For as long as one can remember, it seems like a new Chinese e-commerce platform has become the next big thing every six months. First, nobody could stop talking about Alibaba, then there was Xiaohongshu (Little Red Book), followed by Douyin (TikTok). Pinduoduo is the latest…that you know of.
The thought of the Chinese market can induce a sense of unrest — something is happening there, but you don’t know exactly what. Or why. Or how. All you understand is that it will change in the blink of an eye. Blink again and the latest trend might pass you by. You know that there’s an opportunity — corporate types phrase this as, “China is a key driver of growth for the future of our firm.” Choo choo. All aboard.
In this weekly series, How Chinese Tech Builds Trust, CCI aims to demystify the fundamentals that drive Chinese e-commerce, explaining why critical practices have evolved the way they have and helping brands predict what comes next. From the triggers behind Baidu’s downfall to the rise of social commerce, we’ve got you covered.
Part I: How Distrust Fueled the $150 Billion Social Commerce Industry
The Future Is Female
Let’s say you ask a Chinese consumer about her shopping habits (we’ll call her Jessica). She’s likely to be an educated young professional — nearly half of Chinese women enroll in tertiary education, compared with less than 40% of men. She lives in an urban area, perhaps Shanghai or Beijing. You’ve heard of this demographic, whose spending is expected to almost triple to $1.2 trillion by 2022. Moreover, this demographic controls the (e-)purse strings for 75% of household purchases. Nice.
You know that Google is the first touchpoint of a third of all purchases in the American market. So you ask Jessica if she uses its Chinese equivalent, Baidu. She winces. “No. Meiyou (nope in Chinese).” She doesn’t trust it. Huh.
In 2016, a Chinese student died after a Baidu ad led him to a bogus (and illegal) medical procedure. Ensuing failures and unethical business practices were the proverbial iceberg. The real Titanic was trust. Not to mention that Baidu’s search engine revenue has been slowly sinking for years, falling 13% year-on-year in the first quarter of 2020. Baidu is still widely used, but a different model of content feeds ultimately prevailed.
No other search engine has taken its place to serve a powerful role like Google in the United States (it has long been blocked in China). Consequences:
- Search generally happens on apps. These are mobile-only and (mostly) gated. Think WeChat, Xiaohongshu, Douyin, and Pinduoduo.
- Information is not aggregated or easily searchable. Baidu can’t even index pages from WeChat official accounts.
- The majority of content is pushed through content feeds, not pulled via searches.
Social commerce’s phoenix-like rise out of Baidu’s ashes comes down to one key factor: trust.
Low Trust + High Word-of-Mouth Value = Social Commerce
In 2013, China Daily reported that trust among Chinese people dipped to a record low, with less than half of respondents saying “most people can be trusted.” Coincidentally (or not), 2013 also happened to be the year Xiaohongshu was founded.
Searching for an item on Taobao or JD.com could yield anywhere from 5 to 5,000 results. With Chinese consumers being some of the least loyal consumers, there is no better proof than the testimony of fellow shoppers. Reviews are crucial. This is where social commerce steps in, whether it’s a Xiaohongshu review, Pinduoduo shared recommendation, or Douyin product video. At the uppermost layer of online marketing, a whole industry of influencers has emerged to provide consumers with a sliver of faith in online shopping. We call this “trust technology.”
Social commerce isn’t just an extension of tech trust, it is the embodiment of it. As many Chinese consumers deem these influencers (known as KOLs, or key opinion leaders) very trustworthy, they fill a vacuum that, in other markets, tends to be filled by Google. Xiaohongshu merges Instagram‘s influencer economy and the inspirational content of Pinterest: the majority of posts seem to consist of product reviews and recommendation videos from influencers. Pinduoduo operates on a more literal word-of-mouth approach: recommend a product to a friend, and you’ll both receive a discount for purchasing. This business model doesn’t just use word-of-mouth, it is word-of-mouth. Building a brand in China is not so much about communicating features as it is about building that trust and displaying social proof.
The evolution of online content has gone from text (blogs) to images (Instagram) to videos (TikTok, YouTube), with livestreaming up next. Simply put, the more flashing lights, colors, and interaction, the greater the appeal to our “lizard brains.” Barring a reputable information aggregator (not Baidu), the shift is towards reviews and social interaction, with an increasing number of platforms joining the fray. And that is how Chinese tech builds trust.
- E-commerce livestreaming has been the hottest thing in China this year (with no comparable counterparts in overseas markets yet). What could be next: Gamification? VR? AR?
- Social commerce requires several key elements for success: users (obviously), creators and brands. Brands can incentivize creators to make great content for users.
- Outside of China, Pinterest seems to be the closest to real social commerce… But it lacks a stable of creators. Brands aren’t pining for “pinfluencers” (yet) so top users don’t seem inclined to post hauls, opting for YouTube instead.
- Facebook “creators” haven’t taken off. Sure, Pages exist for that reason, but brands largely prefer using ads to target consumers directly.
- China has no reputable, ultimate content aggregator comparable to Google.
- Trusted content is scattered across different platforms.
- Chinese consumers are highly skeptical and low-trust.
- Brands need to work hard to develop trust among consumers.
- Trust is built upon reviews from friends, family, and influencers (aka social commerce).