From Likes to Conversations to Sales: The Evolution of Social Commerce

"As social commerce gains traction, it is imperative for business leaders to understand its nuances and capitalise on its potential. By leveraging the principles and strategies of these new breed of successful innovators, organisations can better prepare to revamp their online shopping experiences to align with the expectations of modern consumers," says Prakash Bagri, Associate Professor (Practice), Marketing, ISB.

The rise of e-commerce and social commerce, fuelled by social media and Web 2.0 apps, has transformed business dynamics. Since the mid-2010s, the e-commerce market in Southeast Asia had been gaining momentum. Between 2016 to 2021, the total value of e-commerce sales in the region grew at an astonishing rate, with an annual increase of 40%, resulting in a fivefold growth. Additionally, the share of e-commerce in overall retail sales surged from 5% to an impressive 20% 1. What's particularly intriguing about this new phase in Southeast Asia's e-commerce landscape is that it extends beyond mere value growth. Across the region, more people are now purchasing a wider variety of products through an expanded range of online channels.   

The Era of Connectivity, has brought forth a remarkable transformation in the way we interact, communicate, and consume. This shift has given rise to social commerce, a trend that marries social interaction and online shopping into a seamless and engaging experience. In the dynamic e-commerce landscape, a new wave of challengers has surged ahead by integrating social elements and gamification into the shopping experience, outpacing traditional giants like Alibaba and Amazon.

The surge in popularity of social commerce in Asia can be attributed to the extensive availability of mobile internet access. We contend that the pandemic played a substantial role in propelling social commerce, transforming online shopping from a solitary transaction into a shared social experience.

Presently, social commerce operates in real-time, granting customers the ability to sway the purchasing decisions of others. Users on these platforms actively participate, sharing their shopping encounters, product details, and soliciting guidance through ratings and reviews.

Social commerce places a strong emphasis on user experience and combines both direct and indirect network effects, making it engaging for users. With a strategic intent, it adds extra features like e-wallets and social media, making it more valuable. Unlike traditional e-commerce and social media, social commerce usually doesn't compete with its business clients (B2B), which sets it apart.

In 2021, TikTok (Douyin in China) clothing sales surpassed 50% of the sales achieved by the e-commerce platform Tmall. The majority of these sales originated from the realm of social commerce, which includes successful innovations such as live auctions, marking a notable achievement in the Chinese market. 1

The research highlights that social commerce has presented challenges for both social media and e-commerce platforms. Many attempts in this space, by companies such as Meta, Microsoft and Google in the recent past have yielded underwhelming results. Conventional e-commerce and social media platforms meanwhile, have found it challenging to replicating the success experienced by social commerce. For instance, for consumers in Indonesia, WhatsApp is the preferred social media for 81% of users, while Instagram leads as the preferred social commerce platform at 60%. Fashion items are the top choice for social commerce purchases, representing 55% of preferences. Most users access social media primarily to browse product information, with 89% stating this as their main purpose. 2

So, what explains the success of social commerce in Asia?

Social commerce's success in Asia stems from culturally appropriate designs that resonate with local market preferences, especially by fostering a collective social experience that makes online shopping more engaging and entertaining.  

Professor Bagri and his fellow researchers attribute this steeping growth to the increasing consumer trust in product popularity and recommendations from fellow users, as opposed to relying on one-way communication tools like advertisements or information disseminated by product marketing companies. 

Social commerce seeks to inject an element of fun and competition to shopping. In China, for instance, Pinduoduo has added in-app games to boost daily user engagement. One standout game is "Duo Duo Orchard," akin to Farmville but with real rewards. Players grow virtual fruit trees to receive actual fruit deliveries, and it boasts over 11 million daily active users.3 Similarly, platforms like Douyin and Tmall leverage short videos for content seeding and live streaming for conversion, with transactions completed within platform-based web stores.

Social commerce boosts customer engagement with tangible and measurable milestones. It is part of a broader digital ecosystem, where various platforms, such as social networks and e-commerce websites, interact and influence each other. Central to this framework are network effects, where the value of a platform increases as more users participate, creating a self-reinforcing cycle. It also recognises the importance of data integration, user engagement, and innovative business models that leverage the interconnected digital ecosystem.

