The last few years have seen the rapid growth of “social commerce” in China, a term that refers to the integration of shopping into social media platforms. China’s social commerce revolution has been led by Xiaohongshu (also known as Little Red Book) and ByteDance’s Douyin (China’s version of TikTok).

Traditional e-commerce on platforms like Taobao/Tmall, JD, Amazon or Rakuten depend on search-based journeys —consumers actively seek out products through search queries. This model relies on pre-established consumer intent and the consumer’s ability to navigate through extensive product listings.

Imagine a Chinese consumer who wants to buy protein powder – they will search for protein powder on Tmall, browse different products and prices, and ultimately make a purchase. Search engine marketing is thus essential for protein powder brands so that their product appears near the top of the search results. Cross-media campaigns stimulate demand for protein powder and help consumers to recognise a brand – but it is difficult to accurately attribute sales to these campaigns.

However, in the last few years, two of China’s most prominent social platforms – Douyin and Xiaohongshu – have introduced e-commerce functionalities creating a “preference-based” rather than search-based e-commerce model. These two platforms offer brands highly sophisticated tools to reach and convert target consumers.

Algorithms on these platforms serve product listings to users through engaging content formats such as short videos and livestreams, tailored to the users’ preferences and behaviours. This approach not only simplifies the discovery process but also enriches the shopping experience and stimulates spontaneous purchases.

For example, if a male user browses several exercise-related videos every day, Douyin can display product listings for protein powder, athletic apparel, or other supplements, and when the user sees those products offered to him for purchase, he can make the purchase instantly within the app. Once they are converted on one purchase, Douyin will expose that user to additional fitness, sports, and healthcare content and products. This same model is applied across all possible interests and product categories, from beauty to pets to baby products and beyond.

Apps like Douyin can continuously optimise for users’ interests and serve relevant ads. As a result, the app executes highly accurate product matching to the user’s interests, and therefore results in more conversions and repurchases. Douyin posted US$200 billion in GMV in 2022, up 80% from the year prior. For 2023, this is expected to be closer to $350 billion.

For brands, this preference-based system can be a more attractive model for reaching target consumers than simple search engine marketing.

Search engine marketing is a battle to capture existing demand for the users that have already decided to buy a given product, whereas social commerce has exciting potential for demand generation and an efficient means to reach target buyers.

In this new landscape, it is key for brands to maintain a consistent omni-channel presence. With a wider and shallower funnel, consumers are now discovering and buying brands across multiple platforms.

Traditional search-based marketplaces are still relevant and should play a prominent role in a brand’s e-commerce strategy. But social commerce innovations on Douyin and Xiaohongshu have redefined the boundaries of online shopping — and brands need to capitalise on these unprecedented opportunities to connect with consumers in more meaningful, engaging ways.

This article was provided by our content WPIC Marketing + Technologies, the headline sponsor of China Consumer 2024, CBBC’s flagship annual consumer conference.

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In stark contrast to the overcast outlook of China’s overall economic recovery, the luxury sector has seen positive signs after what has been described by Vogue Business as “expectation-beating growth” in the second quarter of 2023, retaining the momentum gained in Q1.

This is evidenced by Burberry’s 46% sales growth in the mainland in the first three months of the year. Similar traction was also captured by heavyweight LVMH, which clocked sales growth between 40% and 45% in the first half of the year.

Nevertheless, the resumption of offline vitality in the luxury market doesn’t seem to have stolen the thunder of digital practices looking to energise the revival of the sector, as signposted in the China Luxury Market Digital Trends 2023 Report released by Tencent Marketing Insight with additional analysis provided by Boston Consulting Group.

Douyin (the Chinese version of TikTok), which is home to more than 600 million monthly active users, 150 million of whom show a strong appetite for extravagant purchases, has become increasingly important for facilitating the growth of luxury in China. According to the 2023 Douyin Luxury Industry White Paper jointly published by Ocean Engine, Douyin E-commerce, Trend Insight and Deloitte China, the viral short video app has now become a marketplace for over 70% of China’s luxury buyers.

The platform expects to see its most heavyweight luxury consumers increase their annual spending by 7% from RMB 600,000 (£66,470) to RMB 643,000 (£71,234) in the coming years, while moderate and light luxury buyers, who are more price-sensitive, are expected to reduce their yearly consumption of luxury items by 5% to RMB 112,000 (£12,497) and 15% to RMB 16,000 (£1,772), respectively, reflecting a more cautious consumer behaviour.

