Qasim Mohammad is a Toronto-based technology entrepreneur and investor with a focus on the digital commerce sector.
If you’re a millennial, chances are the last time you made a purchase, you sought some sort of inspiration and feedback from a trusted digital source prior to completing the transaction.
The trusted source was likely a YouTube video starring an influencer, a friend on Instagram, a Reddit forum, or something in between. The channels through which digital-native consumers can validate their buying decisions are now seemingly endless. And their rise has cemented a new reality which merchants must internalize quickly – commerce has moved away from being an individualistic activity to a collective mindset.
As stated by Stanford University political science professor Francis Fukuyama, the rise of the internet and social networks is homogenizing people into communities of like-minded people. As a result, these communities are increasingly informing the purchasing habits and decisions of its members.
The data prove it: According to a recent eMarketer study, between 2016 and 2018 social networks delivered the highest growth rate in driving visits to U.S. retail websites – nearly seven times the growth of paid search. Other studies reveal that consumers between the ages of 18 and 29 are more than six times more likely to discover products on platforms such as Instagram, Snapchat, Twitter and YouTube, compared with consumers who are 61 or older.
Given the growing influence of online community interactions on shopping behaviour, it should come as no surprise that between 2015 and 2018, the number of U.S. internet users who cite social networks as a critical information source for guiding purchasing decisions rose from 27 per cent to 36 per cent. The biggest driver of this increase is the emphasis that social and e-commerce platforms place on curated product recommendations, live interactions between people, and a virtual stage for influencers to share their tastes and preferences.
As reported in Mary Meeker’s 2019 Internet Trends report, Stitch Fix, a personal styling platform, represents a successful case study on the power of curated product recommendations. Stitch Fix has more than 4,000 stylists, and all transactions on the site are informed by their selections for customers.
There is also the example of Pinduoduo in China, which plays host to close to half a billion Asian shoppers on its platform. Manufacturers begin production once groups of shoppers collectively approve styles, and get cheaper prices on items if they recommend products to their friends. The latter demonstrates how live social interactions can be explicitly incentivized, thus training shoppers to interact with one another. This approach clearly works, as Pinduoduo has nearly doubled its user base over the past five quarters.
In addition to curated product recommendations and real-time interactions between people, live-video streams hosted by influencers are driving a growing amount of buying activity online. The power of celebrity and influencers over digital native shoppers can’t be overstated. According to Hubspot, one in five shoppers between the ages of 18 and 29 discover new products through celebrities and influencers.
Online shopping destinations such as ShopShops, Taobao and Mogu are tying celebrity and new media together to increase consumer engagement. Shopping activity through live-video streams is responsible for 24 per cent of the gross merchandise volume generated by Mogu. More than 48,000 fashion influencers are actively sharing stories with more than 62 million users on the platform, helping to deliver a 4x repeat purchase rate.
Another startup bringing the power of social, celebrity, and community to commerce is L.A. based Ntwrk. Being touted as the “QVC for Gen Z” by the media, a recent investment by Drake and Live Nation in the company validates that shopping in today’s youth culture consists of stories and online connections that reflect individual identities.
It’s also interesting to observe these trends, which have popularized community-driven commerce online, making a foray into the physical world. For example, Neighborhood Goods is a new take on the traditional department store, where shoppers can connect over events, food and experiences. Celebrities such as Serena Williams have launched new products there and have held gatherings for their fans, thus acting as an additional draw to the store. Tim Armstrong’s stealth startup – the dtx company – is also experimenting with entertainment-focused retail experiences that build a sense of community around shoppers.
Although the vast majority of e-commerce currently takes place via marketplaces and direct-to-consumer sites, virtually all of it is somehow influenced by activity on social platforms. Regardless of where exactly a consumer completes an online transaction, nearly 72 per cent of global digital ad spending runs through social giants such as Google, Facebook, Amazon and LinkedIn. That’s because all the eyeballs are there, and this percentage is a true representation of the power social networks and online communities have over influencing consumer buying behaviour.
As these new channels for commerce extend their capabilities and even make a transition to the physical world, they will become increasingly critical for consumers in guiding their rationale for making purchases.