Commerce on North American platforms like TikTok Shop, Meta Shops, and YouTube Shopping are off to red-hot starts here in 2024.
But the market will start to evolve quickly and brands will have many experiments to run/decisions to make in order to capitalize on the ‘next eCommerce.’
Brands, Digital Ads & Social Commerce
TikTok Shop was launched in September of 2023.
Most items are cheap to buy — in the $4-25 range, fit for impulse purchases — and quality can be dubious, with multiple listings for the same item appearing across the platform at different price points.Vogue BusinessTrending
Commissions on Tiktok Shops is currently at 2%, scaling up to 8% later this year.
Tiktok Shops has several features that differ from Instagram’s failed Shop experience last year:
- integrated payments tool (Payments was separate on Instagram)
- reviews from Tiktok and search engines to increase trust
- they have made deals with local warehouses in the US (think cowarehousing) to boost fulfillment times
- TikTok Shop enables affiliate marketing so that the Creators do the advertising, while the brands are able to get a relatively low CPM, paid out automatically in affiliate fees
As commissions on the platform increase, retail and eCommerce brands will need to prioritize products with higher margins, which may push the quality and range of the products up.
Naturally, the main draw for brands on TikTok Shop is the ability to create virality around certain products that appeal to younger demographics, and convert on that commerce instantaneously. But there are alternatives.
Facebook & Instagram (Meta) Shop
Late last year, Facebook announced a partnership with Amazon to enable businesses to ‘Shop’ directly from Amazon within the Facebook and Instagram app.
Amazon’s commissions for sellers typically range from 8 – 20%, but it is clearly a much more ‘evolved’ service than TikTok Shop – especially when it comes to fulfillment.
Customers in the U.S. will see real-time pricing, Prime eligibility, delivery estimates and product details on select Amazon product ads in Facebook and Instagram as part of the new experience.PYMNTS
Amazon also has ‘social commerce’ partnerships with Pinterest and Snapchat.
The basic partnership structure is to combine the social (Facebook and Instagram) with the commerce (Amazon). Users must ‘opt-in’ to link their Amazon account to their Facebook/Instagram account, but once that process is completed users are able to gain a more ‘frictionless’ experience for purchasing their desired items.
Comparing TikTok Shop vs. Meta Shop
Below is an example from bk.beauty about how TikTok Shop and Meta Shop differs for brands, at least preliminarily:
TikTok Shop is a hero SKU game. Our two heros sold out this week. Turned to Meta Shop to fill the void with our B-string players and it’s on fire! All social marketplaces are (fire) this year. Don’t sleep on them and learn the unique ways to play each. They’re not the same.Twitter – @pauljauregui (Jan. ’24)
The demographics of each platform will be different, but so will the purchasing dynamics.
TikTok also announced an early-stage partnership with Google last year to bring a search data from Google into TikTok, and to surface TikTok videos in Google search.
Brands are thus incentivized to continue to advertise on Meta/Instagram, whereas on TikTok the incentives are more built around creative content (via Creators) to go viral and drive huge sales for specific SKUs at certain moments in time.
YouTube Shopping (w/ Shopify)
Let’s not forget that Google itself is pushing into the social commerce game via its partnership with Shopify, enabling its Creators on YouTube to monetize their audience with integrated product purchasing:
YouTube has been steadily rolling out tools for shopping directly from videos. Collaborating with Shopify, the platform enabled merchants to showcase their products in videos. It also expanded livestream shopping capabilities and incorporated shopping features into YouTube Shorts.PYMNTS
Thus we can see that payments + fulfillment are being added into the back-end of all major social media platforms, while the evolution towards video in the Digital Advertising landscape continues its rapid growth.
Video Drives Social Commerce
Video Ads are becoming more and more sophisticated, as brands experiment with several permutations and combinations around:
- Length of video (short vs. long) and platform (TiktTok, Instagram, YouTube, etc.)
- Influencer or Creator – audience size, demographic, style of presentation
- Livestreaming – going beyond traditional Ads into livestreaming
Who Do Consumers Trust?
A lot of what will drive the market going forward will come down to trust. We know that on a macro basis, consumers will place the most faith in family/friend recommendations, followed by colleagues and influencers.
An oft-cited Nielsen study from 2012 stated that 92% of consumers trust personal recommendations over Ads. Newer data from 2021 indicates that while slightly improved (88%), the number still holds true.
“It comes as no surprise we all trust personal recommendations above and beyond any other channel. Human to human trust is fundamental to daily life,”Fortune
Outside of personal recommendations, we know that consumers will trust certain creators more than celebrity endorsements or digital ads.
Even more remarkably, in the age of word-of-mouth recommendations, influencers and celebrity endorsements score poorly on trust. Clear Channel and JCDecaux found that only 20% of respondents said they would trust a paid-for familiar face.Fortune
But the younger generations are starting to reshape some of these trends. Not only are they more likely to discover products on social media compared to other generations, but they are more likely to trust the recommendations of Influencers vs. Family/Friends relative to older generations.
