10 minute read 18 Feb 2021
Social commerce in India

How social commerce is helping India move from interaction to transaction

EY India
By EY India

Multidisciplinary professional services organization

10 minute read 18 Feb 2021
Related topics E-commerce
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Social commerce is helping monetize personal and aspirational influences people carry in the society.

India has adapted well to social media, increasingly so during the pandemic. Indian users today make up a significant portion of users on global social media platforms and are a key target market for these platforms to expand. Social media plays a key role in influencing people’s tastes, opinions and desires.

There has been an evolution in the definition of influencers in our social circles, going from a mere one-on-one personal connection to a more social media-based interaction, which caters to style, fashion, footwear and home utilities. Given the change in the way we interact and get influenced by, has given rise to social commerce.

This relatively recent type of new-age commerce is helping monetize personal and aspirational influences people carry in society.

The chart below shows a breakup of the industry and the main driving forces behind its growth.

What is social commerce

Broadly speaking, social commerce is the process of selling products directly on social media platforms such as Facebook, WhatsApp, Twitter and Instagram. The sheer number of buy and sell groups on Facebook are a testimony to the fact that online socializing and online shopping make a highly compatible pair. By 2025, India’s e-commerce market is projected to be US$220 billion1, while social commerce can potentially grow to touch upwards of US$ 50 billion2 in terms of GMV.

China has witnessed the power of bringing together e-commerce and social media. Social commerce already accounts for nearly 13% of all online retail sales3 taking place in the country. It has proved to be an effective channel for reaching underserved consumers and for giving small and medium size businesses an affordable and simple way to create an online presence.

Social commerce has also presented a cost-effective alternative for larger businesses and brands reeling under the pressure of mounting customer acquisition costs and struggling to protect these precious customers from competitors wooing them endlessly with deep discounts. Social commerce, because of its close association with social media, has inherent advantages when it comes to engaging and retaining customers.

Why social commerce is the way to move India from interaction to transaction

Janaki lives with her mechanic husband in Hapur, a Tier 3 city in Uttar Pradesh. Recently, her life, which mostly revolved around family and domestic chores, has acquired a whole new dimension. She has a smartphone with free 4G. She explores recipes on YouTube and stays in touch with friends, family and acquaintances via Facebook and WhatsApp. Janaki is one of the 700 million Indians who have recently stepped into the fascinating world of the internet.

Between 2015 and 2020, smartphone usage in India has grown more than five times4. Simultaneously, the data usage charges have dropped to one tenth. As of 2020, 30 out of every 100 people have a smartphone and affordable data. They spend the bulk of their online hours on social media. India has 400 million WhatsApp users, of which a whopping 80% are active weekly. India boasts of having the largest number of Facebook users in the world. Instagram usage is fast catching up.

This massive increase in the number of people with internet access has also led to a rapid rise in e-commerce. However, the number of e-commerce users still trails social media users by a significant margin. In this milieu, businesses are finding it highly sensible to flaunt their merchandise where the maximum users are. Consequently, a new variant of e-commerce that is fast gaining popularity is social commerce – a zone where social media and online commerce converge.

Avenues of social commerce

Social commerce can take place on many types of platforms. Social media platforms like Facebook enable social commerce by integrating a buy button. WeChat that started as a messaging platform now offers e-commerce options through mini apps within WeChat. TikTok uses video sharing for promoting products.  Some such as Pinduoduo of China are designed for group buying. They offer deep discounts to users who use social media to form a group and order larger quantities. Yunji, also in China, is a reselling platform with a multi-level structure.

The predominant format of social commerce that has emerged in India is powered by social reselling platforms such as GlowRoad, Shop 101, Meesho, Bulbul and SimSim. These platforms operate through apps that can be downloaded for free, and predominantly target the mushrooming number of mobile users wanting to earn an extra income. The app user is referred to as the reseller.

The platforms provide the resellers:

  • A digital inventory of wide range of products sourced from suppliers at wholesale prices
  • Logistical services
  • Customer service
  • Smooth integration with WhatsApp, Facebook, Instagram and other social media channels
  • Some such as GlowRoad also provide a free personal sub-domain and storefront

The resellers share selected products on their personal social media and get orders. The social reselling apps pass on the order to the supplier and get the order delivered to the end-customer through their logistics partners. However, unlike the Chinese reselling platforms, Indian reselling apps have entirely steered clear of the multi-level structure and do not require resellers to recruit more resellers under them.

These apps have proved to be a major game changer in the Indian market because they enable just about anyone to start an e-commerce business. Prior to the emergence of these platforms, most people using social media to sell products were handicraft makers, home bakers, boutiques or other small business owners. But now a personal supply is not needed. Consequently, there has been a remarkable increase in the number of people engaging in a social commerce business.

What makes social reselling popular among customers?

What makes social reselling popular among customers?