The success of social commerce in Asia can be attributed to three key factors. Firstly, social commerce utilises both direct and indirect network effects, creating social connections among users and fostering platform stickiness and customer loyalty. This is achieved through features like group buying and the influence of mini-influencers.

Secondly, social commerce platforms strategically integrate complementary services like e-wallets and social media, enhancing their competitiveness and providing a seamless shopping experience. Lastly, social commerce platforms prioritise user experience by gamifying the online shopping journey and combining fun activities like gaming with routine activities like shopping, leading to increased customer engagement.

Key takeaways for business leaders

The authors offer the following social commerce insights for business leaders to consider and act upon:

• Redesigning Business Models
  To thrive in the world of social commerce, established companies must be willing to adapt and transform their market strategies. Viewing social commerce as a mere extension of existing e-commerce or social media platforms is a flawed approach. One key example is Alibaba, which initially launched as a free B2B platform in 1999, connecting businesses. Later, they introduced Taobao, a free C2C platform for consumers, and Alipay, originally designed for B2B transactions, became a multifaceted platform.4 Alibaba's success can be attributed to the widespread adoption of Alipay, facilitated by increased usage of its platform and the integration of Taobao's feedback system. Unlike Amazon, Alibaba offers various free platforms and an open, fee-associated Alipay for diverse uses.
  
  The crucial lesson here is that social commerce demands enhanced business models that create, communicate, deliver, and capture value for both sellers and customers. Strategic partnerships are also imperative for success in social commerce. Platforms like Shopee have integrated e-wallet services within their platform, offering users convenient payment options and financial services. In addition, through alliances with micro-finance institutions, Shopee empowers sellers and buyers with credit access, fostering economic activity within their ecosystem. Notably, Google and Facebook have formed partnerships with Reliance Jio in India to strengthen their presence in social commerce, highlighting the significance of strategic alliances in this space. 
  
  
• Opportunities in Customer Focused Innovation
  Successful social commerce platforms capitalise on niche opportunities that incumbents often overlook or disregard. Pinduoduo, China's leading social commerce platform, initially targeted users in third and fourth-tier cities, achieving unprecedented growth with a $15 billion gross merchandise volume (GMV) in just two years. This strategic focus on traditionally underserved communities resulted in enthusiastic adoption and a strong retention rate. Conversely, Shopify empowered small and medium enterprises seeking online distribution and greater brand control, a level of autonomy and flexibility unmatched by larger ecommerce players. To thrive in social commerce, understanding customer aspirations and tailoring offerings is essential. Alibaba's "customer finds product" approach through search-based shopping contrasts with Pinduoduo's "product finds customer" strategy, which surprises and engages users with unique, relevant deals.
  
  

• Integrated Design to harnessing Culture and Data 
  In the world of social commerce, respecting cultural nuances is paramount, as shopping and mall experiences carry diverse cultural connotations across regions. SEA (Entertainment and Finance) and Pinduoduo provide culturally attuned online shopping experiences that extend beyond mere product acquisition. Unlike platforms such as Shopify and BigCommerce, they recognise the collective and entertainment aspects in Asian mall visits. Furthermore, social commerce platforms leverage the synergy of AI and Big Data, operating at the intersection of transactional and social interaction data. This unique position allows them to gain profound insights into user behaviours, preferences, and social networks. By analysing transactional behaviours and social interactions, these platforms offer personalised product recommendations aligned with individual tastes and social circles. This empowers marketers with highly targeted advertising campaigns for niche segments identified.

Looking ahead, believably, the business leaders stand to gain valuable insights into the evolving digital shopping landscape by studying the playbook of social commerce companies. By leveraging the principles and strategies of successful social commerce firms, organisations can be better prepared to revamp their online shopping experiences to align with the expectations of modern consumers. Social commerce represents a transformative force in the online world, challenging the conventional separation of social interactions and shopping experiences.

* The article is based on the Research conducted by Ashish Sinha, Visiting Professor, Marketing, ISB, Prakash Bagri, Associate Professor (Practice), Marketing, ISB, Kiran Pedada, Assistant Professor Marketing, University of Manitoba, and Rajendra Srivastava, Executive Director - ISB Institute of Business Innovation.