As YouTube further enters live shopping, the backfire faced by Chinese peers nee...

As YouTube further enters live shopping, the backfire faced by Chinese peers needs to be noted

As YouTube further enters live shopping, the backfire faced by Chinese peers needs to be noted

Zijing Fu

posted on November 30, 2021 1:52 amEditor : Rebbeca Ren

When a brand's image largely depends on a third party's influence, it not only makes the brand's own identity invisible to consumers, but also makes it extremely hard to sever ties with that third party.

As the holiday season approaches, Youtube launched Holiday Stream and Shop — a livestream shopping event lasting from Nov. 15 to 22, featuring big names hosts such as world-renowned chef Gordon Ramsay(18.4M subscribers), Youtuber influencer MrBeast(81.3M subscribers), make-up guru Manny MUA (4.85M subscribers)and others.

According to Youtube, during the live streams, viewers were "able to interact with creators and other fans, give feedback, enjoy exclusive discounts and product drops, and browse and checkout without ever leaving the livestream."

In China, where live commerce is viewed as the future of online shopping, e-commerce platforms are increasing their presence with live stream shopping services and short video platforms are actively pushing themselves into e-commerce. In 2020 alone, GMV (Gross Merchandise Volume) of Taobao, Alibaba's marketplace, exceeded 400 billion yuan ($62.62 billion), and TikTok's sister app Douyin created 500 billion yuan ($78.27 billion) in GMV.

Inspired by the phenomenal success of live-stream shopping in China, YouTube, along with other global social media giants including Instagram, Twitter and Pinterest, has recently started to test the waters in the seemingly-lucrative sector.

"People want to shop on YouTube and, according to a study we ran in partnership with Publicis and TalkShoppe, 89% of viewers agree that YouTube creators give recommendations they can trust," Wendy Yang, a product designer of YouTube Shopping, said.

Unlike Taobao or Douyin, which started live-stream shopping with regular people as hosts, and later turned to celebrity collaboration, Youtube is starting with celebrities who already have a large fan base (Mr.Beast) or have an established reputation in a particular field (Gordan Ramsay, Manny MUA). Star live-stream hosts can be a valuable asset to brands, as their fame can help grow sales and boost the brand's recognition. When attached to a household name, the brand would automatically seem trustable and easier to leave an imprint on consumers.

However, celebrities' fame can hurt a brand too. Whether it's on Taobao, Douyin, or Youtube, most live-stream shopping is commissioned by brands and carried out by third-party hosts instead of directly streaming their products. As a result, live stream hosts often become too crucial a part of the brand's marketing and distribution.

The bigger follower-ship a host has, the more exorbitant the commission fee is. For example, according to a Yuanchuan Institution report, Li Jiaqi and Viya, two of Taobao's top live-stream hosts, charge an 80,000 to 150,000 yuan appearance fee per make-up product, which would rise to 200,000 yuan during Double 11, China's Black Friday. On top of that, they also charge a cost-per-sales fee, ranging from 15% to 30%. Such steep costs left brands no choice but to see their profit margins shrink, cutting costs in product development and market expansion, even to the point that they are losing money.

"We'd consider it (commissioning a live-stream session), as long as the ROI (Return on investment) expectation can exceed 0.5," according to a business development manager at an unnamed skincare brand, citing a report by Time-Weekly.

In essence, the brands are gambling; betting exposure in top live-stream hosts' sessions can boost their product's popularity overnight. Even if that didn't happen, brands could reuse the video clips of star live-stream hosts introducing their products for future promotions.

When live streams are no longer expected to make money, they turn from sales&distribution channels to marketing&publicity channels. As the cost for live streams is becoming more and more exorbitant, smaller brands often have no money to develop other marketing channels other than live-stream, thus making brands, voluntarily or not, largely affiliate their brand image with hosts they are working with.

A Chinese make-up brand Florasis blew up in 2019, after it hitched on the train of Li Jiaqi. In a year, Florasis went from a little-known start-up to Taobao's Tmall best seller. According to a report by Hefan financial, In 2020, more than 30% of Florasis's traffic derived from Li Jiaqi's live streams or his Douyin. During special periods such as Double 11, the GMV contributed by Li Jiaqi's live streams even accounts for more than 60% of Florasis's total GMV.

According to the same report, Li Jiaqi's reach has expanded far beyond selling products for Florasis. Li Jiaqi is also deeply involved in the design and development process. Before any Florasis product is put into production, it must first receive Li Jiaqi's approval.

When a brand's image largely depends on a third party's influence, it not only makes the brand's own identity invisible to consumers, but also makes it extremely hard to sever ties with that third party. For example, during this year's Double 11, L'Oréal China worked with Taobao's top live-stream hosts Li Jiaqi, who is also well known for being a former L'Oréal employee, and Viya, promising to offer "the lowest price this year" for a mask combo. Many buyers bought the masks for 429 yuan, yet only to find L'Oréal's official Taobao store sells the same product a few days later, for 257 yuan. Both the live-stream hosts and buyers were outraged, demanding L'Oréal's refund or compensation. L'Oréal may have successfully diverted some consumers to its own store, as it established the idea that they have the best deals there. Yet, that was at the cost of potentially traumatizing many of its loyal customers.

As YouTube's live stream shopping events collaborate with already well-established celebrities, all the aforementioned problems may lurk in their future. Such prospect is harmful to brands, hosts, and even the platform. For brands, they might end up in a tangling web, balancing publicity and profit. For the hosts, they might risk navigating through the turmoil, trying to please the brands, the buyers, and also watching out for competition. For the platform, they are moving in uncharted waters, trying to explore the commercial potential as well as avoiding any shenanigans that can harm its reputation.

Still, YouTube’s live e-commerce business is in a very early stage, and these attempts will help it figure out which categories are more popular with its users and outline a sketch of its future development.

"Our ultimate goal is to build a platform that allows anyone with a mobile device and a product to easily host a live shopping stream," said Yang.

According to consumer market research group Coresight Research, the livestreaming market in the US could reach $11 billion by the end of this year and is expected to eclipse $25 billion by 2023.