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Social Commerce (or Interactive Commerce) is a philosophy toward online shopping that humanizes the robotic online shopping experience, applying insights and design approaches that have been more traditionally associated with gaming, social media, or entertainment platforms. We deep dive into this topic with success stories, models and key takeaways for this rapidly evolving sector and is going to be the defining experience of commerce this decade.
Close your eyes. Think about your last in-person, offline shopping experience (remember when we did those?). You went with friends, hunted for bargains, discovered new products, asked store employees questions, and could touch, feel and try items so you’d be more confident about purchasing them. Just when you were about to leave the mall, your favorite burger joint beckons, and off you went.
Contrast this to shopping online - open your laptop, go to Amazon, type in what you want to buy, add to cart, checkout. Done. Simple. Efficient. Convenient.
Is it fun?
Not really. You see, shopping is as much a pastime and method of bonding with others as it is a commercial exchange of money and goods. Shopping malls serve as weekend family destinations not simply for their stores, but movie theaters, gaming arcades, and restaurants. Luxury boutiques in malls don’t simply sell expensive clothing but offer an environment of sophistication and prestige that transcends their products.
Offline shopping often holds a delightful element of discovery and serendipity that is missing from the step by step, intent-based approach of traditional e-commerce. Traditionally, these platforms are designed under the assumption that shopping is a task to be crossed off a to-do list and what ultimately motivates the user is efficiency, price, and convenience. In contrast, social commerce platforms are designed with the notion that online shopping can itself be a leisure activity, as offline shopping has often been.
Social Commerce (or Interactive Commerce) can be understood as a philosophy toward online shopping that humanizes the robotic online shopping experience, applying insights and design approaches that have been more traditionally associated with gaming, social media, or entertainment platforms.
Interactive Commerce i.e. Social Commerce Source: Defining Interactive E-Commerce Report
Social commerce does NOT simply mean connecting user accounts to Facebook. It is not the mere selling of products and services on social media. It means investing in creating physical world experiences online- specifically bringing the fun of shopping offline to online platforms.
Sure, but Amazon gives me same-day shipping and free delivery. Why should I care about social commerce?
Short answer: Because it is not a trade-off between convenience and a more social experience. It is the best of both Entertainment and E-commerce.
It is simply an evolution to a new interactive experience that more faithfully represents how people shop in the physical world, offering a fun experience for the shopper along with improved value for money. It is an approach that takes the enjoyable, social, and psychological experience of shopping in the physical world, and applies it to the digital age. This approach has led to an integration of tools from elsewhere in the digital economy: recommendation, community, and entertainment together with one core proposition: value for money.
To understand this, let’s come to India. Retail in India has come a long way. Evolution has seen waves of growth over the past three decades which can be categorized into three distinct waves.
More importantly, this new frontier of commerce in India will help democratize access to online commerce for everyone. This makes the transition to Social Commerce not just inevitable but also necessary.
India has always had a unique retail industry. In 2019, it was valued at ~$700BN, with about 90% of it being unorganized and is estimated to reach $1.3TN by 2025. To add some context, China’s retail market is valued at $5TN in 2020 and Alibaba, by itself, crossed $1TN in GMV in FY20. That is… massive. Indian e-commerce industry is valued at ~$60BN, which is a mere 8.6% of the overall retail market. Moreover, there are only 110MM online shoppers in the country, only 10% of the overall population. This second problem is being solved rapidly by access to cheap mobile data powered by Jio, and the availability of budget smartphones. This new generation of internet users’ introduction to the internet has been mobile-first and majorly through videos and image-based platforms (Facebook, YouTube, TikTok, ShareChat etc) and not text based.
Despite having access to the internet, why is India not shopping online?
Because traditional e-commerce platforms were simply not built for these new users. These platforms are-
We believe the emerging new platforms need to build for this new generation of Internet users. They are averse to English (but are aspirational) and prefer a more visual experience than textual. Platforms need to solve for three emotions- Lack of awareness, confidence, and trust.
Characteristics of Social Commerce Source: WPP Social Commerce Report
Different forms of Social Commerce
To address this glaring whitespace, we have observed a wide diversity of successful business models have risen to meet these broader human needs. There are 4 major business models which exist in this space, all trying to solve different problems (emotions) of the users.
Different Social Commerce models
Before we dive deeper into each of these models, here’s a quick overview of the businesses. Despite having different approaches to Social Commerce, all of them displayed some similar characteristics and were prone to be plagued with the same problems. Most of the companies here are mobile-first/ mobile-only and sell unbranded goods to a customer base from Tier 2+ cities. To differentiate, the 2 major factors to focus on are sourcing and logistics. 1) Since everyone ends up selling unbranded products, the only way to differentiate is to have superior quality sourcing, which will help the transition to private labeling. The collection of items showcased to the user will also become more exclusive, thus it won’t be reduced to merely a ‘discoverability’ platform.
2) Logistics in India is simply not as developed and mature as China or US- they still remain a huge source of expense. Moreover, return logistics are almost always more expensive than forward logistics making high returns (due to unbranded products) another big expense. Unbranded products have high relative margins, but low absolute margins which in turn accentuate the logistics cost, affecting the bottom line.
90% of retail in India is unorganized and within fashion, 85% of goods sold by volume are unbranded. Traditionally, these are sold through suppliers at your local mom-and-pop stores or resellers selling to their local network through word-of-mouth. When the digital wave hit, some of these stores managed to have an online presence, with the shopping experience remaining largely similar. Adoption of online shopping through WhatsApp and Facebook also further aided these reseller entrepreneurs.
What attracts customers to these local stores/resellers? Trust, Convenience, and Proximity. Most products sold are unbranded, so trust and product discovery resides with the store owner. The stores provide convenient payment options in the form of monthly credit and help customers avoid online payments. The sheer proximity of the store or your local neighborhood aunty selling you stuff makes it a no-brainer. They have managed to solve for all of Bharat’s emotions- Awareness, Confidence and Trust.
While this works well for the customers, the need for Working Capital constrains the growth of small retailers who have the benefit of this trust. Pilferage is also a persistent problem- there are massive amounts of products which go unsold and occupy shop floor space that eventually need to be dumped. Resellers also have to constantly worry about sourcing, logistics, and payments. This is where reselling platforms like Meesho, Shop 101 step in- they promise to alleviate all these ancillary problems, so resellers can focus on selling.
Let’s take a closer look at how these platforms work.
All reselling platforms have 3 major pillars- Suppliers, Resellers, and Buyers.
Source: Socializing Indian commerce: the soonicorn Meesho
Suppliers- For suppliers, social remains an untapped distribution channel which helps reach an audience that might not otherwise have discovered their products. Maintaining a strong supply remains a moat in this business and helps build a private label. Currently, we don’t see any exclusivity in the supply amongst these platforms.
Resellers- These are the key players in the reselling business. A lot of these resellers are often first-time entrepreneurs earning Rs 5,000 to Rs 10,000 per month and leveraging the power of their existing social networks to sell to friends and family. Meesho especially focuses on housewives as resellers. India had 2MM housewife resellers in 2017, projected to grow to 20MM in 2022. While a huge market, we observed that most of these resellers have no prior experience in selling and aggregation of demand remains directly proportional to this ability.
Buyers- 650MM Indians have access to the internet, 450MM use WhatsApp and only 110MM shop online. This gap is being filled by this new generation of internet users. These buyers are the people who lack trust, confidence, and awareness about e-commerce.