The reseller is a highly effective facilitator and adds considerable value for the end customer:

  • Familiar experience: a remarkable feature of social commerce is a quick and direct interaction between the buyers and sellers. This makes the shopping experience like traditional offline commerce. Questions can be answered, prices can be negotiated and options discussed. Plus, community advice is also easily at hand as product images can be quickly shared with friends. The entire shopping experience can be completed without leaving the familiar environment of social media.
  • Trust: the interaction also helps to create trust. Moreover, the customer knows whom to reach out to in case they want to return or refund.
  • Personalization and easy discovery: unlike the traditional e-commerce model where consumers generally initiate the search and then filter out a huge amount of excessive information, resellers curate products that fit the taste and price preference of their social circle. The customer sees a highly personalized set of products and does not have to sift through overwhelming listings to discover relevant products.
  • Adequate information: product descriptions across most online sellers are provided in English, which is a major barrier for new customers getting online, primarily stemming from tier 2 cities and beyond. While many are making strides in providing relevant product information in native languages, these descriptions tend not to be succinct. In the social commerce scenario, the end-customer can have all their queries answered by the reseller.
  • Help with order placement, return and refund: a majority of resellers place the order on behalf of their customer as the end-customer is not comfortable placing an order on their own. Return requests and refunds are also facilitated by the reseller.
  • Better price: compared to a traditional retailer, the resellers can offer more attractive prices to the end-customer because they have no overheads like space, manpower or dead inventory. Prices also tend to be lower than the traditional e-commerce prices because of the lower customer acquisition cost incurred by the social reselling apps.
  • Bargaining power: product features like group buying can further add to the price advantage.

With these advantages, reseller-led social commerce has proved to be a powerful way for reaching the next 500 million5 e-commerce buyers in India. This group, which mostly comes from tier 2 and 3 cities, is quite different from the first 50 million e-commerce buyers. Millennial new-age users are more comfortable with vernacular languages and are not familiar with online payments. The household incomes are lower, and lifestyle is different from the urban consumer.

Reseller-led social commerce caters to several requirements of this user segment making e-commerce reach underserved rural and remote areas, people with little formal education, and low comfort with technology.

How EY can help

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The most popular product categories are apparel, especially women’s ethnic clothing, footwear, electronics and home utilities. The ticket size is low to medium and customers seem to be comfortable buying good quality non-branded products. Unlike the urban e-commerce buyer, they do not expect professionally shot product photographs. In fact, they are quite distrustful of fancy images, and show a strong preference for images shared by previous buyers.

Social commerce is beneficial for suppliers

Social commerce is also a good alternative for small and medium size unorganized businesses, because it is a simple way of getting online presence. Getting visibility on major platforms can be difficult for a small seller. A lot of businesses start a Facebook page, Instagram page and WhatsApp reseller groups to reach out to buyers on social media. However, they find it challenging to manage these channels. Reselling platforms make tapping the social commerce buyers much easier for the sellers, by offering the right tools and services.

Social commerce is empowering resellers

In a country where a mere 23% of women6 are in the formal workforce, becoming a social reseller is an attractive option for a large number of women.  The added household income and the increased sense of self- worth are strong motivators for becoming a social reseller.  Men are also joining in large numbers to supplement their existing income.  Students are taking to social selling to supplement their pocket money. Many mom and pop shop owners are also becoming social resellers to offer their customers more choice at no investment. 

With clear benefits for all involved, social commerce appears to be set to pave the path to the next big jump in e-commerce in India. A bumpy logistics infrastructure and product quality control poses some challenges that will need to be overcome. But right now, the next 500 million Indians seem to be extremely eager to explore the dazzling variety of products popping up on their WhatsApp and Facebook screens.

Investor interest in the space

One of the most appealing aspects for investors in social commerce is the low cost of customer acquisition. Most e-commerce startups are crippled by this customer acquisition cost given the extremely competitive market. Since social commerce uses existing social media platforms that already have a significant user base and trust-based influencers, they can bring down the cost significantly.

There are big bets being placed on this segment as Indians increase their time spent online. With the digital way of life becoming more mainstream, social commerce channels have a massive appeal both in terms of customer base as well as providing a platform to individuals who have a desire to be entrepreneurs but have limited means of doing so. It also helps addressing one of the biggest challenges for people not transacting online in India, i.e., trust. This trust factor also helps business metrics such as low return rate of goods.

Social commerce companies also help/incentivize small-scale seller (mostly arising from tier 2 cities and beyond) not only to get onto the platform and help increase sales but also the need in the small-scale industry to improve catalogue management, distribution, payment management and logistics, which can further lead to a growth spurt in the sector.

Outlook

While e-commerce brought in the first wave of online customers, it is expected that discovery-driven shopping in social commerce rather than search-based shopping is will bring in the next wave.

Social commerce in India is still in its nascent stages and shows great promise of growth. This form of commerce brings in a natural cohesion of both social media and online shopping. With social media platforms witnessing exponential growth in India, the amount of time spent on it provides more opportunities for product discovery and a more personalized experience.

As the hunger for content increases, so do the new and innovative ways for monetization. While historically a large part of the business is in apparels, going forward there will be an expansion into other segments as well; companies will look to add more category options in the hands of the resellers, including building private label offerings.

Summary

Social commerce will also see greater adoption of user generated content driven marketing as consumers tend to trust user generated content much more than traditional marketing. Voice and vernacular language will be important factors that will help achieve deeper penetration in this segment. While there are certainly existing and emerging companies in the sector, there are still large white spaces that exist, that make the sector attractive.

About this article

EY India
By EY India

Multidisciplinary professional services organization

Related topics E-commerce
Upvote