For GenZ, 40% have bought a product thanks to an influencer in the past three months, and they say recommendations from influencers are more impactful to their purchasing decisions than recommendations from friends or family.Hubspot
There are clearly some questions to work out when it comes to video-based Creators and what works/doesn’t work with consumers. Right now we are in the Influencer-based, short-form video phase. But will it last?
If we look at some data on livestream content, for example:
According to Nielsen, 52% of consumers between the age of 35 and 49 said they are influenced to purchase products featured or used in livestream content. In the 18- to 34-year-old bracket that proportion is 49%.Fortune
Many who have followed the ‘social commerce’ trend have probably seen the “Influencer Factories” in Asian markets where social commerce growth has already exploded. The cultural differences between Asia and North America indicate that such strategies are unlikely to work here.
While some Influencers in Asian markets have moved billions of dollars in beauty products on social-commerce channels, for example, the purchasing culture here and there are much different.
The birth of the Home Shopping Network in the ’80s is indicative of how ‘trust’ was scaled across North America via TVs. The network specialized in finding the right talent (the Hosts at that time) to push the right products at the right times. Without those Hosts, would HSN have had similar success? Unlikely.
The Creators are the new Hosts of this era. There will be many subtle, psychological factors that will determine whether a Creator on a live shopping stream will earn trust, such as:
- physical appearance
- voice, tone, vocabulary
- body language, confidence, etc.
The more professional the streamer is, the more the streamer’s introduction to the product will be recognized and trusted by the live viewer because viewers believe that streamers are experienced in their careers. Only when viewers trust the streamer’s description of the product’s functions and various ways of its use, as well as the streamer’s reasons for recommending the product, will they be an intention to buy.Frontiers in Psychology
What appeals to one demographic will be different than what appeals to another demographic, but if we take the above data (52% for Millennials/Gen X, 49% for Millennials Gen Z) as an indication, there is significant opportunity for Creators/Influencers across all categories to become influential in driving commerce on livestreams.
It won’t be just the Creators/Influencers that we see now on Tiktok or Instagram either, it will be ‘microinfluencers’ who build experience/expertise in a certain market and can present well on a livestream.
How Do Brands Build Trust in Social Commerce?
For many brands, this will be the multi-million dollar question in the years ahead.
‘Social Proof‘ research states that reviews are a clear way for brands to augment trust, and that is why TikTok Shop has placed reviews into the heart of their user experience. But there is more to building trust than just good reviews.
This survey also suggests consumers may be a little confused about how much they value trust in brands. Over 80% of respondents claim whether they trust a brand is a deciding factor in purchasing products, but only 34% of respondents said they have trust in the brands they use.Fortune
The social commerce market right now is hyper-focused on placing content on the platforms where the younger generations tend to ‘mingle,’ mainly TikTok.
We are seeing this work for more impulsive purchases in categories like beauty, apparel, and lower-end fashion. The type of purchasing behavior in these markets, ideally, is smaller AOV, repeat purchases to drive a high LTV. Ideally, the DTC brands in this space have good margins so that they can profit off of ‘viral trends’ relative to their market.
But what about the evolution of the market to higher-end goods?
Social Commerce for Home Improvement, Luxury, etc.
We can envision home improvement being one vertical where social commerce goes ‘upmarket’ in the years ahead.
For example, platforms such as Instagram and Pinterest have become hotspots for DIY inspiration, with users sharing unique project ideas, hacks and even useful home decor tips.Forbes
At the point where inspiration strikes on platforms like Pinterest is the place where those with the experience in areas like renovations, installing complex systems, or upmarket DIY home trends will have an opportunity to ‘speak’ directly to consumers on a livestream. Brands can capitalize on those Creators expertise in a variety of creative ways to reach new customers.
The evolution of luxury markets such as jewelry, accessories, and fashion, will similarly be able to leverage certain social commerce channels with Creator-based content that emphasizes elements like tradition, craftsmanship, longevity. These are the opposite qualities of a lot of the major viral hits in the current market.
The questions will be:
- what types of Creators/Influencers will work best for higher-end brands?
- what platforms will they use to broadcast?
- how will these strategies intersect with their current strategies?
These are all questions that will need to be answered, but preliminarily it feels like:
- it won’t be major celebrities or mega-influencers who shape this segment of the market, but rather micro-influencers who bring authenticity and expertise to the ‘craft’ that is most relevant to the brand
- upmarket brands will experiment on social media platforms such as Tiktok, Instagram, and Pinterest, but ultimately will want to host these ‘events’ on their own branded platform
- these social-commerce strategies will require budget up front to execute on – and short-term ROI may be less than ideal – but will increasingly replace Digital Ad spend and produce massive returns in the mid-term for those who can execute