Social commerce business models are designed to take advantage of social commerce, a relatively new phenomenon where eCommerce transactions take place on social media. Examples of this comrpise companies like SHEIN, Wish, WeChat.
Before we delve into social commerce business models, it is worth spending a bit of time explaining social commerce.
Social commerce describes the buying and selling of goods and services on a social media platform such as Facebook, Snapchat, Instagram, and WeChat. This process allows consumers to complete transactions without ever having to leave their favorite apps.
The shift toward social commerce has been driven, like many trends, by the COVID-19 pandemic. Many platforms revamped their social commerce during this time to help retailers streamline their eCommerce experiences. Retailers can now open virtual storefronts that can be found organically or via paid advertising. To a lesser extent, the shift has been helped by consumers making more purchases on their smartphones and demanding a more seamless checkout process.
The trend has not gone unnoticed by businesses, with around 80% expected to be incorporating social media-based commerce by 2024. The industry itself is expected to be worth an impressive $1948.5 billion by 2026.
As it stands, three different social commerce business models are starting to emerge.
These are discussed below in more detail.
This is a B2C model where platforms such as Facebook and Instagram offer eCommerce functionality to merchants such as an online storefront and smart product discovery. Facebook Shops, for example, are customizable storefronts where sellers can choose featured products in addition to adapting various fonts, images, and colors to match their brand.
In some instances, the transaction is handled by a third party – though it is predicted that most social media sites will handle their own transactions in the future. Facebook has made moves to integrate Shopify in the U.S. market to allow sellers to complete the process via the app or in Messenger.
2 – Social commerce apps with a reseller ecosystem
Some companies are bypassing the need to spend money acquiring new customers by leveraging the power of word-of-mouth and curated products within social groups. In essence, they can determine the products users enjoy simply by listening in on their conversations.
Meesho is an Indian social commerce company that enables small businesses to sell their products to consumers. Resellers can also sell long-tail products via other channels such as WhatsApp and Instagram, among others.
Meesho allows sellers to add a margin of their choosing to the products they sell. When a sale is completed, the company handles the payment and then distributes the margin to the seller. With the above in mind, this means the second model can be either B2C or C2C.
3 – Social commerce apps without intermediaries
Chinese giant Pinduoduo is one platform that connects producers with buyers without the need for an intermediary. Consumers are encouraged to come together and make bulk purchases to reduce their costs.
Though the model was previously used by social coupon site Groupon, the so-called “farm to fork” strategy employed by Pinduoduo is seen as revolutionary and has numerous benefits. The strategy promotes more sustainable food systems that have obvious benefits for biodiversity and the environment.
However, it also increases food security and affordability for poorer consumers while also generating favorable economic returns for farmers and fostering competitiveness in the market.
- Social commerce business models are designed to take advantage of social commerce, a relatively new phenomenon where eCommerce transactions take place on social media. Platforms such as Facebook and Instagram utilize a B2C social commerce business model where users can set up a customized storefront and handle payments. In some cases, the transaction is handled by a third party.
- Meesha is an Indian B2C and C2C social commerce site that utilizes the inherent strengths of social media platforms. Through word-of-mouth product recommendations and curated product lists, small businesses and individual resellers can sell products across multiple platforms.
- Chinese giant Pinduoduo connects producers with buyers without the need for an intermediary. Consumers pool their resources to bulk-buy and receive a discounted price without affecting a producer’s profit potential.
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