consumers is the influencer likely to bring to the livestream event? There is some debate among companies as to the value of macro versus micro influencers. The latter may deliver fewer numbers, but customers may consider them to be more authentic. That quality is particularly relevant in product categories where genuine expertise is valued.

Measure your livestream success.

When making livestream commerce commitments, companies must track four metrics: audience size, audience engagement, short-run sales, and long-run impact.

When it comes to audience size, bigger is usually better, but it depends on the breadth of the market segment you are trying to reach and whether the product has mass appeal. The bias for most companies is to reach larger audiences via livestream. Traditional forms of marketing are then used to build awareness for upcoming livestream events to drive future attendance.

Audience engagement can be measured during the event by the quantity and quality of interaction between audience members and the host. On most livestream platforms, viewers have the ability to comment, to ask questions about the product, and to register “likes.” After the event, companies may also track Net Promoter Scores. Greater engagement levels are assumed to signal a more positive customer sentiment toward the product and the host, and brands can gather meaningful data from this real-time feedback.

The ultimate benefit of livestream commerce is the consumer’s ability to purchase items in real time without leaving the stream. Thus, salesduring the event are an obvious performance metric. Companies predict sales for a livestream event by setting a target conversion rate given the size of the audience and conversion experiences from previous events.

The long-term impact of livestream events is harder to define, but similar to other marketing campaigns that generate buzz, it may be tracked in part by social media comments and coverage in mass media. And although livestream commerce does tend to shorten the customer journey when compared with other selling environments, companies should recognize that viewers who have not purchased today may still be interested in their products. So when measuring the long-term impact, brands should understand that viewers of livestream events may convert to customers at a later date. Therefore, marketers will need to find ways to create ongoing connections with livestream viewers.

Livestream commerce is at an inflection point in the United States. Marketing executives have been creating their own road maps, experimenting and investing in livestream commerce as part of their integrated marketing strategies. To gain early mover advantage and reap network effects, companies need to start early, learn fast, and build large audiences before competitors can make significant inroads. The spoils will go to the companies that get it right quickly.

Source: Havard Business Review