Social commerce is the amalgamation of social networking and e-commerce, and has become increasingly popular worldwide. The likes of Facebook and Instagram have added e-commerce features to their apps, while traditional e-commerce platforms are integrating aspects of social media and networking, user generated content and live streaming to improve the shopping experience. By adding these features to the experience of internet users, these sites are able to transform into social commerce apps capable of changing how online retail is experienced.
China has been a leader in social commerce. Home to the world’s biggest e-commerce market and e-commerce platforms, consumers there are comfortable buying everything from cabbage to cars online. It also has deep mobile penetration and prevalent use of social media apps such as WeChat (messaging) and Kuaishou (short videos).
Market size of China social commerce 2015 — 2022E
China’s social commerce market is expected to reach 2,419.4 billion yuan ($306 billion) in 2022, more than doubling from last year’s estimated 1,055 billion yuan in sales, according to research firm iiMedia.
Among the biggest players in the social commerce app and market is Pinduoduo (PDD), which was founded in 2015 and is now the second largest e-commerce marketplace in China with over 600 million users. That puts it behind only Alibaba, the operator of the Tmall and Taobao sites, in terms of the number of active buyers.
PDD’ s mobile app allows friends to browse and share their shopping purchases, or rope in their contacts to join a team purchase through WeChat, the messaging app owned by Tencent. The app’s recommendations feed will also suggest different products and services based on the preferences of the users and their social network.
This contrasts with the legacy e-commerce model of more deliberate, intent-based shopping, where consumers search for products that they already have in mind to buy. If the online version of social commerce is window shopping, then the offline equivalent for intent-based shopping is the regular run to the grocer for milk.
Below are some features of the Pinduoduo social commerce model:
Team Purchase: PDD uses a ‘team purchase’ model where consumers can get a lower price as part of a “team.” The consumer is incentivized to go out and rope in friends in order to form a team, or join an existing team initiated by others. The volume of orders generated allows merchants to enjoy economies of scale and offer lower prices, which in turn leads to higher demand in a virtuous circle.
Recommendation-based model: Unlike the ‘search, pay and leave’ model used by many legacy online marketplaces, PDD works on a recommendation-based model. The interactions that users have with the app and with their contacts train the recommendation algorithm to customize its suggestions continuously.
Gaming: The fun element of PDD gets a further boost with gamification in the app. A very popular online game on PDD is Duo Duo Orchard, where users can grow their own virtual tree by winning water droplets from completing tasks such as browsing a different product category. When the virtual tree bears fruit, a real box of fruit is sent to the consumer, courtesy of PDD, which sources the fruit from farmers in impoverished counties in China.