Is livestream e-commerce the new forever magic?

Whether on short-video apps or traditional e-commerce platforms, livestreaming is becoming an increasingly important strategy in marketing plans, with more and more livestreamers and brands flocking to livestreaming rooms. When the pre-sale for the 2021 Double 11 shopping binge started on the night of October 20, China’s two top livestreamers, Viya and Li Jiaqi combined to sell nearly 19 billion RMB worth of goods.

What makes livestream shopping such public revelry?

Before revealing its hidden secrets, we have to understand what livestream shopping is.

Livestream shopping is a real-time online infomercial where livestreamers demo products through live videos and quickly close sales with consumer audiences. Livestream shopping is also not a new thing and there are only a few significant differences between livestream shopping and street vending, TV infomercials, or other similar selling formats.

What really matters in livestream shopping is viewership, where the size of the audience indicates the size of potential customers, and determines how many sales a seller can close. This differentiates livestream shopping from street vending (where sales volumes are smaller to limited audiences). The advantage of online livestream shopping, on the contrary, is typified by its vast number of viewers – customers backed by the mobile internet.

What do livestreamers sell?

In theory, livestreamers can sell everything from food and consumer goods to household appliances, cars, and even rocket launch services. Consumers make unplanned purchases in livestream rooms, and as long as they are interested in a livestreamer’s demonstration, they will buy the product. Augmented products such as cosmetics, garments, and snacks, for example, are more likely to trigger impulsive purchases. Furthermore, as most consumers in livestreaming rooms are bargain hunters, and products priced around 100 RMB are usually amongst the best sellers.

China is leading the livestreaming and e-commerce world, and the reasons are diverse. First, Chinese people are more receptive to new things. Second, people growing up in the eastern cultures tend to be more collectivist – we are happy to join an activity with many other participants. Third, in developing new businesses, China has a natural advantage: with a population of over 1.4 billion, the Chinese market is huge. Fourth, the outbreak of COVID-19 has further accelerated the development of livestreaming e-commerce.

In the long run (especially with the advent of 5G), livestreaming is an irreversible trend. So, will the development of livestream e-commerce also be irreversible?

Is livestream e-commerce sustainable?

Herded by sellers’ marketing strategies and extremely tempting prices, Chinese consumers have long viewed Double 11 as a shopping carnival. They have developed an “unleashing after refraining” mentality, piling items into virtual shopping carts but only placing orders when the big day arrives.

Li Jiaqi and Viya are, without a doubt, the top two livestream celebrities and both possess huge influence. However, they are also somehow outliers in the industry. The huge sales brought by these two livestream superstars do not necessarily mean livestreaming is the best channel for attracting consumers.

First, livestream shopping only experiences explosive growth during the Double 11 period; and, second, if high sales revenue are achieved only with low prices, this approach is by no means sustainable. Instead, livestream shopping today resembles Taobao during its early years, with cutthroat price competition and brands and retailers significantly reducing costs to squeeze out profits. This approach leads to sacrificing the quality of manufacturing and raw materials, resulting in industrial regression. Moreover, if online shops without livestreaming offer the best deals, consumers will still go for them. Hence, we can see that livestream shopping does not necessarily go hand-in-hand with profits.

Yes, it is true that the internet continues to evolve. It is also true that livestreaming e-commerce is a new form of selling that platforms and retailers should embrace. However, if they unrealistically rely on this new approach to push sales through the roof, disappointment will be inevitable.

Let’s do the math: During the Double 11 period, brands slash their prices by 50%, pay upwards of 20% commissions to livestreamers like Li Jiaqi and Viya, and give another 5% to e-commerce platforms. If a brand expects to make a profit, it should have a gross margin of at least 60%. And here comes the question: how many players in the market can secure a 60% gross margin?

Panacea or poison?

Ironically, some brands say, “During Double 11, the more you sell, the more you lose. In the end, you sit there alone, shedding tears.”

How can companies, especially start-ups, develop a healthy model for marketing and sales to boost future growth?

Naturally, start-ups record lower sales volumes than more established brands. They need time to develop and attract followers, and significant sales growth cannot be achieved in a single stroke.

Perfect Diary, the poster child of Chinese beauty brands, once launched extensive digital marketing campaigns on its social media platforms, endorsed by top key opinion leaders (KOLs) and other celebrities. As a result, the brand conquered platforms like WeChat, Weibo, and Xiaohongshu (Little Red Book). In June 2019, Perfect Diary ranked second amongst “Gen-Z’s Most Loved Brands” on T-Mall. During Double-11 that year, it became the first domestic brand ever to top T-Mall’s beauty category.

