China’s Betting Big on the Latest Live Streaming E-commerce Boom

Nov 10, 2020

Author | Teng Bingsheng, Associate Dean and Professor of Strategic Management, Cheung Kong Graduate School of Business

In these unprecedented times, impacts of the COVID-19 pandemic have been truly wide-ranging. They have been felt by all kinds of enterprises, ranging from culture and tourism to fashion and consumer goods. In order to survive these difficult times and fierce competition, enterprises have been forced to evolve from the traditional offline marketing model and innovate. As a result, many have ventured into selling products online through live streaming platforms. Whilst China’s online economy has already transformed and evolved through various stages, from teleshopping, e-commerce portals, mobile e-commerce and social e-commerce, the ultimate goal of modern business now is to enable consumers to shop anytime and anywhere. With this in mind, the next wave and evolution that could lead to an exponential growth in business is live streaming e-commerce.

Whilst teleshopping has existed for decades, why is it that consumers are now choosing to spend more money on live streaming platforms? Historically, China has fiercely protected its traditional craftsmanship industry in order to preserve its intangible cultural heritage. Despite this, the industry has failed to gain popularity. Today, with the increase of live streaming platforms, artists are able to showcase their talents and gain huge followings with the touch of a button. Multiple live streaming platforms, such as Inke and Douyu.com, as well as newcomers like Kwai and TikTok, give online celebrities enormous followers and fan base, as well as the ability to create valuable intellectual property.

Live streaming is characterized by socialization, as it bridges the gap between people in society and the communication between them. Socialization is illustrated through honest recordings and emotional resonance- the foundation for the development of live streaming e-commerce. Live streaming as a result, is driven by three major consumption areas:

First, at home – as a result of the COVID-19 outbreak, live streaming services have seen a rapid rise with online business soaring, resulting in “retaliatory consumption (the idea that consumers will indulge in shopping once cities open up after lockdown, to make up for the lost consumption during the outbreak).”

Second, communication – the guidance and feedback provided on live streaming platforms satisfies consumers’ need for communication whilst shopping. It helps consumers to better understand the product’s performance, reduces the decision-making time and delivers an overall improved shopping experience. If we deconstruct live streaming e-commerce by the “tripartite model” of responsible consumption through “people, product and place,” consumers transform from active consumption to passive consumption. An optimized supply chain brings consumers and products closer, whilst also enabling merchants to showcase their products via mobile live streaming anytime and anywhere.

Third, the environment – with the improvement in supply chains, the government is promoting live streaming e-commerce as an effective way to unlock consumption potential, especially given the limitations of movement due to Covid-19. With the development of cutting-edge technologies like 5G and VR, live streaming is an effective way to achieve this goal. Currently, China has over 900 million netizens, with almost 560 million live streaming users, this speaks volumes to the critical role that live streaming now plays in the modern economy.

Having entered a new era, traditional enterprises must proactively seek change. In order to survive, enterprises must accept the influence of livestreaming e-commerce and adjust their business models accordingly. It is vital to increase efficiency in the tripartic model of responsible consumption:

First, people efficiency – businesses need to create live stream talents like “Viya” (a renowned live streaming e-commerce influencer). This reduces costs such as labor and investments in offline events, whilst increasing efficiency, as live streaming only requires a smartphone. Live streaming e-commerce has the ability to shift business scenarios online, and hence is not limited by time and space as traditional offline marketing events are. Even after the pandemic, live streaming will remain an essential service for commercial brands. Companies must devise long-term plans for operations and client maintenance by forming an interaction and conversion mechanism, so as to increase their customer retention rate and conversion rate. It is worth noting that online and offline methods are not contradictory. Brands can still turn offline stores into “experience stores” and carry out complimentary online live streaming content.

Next is product efficiency – in order to ensure product quality, the supply chain is incredibly important. Increasing product efficiency means finding an accurate entry point and targeting the consumer’s true needs. Whilst online celebrities are able to promote products and sales using their popularity, an overdependence on this causes a lack of continuity. This method triggers compulsive consumption, which makes it complicated for merchants to brand their businesses. Live streaming must also guarantee authenticity, but the over use of beautifying technologies and over promotion by streamers may be misleading for consumers, leading to more goods being returned. High fees (for platforms, MCN agencies, and live streaming services) and high refund rates are the major reasons for the reluctance of merchants to accept live streaming e-commerce.

Lastly, place efficiencylive streaming as a systemic mechanism depends on the platforms used. As the live streaming sector and its underlying cloud computing technology are being established, a user’s shopping experience is also established. There are four key elements behind a successful e-commerce event – building momentum, teamwork, price advantage and a solid fan base foundation. For platforms, increasing place efficiency requires establishing regulations as well as determining the rights and interests of both the platforms and the merchants.

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