While stylishness/trendiness and the ability to cater to the pursuit of individuality remain core considerations for Chinese consumers, the overall trend of making purchases for self-satisfaction is growing in relevance for luxury consumption, and has been shown to be a priority for almost half (47%) of Douyin’s luxury seekers. Luxury products are also expected to be more compatible with daily life, as agreed by 49% of 1,590 respondents, while allure is enhanced for those seeking items for more diverse occasions.

Meanwhile, due to ongoing economic uncertainty, the attribute of preservation of value has been growing in appeal to luxury shoppers, resulting in items such as jewellery, watches and luggage seeing the fastest growth in sales. The subcategory of bags and suitcases, which currently has a market share of 35%, drew the most interest from Douyin users who fall under the age groups of the post-80s and post-90s generations (i.e. Millennials and Gen Z).

These demographics are paying more and more attention to product quality and are more likely to immerse themselves in short video content focusing on product attributes, as well as evaluations or reviews from key opinion consumers (KOCs).  Sixty four per cent of these demographics endorse mainstream luxury brands, and 66% invest in classic designs, with affordability for varied use scenarios, including work and life, being the most valued. This indicates that collaborating with KOCs who can share their user experience in a way that is viewed as “more genuine and authentic” should be a core strategy for luxury brands in leveraging Douyin’s ecosystem, to not only resonate with their target audience but pull off sales growth in the discussed category.

Jewellery contributes to nearly one-fifth (19%) of Douyin’s luxury market space, thanks largely to the youngest cohort: post-00s shoppers. Characterised as “trend chasers”, this demographic is interested in branded marketing events, such as fashion shows, exhibitions and pop-ups, while crossover and artistic collaborations are also likely to turn their heads. In this vein, luxury brands are advised to take agile actions in tapping into topical events in their marketing executions, while online synchronisation of offline activations is the rule of thumb for brands looking to expand their traction amongst the younger generation of luxury shoppers.

While watches comprise 15% of the digital marketplace at present, that figure is expected to rise to 18% as users born before the 1980s – who are deemed to be “lowkey” shoppers who pursue a sense of value – become the backbone consumers for the watch segment. Owning watches is intended to portray a sense of “quiet luxury” on special occasions, which is in line with their consumer persona.

The content interests of this consumer demographic appear to be centred around brand culture and history, and they are also more likely to follow brands’ official accounts. This gives luxury timepiece makers a special edge in capitalising on the “closed loop” e-commerce system in Douyin, enabling a seamless online purchasing experience while deepening their relationship with luxury watch fans.

The phased rebound in the luxury sector has boosted confidence in China’s consumer market, leading to a prediction of an annual market growth of 18% to RMB 580 billion (£64.25 billion) this year, per Deloitte. As a digital space, Douyin will play a greater role in assisting luxury players in connecting with and further engaging China’s potential luxury buyers who are digitally savvy,  continuing to act as a centrepiece for the industry to follow the same trajectory.

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China is the world’s leading e-commerce market, generating 50% of all global transactions. Attempts to pin down the value of the country’s e-commerce market vary, but they are always in the trillions, with estimates suggesting the market will be worth over US$3.5 trillion (£2.8 trillion) by 2024.

It’s clear that Chinese consumers are very comfortable buying online, but how and where they buy is continuously in flux, presenting both challenges and opportunities for international brands. The rise of over 200 million Gen Z’ers as a driving consumer force is setting new trends in communicating with target customers, the most salient of which is the decentralisation of the e-commerce landscape.

For years, Alibaba’s Tmall and rival JD.com have been the first port of call for both consumers and international brands. But the winds of change are increasingly blowing consumers towards social commerce platforms like Douyin, Xiaohongshu (RED) and Kuaishou, that bring together entertainment and shopping. And brands are having to follow suit.

In this article, we review some of the latest developments in the social commerce field so that you can choose the right platforms for your brand.

Foreign brands can now sell directly through Douyin

In the past few years, the social commerce platform Douyin (China’s version of TikTok) has been making waves as it establishes itself as a leader in e-commerce live streaming (also called live commerce) and short videos. Douyin was already a top player in this category, having reached a GMV from live streaming of $1.5 trillion in 2022 and launched Douyin Mall, a shopping interface like Tmall that can be accessed directly from the app. And Douyin’s share of the pie is only going to get bigger as it has now started allowing all brands – including foreign brands – to apply to sell products on the platform directly through cross-border e-commerce.

As Sandra Weiss from RedFern Digital notes, “Brands can now sell directly on Douyin without setting up a domestic entity or establishing a business license within mainland China. This means that they can take advantage of Douyin’s massive social influence and link products directly in short videos and live streams, decreasing the loss of traffic when driving customers to make purchases.”

