Douyin: The New Social Commerce Frontier For International Brands?

ByteDance, the Chinese tech company that has received a great deal of attention from the Western world for its popular short video App Douyin/Tik Tok, has been working to consolidate and build its e-commerce business. In early June last year, it set up a dedicated e-commerce business unit in hopes of making it the company’s third pillar of revenue, after advertising and livestreaming. It has also been reported that Douyin plans to relocate its entire e-commerce team to Shanghai, where it will manage production, research and operations of its e-commerce business unit.

At the same time, Douyin has also been working on developing its product offering. As of last October, Douyin no longer supports product links from third-parties (such as Tmall or JD.com) in livestreams, allowing only links from the Douyin Store (its native e-commerce storefront). Links in short videos, however, are not affected. In January this year, Douyin officially launched its payment service, "Douyin Pay", streamlining the payment process for users when it comes to shopping and even purchasing virtual livestream gifts.

Douyin is not the first platform tapping into social commerce in China – Weibo, RED and Kuaishou have all rolled out their own e-commerce propositions. With the growing impact of Chinese social media on the consumer decision making process, and the emergence of new online shopping models such as livestreaming, the development of an e-commerce business seems to be the way to go for Chinese social platforms. This is even more so for Douyin – and as a social platform that has captured the attention of younger generations, it might prove to be an even more interesting testing ground for international brands to develop their social commerce operations.

When Content Leads To Conversions

Years ago, when the digital transformation of international brands in China was still in its infancy, the online consumer journey was much simpler. Brands would leverage social media (e.g., Weibo, WeChat) largely for the purposes of generating awareness. When consumers gained a certain level of interest and had the appetite for a purchase, they would go to offline stores or e-commerce platforms (e.g., Taobao or Tmall) to make the transaction.

As brands continue to increase their investment in China's various digital platforms, they are able to reach an even wider audience through a variety of ways. This can be in the form of content in collaboration with celebrities, influencers or media. However, brands have also started to see the limitations using social media purely for generating awareness and amplification – a large number of consumers tend be lost during the content to purchase transition process. At the same time, it is also challenging for brands to measure the success of content in terms of driving conversions based on traditional social media metrics.

This problem is not limited to the Chinese market but is also prevalent in the West. It has become clear that social media needs to break the barriers between discovery and purchase along the consumer journey – something that can now be done with the help of new functions. In 2016, Instagram introduced shoppable tags in posts, allowing users to be instantly directed to the website to purchase by clicking on tags within photos – a feature utilised by many brands, celebrities and media outlets. With Instagram’s native Shops feature, users can even make purchases directly within the app now.

Although Chinese social platforms do not follow the same model as Instagram, the path to commercialisation for social platforms has been built upon the same tactics, such as adding purchase links in the content, launching brand-owned shops or introducing e-commerce functionality in livestreams. These efforts have become an essential step in bridging the consumer journey on social platforms.

Final Pieces Of The Puzzle

In most cases, these social platforms do not serve as a real e-commerce channel, and consumers will eventually be diverted to third-party platforms to place orders. The social platform’s only role is to direct them there.

But traffic always comes at a price. When third-party links were still supported in livestreams on Douyin, Taobao would charge product merchants commissions of up to 20 per cent of the transaction amount for purchases that occurred on Taobao or Tmall after being redirected from a Douyin livestream. It has been reported that the annual gross merchandise value of the e-commerce business on Douyin hit 500 billion RMB in 2020, of which nearly 400 billion RMB went to third-party platforms. So for a platform like Douyin to build up its e-commerce ecosystem, significant improvements to its in-platform product offering, especially when it comes to livestreaming – its most pivotal e-commerce channel – would be necessary.

At the same time, platforms incur significant expenses on external payment solutions. For instance, Chinese e-commerce platform Pinduoduo was relying on third-party payment channels such as Alipay and WeChat Pay until its payment solution, "Duoduo Pay", was unveiled at the end of 2020. According to its 2019 annual report, Pinduoduo incurred over 342 million RMB (about 1.1 per cent of its revenue) of costs in the form of payment processing fees to third-party payment platforms. In addition, Pinduoduo explicitly stated in the report that given the platform's reliance on third-party payment service providers and commercial banks, if there were to be any negative changes to these payment methods in the future, "[their] business may be materially and adversely affected".

This is why, apart from Douyin, several other major social platforms have also started jumping on the payments solution bandwagon: Short video platform Kuaishou intends to acquire a payments license for 850 million RMB and has registered a trademark for it; Bilibili has filed for a domain name called "bilibilipay.com". In addition to reducing costs and avoiding external risks, rolling out a payment service allows these social platforms to create a closed loop experience for consumers – from content to transactions. With the introduction of its native Douyin Pay, Douyin is also able to better consolidate transaction behaviours and related customer data within its ecosystem, making it easier for brands to get a complete picture of their client preferences and spending habits.

Taking A Social Approach To Selling

A growing number of international brands are now exploring what Douyin has to offer. Louis Vuitton and Estee Launder have launched Mini Programs on the platform, while brands like Make Up For Ever and MAC have hosted e-commerce livestreaming sessions and set up their own Douyin Stores. On the other hand, there are still luxury brands like Cartier that continue to use Douyin as a means to drive traffic to its Tmall store – the brand hosts Tmall links on the VIP Room section of its Douyin homepage.

The difference between social commerce and traditional e-commerce is that social commerce is largely developed around social content, instead of the product. To directly capture consumer purchase intentions after interacting with the brand’s content, Douyin has designed a range of purchase portals on different types of content. Whether in a livestream, a short video, or a hashtag challenge page, consumers can all be easily redirected to the product page.

It is important to note that audiences do not arrive on Douyin with the intention of shopping or discovering products – it is, after all, not primarily an e-commerce platform. So while Douyin offers brands a lot of room to showcase their products, their product presence on the platform needs to be backed up by strong content (such as videos or livestreaming assets) in order to drive conversions. Simply migrating product-related content to the platform will not influence consumer decision making.

“Douyin is a platform built around the idea of entertainment, and brands that seek to tap into Douyin need to drive up the entertainment value of their brand narrative. By creating content that fits the platform’s tone or strengthening partnerships with local celebrities and influencers can help brands better engage with the platform’s community,” says Elsie Zhang, Client Development Director at DLG (Digital Luxury Group). Some luxury fashion and beauty brands, she opines, have done fairly well in this area on the platform. “Content on Douyin has to be highly social and relatable – consumers will not be attracted to typical, highly polished brand videos.”

Content aside, brands also have to contend with the issue of traffic. Unless the brand has very high equity and can rely completely on organic searches, any content produced will not reach a wide enough audience without the help of paid traffic acquisition options. “Brands can leverage in-platform tools to target appropriate audience segments, ensuring that the content created is delivered to the right people,” says Zhang. “Only when consumers have a chance to interact with that content will brands have the chance to drive conversions.”

The bigger challenge that brands will need to face in their digital transformation in China is the fast clip at which digital platforms in the market are evolving and intertwining. As the competition for consumer eyeballs grows increasingly fiercer, brands are constantly looking for new ways to leverage existing platforms and Douyin’s upgraded digital offering definitely brings something interesting to the table. The tools have been built and the stage is set – it is now up to brands to develop the right content and calls-to-action that can, ultimately, drive conversions.