Livestream Commerce, What Does the Consumer See?

Livestream Commerce, What Is That?

Have you ever been captivated by a livestream, eagerly watching as an influencer presents the latest must have product? Well, 95% of our survey respondents say YES!

Livestream commerce quickly established itself as a major shopping method and a tool for boosting customer engagement and sales in China. The live streams are “as much entertainment as they are sales pitches, with streamers using humour, personal pronouns, friendly tone to create intimacy between themselves and the viewer in order to sell the product.”(NYT, 2023)

The scale of live streaming platforms like Douyin (the Chinese counterpart of TikTok), Taobao, and other platforms reached 4.92 trillion RMB in 2023. The market size is expected to soar to 8.16 trillion RMB by 2026 (Ma, 2021).

With millions of viewers tuning in daily to watch their favourite influencers tout everything from luxury jewellery to household necessities, virtually any product can be showcased and sold through live streams, it’s no wonder this interactive form of e-commerce has become a cultural phenomenon.

Vivian Wang/The New York Times

Why Is It Popular in China

Key opinion leaders(KOL) remain influential in China's buzzing world. These industry leaders influence customer behaviour with their remarks and body language. Imagine browsing your favourite social networking app, say TikTok. Then, a charming KOL enthusiastically demonstrating a product captivates you into staying on their livestream. You're sucked into their world, hanging on their every word as they praise the latest must-have.

This phenomenon has more to it than appears. These KOLs master the anchoring effect behind the scenes. This refers to our inclination to base decisions on the first piece of information we hear. In livestream commerce, KOLs use this prejudice to their advantage.

We conducted a poll on live streaming anchoring to better understand user behaviour. We identified the complex relationship between KOLs, consumers, and persuasion in China's dynamic e-commerce ecosystem.

Survey

Here’s what our survey of Chinese consumers shows about behaviour, perception and the market overall.

Livestream commerce survey

• In terms of viewing frequency, 61.9% of users said they often watch e-commerce live streaming, while only 4.76% said they never watch it.
• In addition, 42.86% of users are influenced by KOL’s recommendations in their purchasing decisions, while 38.1% are sometimes influenced.

This shows that live commerce has high popularity among Chinese users, who are influenced by KOLs who have a guiding effect on the user's shopping decision. However, what about the 71.43% of respondents experiencing more low-quality products now compared to when they started, or 38.1% stating that they think that the majority of the market is low-quality products? To answer this, we turn to Lemons.

Lemons Problem

Don’t worry, this is not a question from an agricultural management exam, but rather a term used for situations where information asymmetry leads to high-quality products leaving the market. The concept was introduced by economist George A. Akerlof in 1970.

Imagine new beef jerky sellers decide to try their luck on Douyin but sell low-quality jerky caring only about profits. As consumers begin to realise that most beef jerky sold is low quality, their demand shifts downward, wanting to buy less at the same price, until only low-quality beef jerky is sold.

If the price of high-quality jerky exceeds the expected value, the average price taking into account the fraction of the market by each quality, for a buyer, then sellers of high-quality beef jerky will have to leave the market. Buyers do not expect a reasonable chance of getting high-quality beef jerky.

Why should you care, you ask? Well, the lemons problem demonstrates how consumers such as yourself and 71.43% of our respondents can end up having to buy from markets filled with low-quality goods as incomplete information about the quality forces high-quality goods out of the market. So is there a solution to this?

Intervention

In 2020, China's Market Regulation Administration introduced the “Live-Streaming Business Management Specifications” to regulate the entire live-streaming industry to ensure its sustainability (Wang, 2021). The latest "Regulations for the Protection of Consumer Rights and Interests”, set to take effect on July 1, 2024, prohibit online operators from falsifying trading information or manipulating consumer feedback to prevent deception (ThePaper, 2024).

Despite government efforts, addressing moral hazard and information asymmetry problems in livestream commerce faces challenges due to the vast and dynamic nature of livestreaming platforms, enabling unscrupulous sellers to exploit loopholes that undermine consumer trust and industry reputation. Thus, enforcement requires the efforts of stakeholders at various levels. While regulators intensify crackdowns on immoral and illegal behaviours in e-commerce, platform operators should enhance management practices and implement stringent oversight mechanisms. Sellers must uphold ethical standards, prioritise consumer welfare over short-term gains, and abide strictly by the law, including providing accurate product information and refraining from deceptive marketing.

Consumers also play a pivotal role. They should be empowered with access to reliable information and resources regarding the products and be educated about their rights and privileges to make informed purchasing decisions. In turn, helping high-quality products stay in the market. Meanwhile, consumers should enhance their risk awareness, strengthen the prevention against various marketing schemes, and report to platforms and regulatory authorities promptly when their rights and interests are violated (Liu, 2024).

By fostering integrity and accountability across the industry, stakeholders can cultivate consumer trust, ensuring the long-term sustainability of livestreaming commerce.

Overall

The arrival of livestream commerce has both positive and negative aspects. It has provided a convenient purchasing method and an easier shopping experience. However, consumers do not always follow "rational" economic behaviour. Influenced by the environment in which they make their purchasing decisions, their decision-making has been influenced by what behavioural economists call cognitive biases. Therefore, it is important to ensure that consumers such as yourself are aware of what influences your decision-making and the growth of efficient markets.

But, one thing seems certain, live commerce has started revolutionising the shopping experience.

Bibliography

Created by Vivian Wang (2023). Taiping Streams from Both a real yurt on the grassland and a set that he had built above his store. [Website] Available at: https://www.nytimes.com/2023/04/28/business/china-livestreaming-ecommerce.html [Accessed 10 Apr. 2024]

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Liu, X. (2024). “‘3·15晚会’点名！头部主播带货又翻车，购物踩坑谁来买单?”(. [online] www.dzwww.com. Available at: https://www.dzwww.com/xinwen/shehuixinwen/202403/t20240319_13853606.htm [Accessed 17 Apr. 2024].

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