Weiss adds that the ability to sell directly on Douyin emphasises the need to explore brand-run content, especially live streams, rather than relying solely on influencers. “Over 50% of sales on Douyin among the top 500 brands on the platform came from brand-run live streams in February 2022, and in 2023, the market share of brand live streaming is estimated to exceed 50%.”

Kuaishou records first profit in several years

China’s second-largest short video company and major Douyin rival, Kuaishou, recently realised its first quarterly profit, reporting an adjusted net income of RMB 42 million (£4.8 million) for Q1 2023 compared to a loss of RMB 3.7 billion (£423 million) in 2022, according to Technode. A large portion of this success can be attributed to the platform’s e-commerce business, which achieved total sales of RMB 2.25 trillion (£257.45 billion) in Q3 last year.

Kuaishou users are typically located in lower-tier cities (think Shijiazhuang, not Shanghai) and have a fairly even age spread – while most of the users are young, like any app, just under a quarter are over the age of 50. They are also on the lookout for bargains, with lower-priced clothing and cosmetics and everyday household items selling well in Kuaishou KOL live streams (note: unlike Douyin, Kuaishou doesn’t have its own built-in mall yet).

This means that Kuaishou won’t necessarily be a good fit for every international brand looking to enter the Chinese market, but it could work for budget-friendly products or companies that already have a fun, tongue-in-cheek brand aesthetic (think along the lines of what Duolingo has been doing on TikTok).

Xiaohongshu remains a game changer for product discovery

Xiaohongshu, on the other hand, is the perfect launch site for boutique high-end brands. Its main users are affluent, educated women who are actively looking for new products to try, using it to share product and brand experiences and give and obtain recommendations and tips. As one of the most popular platforms in China, Xiaohongshu currently has over 150 million monthly active users, representing a 50% growth in traffic compared to January 2020.

Xiaohongshu has introduced commerce to the platform, allowing users to either buy directly from a brand-owned Xiaohongshu store or by linking externally to a Tmall or WeChat store to purchase. However, as Mark Bellamy from Aiken Digital cautions, “user-generated content (UGC) is still the lifeblood of Xiaohongshu, so when it comes to standing out and succeeding, recommendations are everything. To get brand exposure, it is not about how much you pay, but how big your brand’s tribe of followers is.”

Don’t forget to localise your branded website

An often-overlooked channel is direct sales through brands’ own global .com sites. Consumers often visit retailers’ and brands’ websites to cross-check information they have seen on platforms like Xiaohongshu. While many customers will then move on to an e-commerce platform to make their final purchase, having a good localised website is still an important part of creating a complete brand experience.

“Unlike Amazon platforms, with their quick-in-and-out transactional stores, China’s e-commerce stores are much more information-rich and as much a marketing channel as a sales channel. Many consumers still look up products on e-commerce platforms, even if they are buying it somewhere else,” notes Mark Tanner from the China Skinny.

However, many brands are still not making simple adjustments, such as adopting Chinese payment methods like WeChat Pay and Alipay or ensuring sites load quickly in China. The relatively low-cost investment in these adjustments is often well worth it because they typically have a higher conversion and average basket than in the home market.

What does the social commerce revolution mean for your brand in China?

“There is no golden rule for determining which e-commerce platform to sell on in China, and brands should evaluate the platforms based on their target audience, category and objectives,” says Mark Tanner from China Skinny.

It is also essential to look for growth opportunities across all platforms to meet the consumption patterns and preferences of a changing shopper. As emerging platforms look to expand their brand portfolio, there is a burgeoning opportunity for international merchants to diversify their sales channels.

From a risk management perspective, a decentralised approach to e-commerce avoids the difficulties of being overly reliant on one channel or influencer to drive revenue. Different challenges arise around pricing management and ensuring no SKUs become over-distributed and devalued. Both can be managed with adequate planning and resource.

China Consumer 2023

This article was produced as part of a series for China Consumer 2023.

Learn more about CBBC’s flagship consumer event of 2023 here.

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Conor Murray, IP attaché from the British Embassy Beijing, delivered opening remarks for the IP roundtable online. Around 25 representatives from the food and drink, pharmaceuticals, publishing and luxury sectors attended the meeting and shared their IP concerns with Douyin’s brand protection and legal departments.

