China’s digital channels have been the talk of the town since COVID-19 burst onto the scene. Online platforms’ already-healthy growth rates have switched up a gear, with livestreaming and its big brother, ecommerce, hogging much of the spotlight. Yet behind the big numbers, all isn’t what it seems. In 2018, at least a third of internet traffic in China could be considered “abnormal”, and still today, few online touch points escape the bot-bombardment, brushing and other fake numbers.
Anyone familiar with China’s biggest KOLs being caught engaging millions of fake followers or even Luckin Coffee’s fraud will know that there is little chance of the red-hot livestreaming channel being squeaky clean. As Elijah Whaley from Parklu eloquently puts it, the presence of bot accounts routinely inflates livestream viewer numbers. This means that the baseline awareness that brands are expecting to generate among target consumers is fake. That’s the good part. The thousands, or even millions of kuai worth of sales that makes marketeers giddy are, sadly, often fake as well.
How does something as measurable as sales get fabricated? Well, the typical livestreaming terms involve a flat fee + commission on heavily-discounted products, on the promise of minimum sales volumes. There is also an agreed maximum return rate, usually as high as 40-50%. Then your show slot comes. While everyone is watching in awe as sales numbers make their steep accent to the promised volume, behind the scenes the livestreamer’s representative is often figuratively clicking the buy button like a possessed woodpecker. And when it is all over, the livestreamer will return the maximum agreed amount and used a share of their flat fee to pay for the remaining fake sales (while still pocketing a handsome payment). To recoup much of that cost, they’ll flog anything left to the promiscuous and price-sensitive consumers on group buying platforms.
Livestreaming scams are a likely contributor to companies such as British skincare brand Saville & Quinn, seeing “less than 10% of livestream buyers becoming repeat purchasers” versus 40% of their Tmall customers. Yes, livestreaming can rocket-charge awareness and, done well, can retain customers as loyal advocates, but brands should be aware of the variety of underhand practices out there.
On a brighter note, the long-practiced art of ‘brushing’ on ecommerce may finally start to be put in check. The algorithm’s for platforms such as Taobao, Tmall or JD favour listings that are selling a lot of product and getting rave reviews, among other things. The more sales you have, the more reviews you can get, and the more sales you’ll get as a result. In short, the rich get richer. So to help bolster sales, brands will often inflate sales and positive reviews through ‘brushing’, or fake sales.
When competitors are faking their sales, it makes it even harder for brands trying to sell online the honest way. But things are looking up as China’s tax authorities increasingly use big data to identify sales volumes, and late last month started sending alerts to merchants warning about the risks of unpaid taxes on sales between 2017 to 2019. A seller who has inflated ¥10 million ($1.4m) in sales would have to pay more than ¥1 million (around $140K) in taxes. Hopefully it will start to change behaviour – we may even see the soaring COVID-driven growth of ecommerce, tempered somewhat as fake sales start to fall off the official GMV (gross merchandise value) numbers.
As the old adage goes, ‘perception is reality’, and faked and fudged numbers are likely to carry weight with Chinese consumers for some time yet. Many brands will see it necessary to raise their perceived popularity against their competitors to tap into the herd mentality and generate online buzz. Yet initiatives such as taxing brushing is a step into creating more transparency in the market, and provide a more level playing field for all brands. Fake data aside, ecommerce and livestreaming continue to present great opportunities in China when done well. China Skinny can assist you with this.
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