In March 2021, three months after listing on the New York Stock Exchange, Perfect Diary’s parent company Yatsen E-commerce released its unaudited financial results from 2020. The report showed that the company’s net revenue stood at 5.2 billion RMB in 2020, up 72.7% year-on-year. However, intensive investment in branding, marketing, R&D, and physical stores expansion led to escalating costs in operations and administration, resulting in a full year net loss of nearly 2.7 billion RMB.

Working with top livestreamers is like a double-edged sword for brands. While it is not rare for new brands to achieve overnight fame via livestreaming, adopting this approach as a panacea is dangerous. In the livestream rooms of Li Jiaqi and Viya, consumers are most often loyal to the livestreamers, not the brands. Thus, following the crowd and jumping into livestreaming may not lead to success. After all, what matters ultimately is how much money you make, not how many pieces of products you sell.

Some brands count on only one livestream performance to increase sales. This expectation is unrealistic, and can lead to a major pitfall: the more you spend on livestream marketing, the more you sell, but as soon as you stop investing resources, sales will slump again.

Livestream shopping, while effective in boosting sales, is no panacea. Brands have to return to rationality and think, have they obtained profits after selling their goods?

Livestreamers also face a question: what will their next move be if livestreaming loses its magic one day? Now is the time for livestreamers to plan for the future. Li Jiaqi and Viya undeniably stand out in self-branding, customer insights, and sales techniques. They have amassed a vast number of loyal followers. However, no one can tell whether these followers are loyal to brands, the discounts, or the livestreamers. Someday down the road, if livestreamers are able to sell more products than the brands themselves do at the same price, they can determine their true value.

Do not rely on price competition

The future of retail will integrate e-commerce and brick and mortar shops; retailers will combine traditional marketing processes and digital adoptions; products will be sold both online and in physical stores; and customers will come from both private as well as public traffics. Therefore, when similar products are sold at fairly consistent prices across different platforms or distribution channels, livestreaming will no longer be a paradise which consumers flock to.

In the future, the operation of physical stores will be experience-oriented

Today, e-commerce has achieved market saturation in China, and consumer demand does not have much room to grow. This indicates a slow growth for e-commerce in the future, whether it is traditional e-commerce, social e-commerce, or interest e-commerce (i.e., e-commerce driven by people’s desire for life quality).

On traditional e-commerce platforms, such as Taobao and JD.com, most consumers make planned purchases and search for specific shops or livestream rooms. However, it is a different story on short-video apps like Kuaishou and Douyin (TikTok). On these platforms, the livestreaming of a product, as a personalised feed, is automatically provided to users who are not necessarily looking to buy anything.

Douyin, for example, is equipped with a highly accurate algorithm that can “read users’ minds” and recommend content and products accordingly. Thus, as you enter a livestream room that pops up on your screen, it is hard to refrain from clicking the “place-an-order” button.

As of August 2020, Douyin had more than 600 million daily active users, with an average of 33 hours per capita a month. The market size is thus not hard to imagine. This sets off an alarm for traditional and social e-commerce platforms, which will need to put more effort into exploring the livestreaming world, encouraging brands to start their own livestreaming rooms, and motivating KOLs to attract more consumers.

However, platforms also need to stay awake and keep a keen eye on the market. On the demand side, consumers have limited demand for products of the same kind, and the money they spend is also capped by their disposable income.

Brands have to know what they are looking for in developing livestream shopping

Although livestreaming is not a sustainable method of selling in the long run, it effectively boosts brand exposure, promotes new products, reduces inventory, and competes with rivals.

In the past, advertising and distribution channels were disconnected. But today, the internet has brought them together: a banner or a short video popping up on a website can take consumers directly to the landing page of the product and close the deal.

In times of profound change, how can businesses leverage major e-commerce platforms like WeChat, Weibo, Douyin, Kuaishou and Taobao? Large and mature brands can make major forays into all these big platforms and invest resources on each of them. However, for small companies with limited resources, this approach may be unworkable.

Instead, they can adopt livestream shopping, but stop competing with prices. Taking this approach, brands may not see skyrocketing sales in the short term, but will still find sustainability. Some players in the market have, in fact, already started to do this. An increasing number of brands have embarked on their own livestreaming journey. They have built livestreaming rooms in physical stores, creating a virtual shopping experience for online consumers. Thus, when launching a new product, they achieve commendable sales volume even without any discounts.

However, only when brands make quality products can the channels used to sell them be determined by consumers. And this is where the future lies for livestream shopping.