Douyin’s (the Chinese arm of TikTok) e-commerce department was established in June 2020, and its e-commerce business has since seen rapid growth, reaching RMB 20.8 billion (£2.3 billion)  in gross merchandise volume (GMV) during its new year shopping festival in January 2021. Douyin also exceeded 600 million daily active users (DAUs), according to data in August 2020. Douyin’s e-commerce business has adopted a combination of short video and live streaming, inviting influencers (达人) that range from level 0 to level 6 based on their sales promotion capacity, power of content, influence towards followers, and service ability, as well as sellers to promote and distribute products to interested Douyin users.

Douyin’s brand protection team took this opportunity to introduce its proactive monitoring measures to rights owners. Rights owners raised concerns about whether Douyin could proactively intercept users that misused their trademarks in Douyin IDs and nicknames. Douyin also provided a detailed introduction to rights owners on collaboration around test purchases and offline enforcement.

For the next step, CBBC will cooperate with Douyin to develop proactive monitoring and test purchase programmes, inviting interested rights owners to join these IP initiatives. If you are interested in learning more about Douyin’s IP protection measures, please feel free to contact us.

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Anyone doing business with China in recent years has been aware of the importance of WeChat, a social media one-stop-shop allowing chats, promotions, shopping and payments all on a single platform. And its importance can’t be understated for most businesses in China. However, its popularity and prevalence has led some companies to forget everything else and replace a broad marketing plan with a simple WeChat plan.

According to Arnold Ma of Qumin, WeChat should be regarded as more of an operating platform than a social media channel. And when it comes to social, there’s a new kid on the block. That kid is Douyin – a short video app that was initially popularised by people lip-synching along to famous songs. Users then started showing off other talents, performing comedy sketches and entertaining more generally; Douyin was soon mostly made up of user generated entertainment content.

Over a billion videos are viewed every day by the 350 million Daily Active Users on Douyin in China – not bad for a company that was developed by a team of 8 people over 200 days. Today more than half of its users are under 25 years old, making it predominantly Millennials and Gen Z users who are active on the site.

Many of the early Western social media platforms were desktop-based sites that have since been adapted to mobile. But China – without a long history of desktop internet – leapt straight to mobile. As a result, it’s been able to develop apps that are more suited to mobile, bypassing the desktop legacy that so many western sites have been stuck with. Douyin’s format of videos being presented in full portrait mode (as opposed to the horizontal mode that is more suitable for desktop viewing) has really captured a youth audience who are used to swiping, scrolling and short form content.

Today, only 15 percent of teens now post to their WeChat moments feed says Ma. “When social media platforms go mainstream, they lose the youth,” he explains. “We can see how Facebook lost young people when they went from niche to mainstream and we now are seeing the same with WeChat.”

Douyin’s video only platform has come at the right time. This is particularly true in China, where Chinese people spend a combined 600 million hours a day watching short videos on their phone. Ma argues that Douyin is leading the way in third generation social media. First generation – the MySpaces of this world – made users dive into and out of other users’ pages or blogs. The second generation of social media platforms such as Facebook aggregate a feed that allows people to see all of their network’s content by scrolling down one page. But the third generation Douyin-style platform is content rather than network led. Artificial Intelligence algorithms present the user with content that will be most suited to them, regardless of whether they “follow” the content producer or not.

Users can then like and comment on the content. More likes and views cause the algorithms to present the content to those users who favour those categories and positions it in front of more users.

Therefore, even content from accounts with a relatively small number of followers can get seen by huge numbers of people if the content they produce is suitably interesting and has “thumb-stopping” power.

For businesses this presents an interesting opportunity. Unlike sites like WeChat or Instagram where users must already be following a business account to view their content, with Douyin, the content might be presented to them whether they follow the account or not. This enables the size of the reach of the business to be much wider. Furthermore, the more content produced and the more it is viewed, the higher up the rankings that user becomes. Therefore, Douyin starts doing the promotion on behalf of that business.

And of course, in-app shopping is available, allowing people to buy clothing worn or items featured in the content. “I was watching a video the other day of this man picking fresh chillies in rural China, chopping up meat, preparing freshly ground spices and herbs then cooking everything on a huge wok over a wood burning stove,” explains Ma. “My mouth was watering as I watched this. I said to myself, I wish I could eat this now. And then in the bottom corner a button popped up to enable the user to buy that exact chilli and beef sauce. In China, you could order that at lunch time and have it with rice in the evening! This is not an ad, it’s the perfect and seamless integration of content and commerce that the likes of Facebook have struggled to crack for years.” he says.

This is not an ad, it’s the perfect and seamless integration of content and commerce that the likes of Facebook have struggled to crack for years.

