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.
|Definition||The Social Commerce Business Model is a digital retail strategy that integrates social media and e-commerce, allowing consumers to make purchases directly within social platforms. It leverages social networks as both a marketing and sales channel, enabling users to discover, share, and buy products seamlessly. This model blurs the lines between social interactions and online shopping, creating a more interactive and personalized shopping experience. Social commerce relies on user-generated content, peer recommendations, and social proof to influence purchasing decisions, making it a significant evolution in the world of e-commerce.|
|Key Concepts||– Integration of Social Media: The model revolves around the integration of social media platforms and e-commerce functionalities. – User-Generated Content: User-generated reviews, photos, and videos play a crucial role in influencing consumer decisions. – Social Recommendations: Peer recommendations and endorsements contribute to the success of social commerce. – Seamless Shopping: The goal is to offer a seamless shopping experience within the social media environment. – Personalization: Social commerce leverages user data to personalize product recommendations and advertisements.|
|Characteristics||– In-Platform Shopping: Users can browse, select, and purchase products without leaving the social media platform. – Social Sharing: Products are shared among friends and followers, amplifying their reach. – Interactive Shopping: Features like live streaming, chat, and polls enhance the interactive shopping experience. – User Reviews and Ratings: Shoppers rely on user-generated reviews and ratings to make informed choices. – Targeted Advertising: Advertisements are highly targeted based on user behavior and preferences.|
|Implications||– Marketing Effectiveness: Social media platforms become effective marketing channels and generate revenue through advertisements and commissions. – Data Privacy: Handling user data and privacy concerns is a critical consideration. – Consumer Engagement: User engagement and brand loyalty are key to success. – Platform Monetization: Social platforms monetize by allowing businesses to promote products and services. – Competition: The social commerce landscape is highly competitive, with numerous players vying for consumer attention.|
|Advantages||– Direct Sales: Enabling users to make purchases directly within the social platform streamlines the buying process. – Enhanced Customer Engagement: Interactive features foster deeper customer engagement and brand loyalty. – Targeted Marketing: Precise targeting based on user data increases the effectiveness of advertising campaigns. – User-Generated Content: User-generated content serves as authentic product endorsements. – Revenue Streams: Social media platforms generate revenue through advertisements and commissions on sales.|
|Drawbacks||– Privacy Concerns: Handling user data and addressing privacy concerns can be challenging. – Data Security: Ensuring the security of customer data is a top priority. – Platform Dependency: Businesses relying solely on social commerce are vulnerable to changes in platform policies. – Consumer Trust: Building and maintaining consumer trust is essential for social commerce success. – Intense Competition: High competition among businesses within social commerce platforms.|
|Applications||Social commerce is prevalent in various industries, including fashion, beauty, electronics, and lifestyle products. It is commonly associated with platforms like Facebook, Instagram, Pinterest, and TikTok.|
|Use Cases||– Influencer Recommendations: An influencer shares product recommendations and provides direct purchase links on their social media profile. – Shoppable Posts: Brands create shoppable posts that allow users to click on products and make purchases without leaving the platform. – Live Streaming Sales: Brands and influencers conduct live streaming sessions where viewers can buy products in real-time. – User Reviews: Shoppers rely on user-generated reviews and ratings to make informed decisions about product purchases. – Personalized Recommendations: Social platforms use algorithms to provide personalized product recommendations based on user interests and behavior.|
Understanding social commerce
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.
Three types of social commerce business models
As it stands, three different social commerce business models are starting to emerge.
These are discussed below in more detail.
1 – Social commerce via social media platforms
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.
- Social Commerce: Social commerce refers to the buying and selling of goods and services on social media platforms like Facebook, Instagram, and WeChat. Consumers can complete transactions within their favorite apps without leaving the platform.
- Driving Factors: The shift towards social commerce has been accelerated by the COVID-19 pandemic, as many platforms revamped their features to streamline eCommerce experiences. The increasing use of smartphones and demand for seamless checkout processes have also contributed to this trend.
- Business Model Types: Three types of social commerce business models are emerging:
- Social Commerce via Social Media Platforms (B2C): Platforms like Facebook and Instagram offer eCommerce functionality, such as customizable storefronts and smart product discovery, to merchants. Transactions may be handled by the platform itself or through third-party integrations like Shopify.
- Social Commerce Apps with a Reseller Ecosystem (B2C/C2C): Companies leverage word-of-mouth and curated products within social groups to determine products users enjoy. Resellers can sell products to consumers via channels like WhatsApp and Instagram, setting their own margins.
- Social Commerce Apps without Intermediaries: Platforms like Pinduoduo connect producers directly with buyers, promoting bulk purchases to reduce costs. This model fosters sustainability, food security, and affordability for consumers while benefiting farmers economically.
- Rapid Growth: Social commerce is expected to continue growing, with around 80% of businesses projected to incorporate social media-based commerce by 2024. The industry is predicted to be worth $1948.5 billion by 2026.
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