Adverts, according to Ma, are getting smarter. Companies don’t need to have followers and reach users specifically targeted by the platform’s AI. A combination of organic branded content and paid for ads (to boost reach) offer two different (and low cost) approaches, and real time insights can be garnered on products from users’ comments and reactions.

Douyin has a sister site in the West called TikTok (which is also owned by the Chinese company Bytedance) but Ma is quick to point out they are not the same. “Douyin is less silly than TikTok,” he explains. “It’s more useful and more creative and is hungry for quality content.” He argues that it will bring back the rise of the creative rather than the commentator. “Sites like Instagram brought about the rise of the social influencer who were mostly nothing more than commentators. Foodies who took pictures of their meals or fashionistas taking pictures of a handbag,” he says. “With Douyin we will see the rise of the social creator – actual chefs preparing the meal or designers making fashion items.”

For British brands looking to keep their finger on the pulse of the zeitgeist, a presence on Douyin might well be an incredibly cost-effective way to tap into China’s youth market.

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Short-form videos are increasingly becoming the go-to medium for advertisers trying to reach a large or targeted audience in China. Usually between 15 seconds and one minute in length, short form videos are watched on mobile screens by hundreds of millions of Chinese Gen-Z consumers and are now more popular than TV shows.According to iMedia Research, there were an estimated 242 million short-form video viewers at the end of 2018 and they are taking up a growing share of the advertising market. These figures are only expected to grow; over 85 per cent of short-form video watchers are below 35, with the majority being 25 to 30-years-old – a key demographic for many brands.

Last year, China’s online video market income grew by 56 percent to 60 billion yuan (£7 billion) with half of that coming from ad revenue according to iResearch. Mobile video is now China’s fastest-growing digital ad platform and is expected to overtake television advertising by 2021.

The videos are often uploaded, distributed and shared through well-known Chinese social media channels such as Weibo and WeChat, or through other video streaming apps and micro-video sites such as Xiaohongshu, Kauishuo and Douyin. Douyin, which started out as a playful lip-sinking app, has now evolved into a platform that allows people to upload 15-second videos on a range of subjects and boasts 150 million daily active users.

Whilst platforms may come into and out of fashion, the medium of video isn’t going anywhere

According to Lionel Sim, founder of China Tech Roundtable and a former staffer at WeChat, the popularity of short-form video is due to three factors.

“Firstly, the scarcity and fragmented nature of time drives the popularity of short-form videos for users,” he says. “Short video platforms also use social aggregation to publish timely content from social networks, and thirdly, short videos encourage impulsive and emotional engagement. Users want a meaningful connection between their online and offline environment,” he explains.

Whilst platforms may come into and out of fashion, the medium of video isn’t going anywhere. The use of influencers – individuals or celebrities with large numbers of followers – is a common tactic adopted by brands trying to reach targeted customers, but increasingly, as short-form videos evolve, their quality is improving – there is a shift in production from a phone to high-quality studio production by companies more used to making television commercials (TVCs).

Brands are becoming fully aware of the value of short-form videos and are using them to launch promotional campaigns, conduct market research and to promote products or their brand – often with the help of influencers.

Chinese star Chris Lee stars in a short film for Gucci produced by Yhden.com

Tom Pattinson, is the Creative Director of content creation agency Yhden that makes short-form videos the China market. He has worked with luxury brands including Gucci, Jaguar and Xiaomi. “There’s a sweet spot where quality content featuring an influencer can be seen by a much larger and more targeted audience than a TVC and is significantly cheaper to produce and free to distribute,” he says. “One of our recent films was viewed 400 million times in its first week and the engagement was phenomenal. There’s no better return on investment (ROI) than short-form videos right now.”

Mistakes, such as the recent Dolce & Gabbana debacle in which the Italian fashion brand released a series of videos for the China market that were deemed culturally insensitive at the very least (and outright racist by many), shows how important it is to get the content right.

In January this year, the China Netcasting Services Association – a government entity – issued a new set of rules containing 100 provisions on prohibited online video content. These Detailed Censorship Standards for Short-Video Content Featured on the Internet are setting out standards for this new form of media as its influence grows. Many of these rules are politically driven and warn against “displaying offense towards China’s political system or legal policies”, and some are very open to interpretation, warning against presenting “unhealthy or negative values and world views.” Most of these provisions won’t affect companies looking to market their brands, but where the line is drawn on “stimulating content”, a “decadent outlook on life” or “non-mainstream concepts of marriage and love” might be interpreted differently in different cultures.

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