Product Growth Strategy: Case Study on TikTok Shop
Identifying product growth strategy for TikTok Shop through market research, competitor analysis, user feedback to increase buyer and seller engagement.
🔍 Overview
When I ran out of my lipstick last week, I immediately went on TikTok to look up “best lipstick 2023” and looked through short videos of reviews, comparisons, try-on’s. TikTok has replaced Google and became my go-to “browser” for shopping. And ever since I noticed that shift in my own shopping behavior, I was interested in studying TikTok’s relatively new commerce feature — TikTok Shop.
🎯 Target
Propose data-informed recommendations on product growth strategy for TikTok Shop based on market research, competitor analysis, user feedback.
🗒 Process Flow
1. Background: What is TikTok Shop?
TikTok Shop is a shopping feature which enables merchants and creators to advertise and sell products on TikTok through TikTok LIVE, in-feed short videos, the store page. Brands pay a small commission to sell their products on TikTok. Combined with the company’s mission: “to inspire creativity and bring joy,” TikTok Shop aims to nurture a creative and fun space for consumers to shop interactively with merchants and creators.
TikTok Shop currently has embedded CTA button that either allows users to purchase directly on TikTok with an in-app purchase feature or directs users to a brand’s website that opens within TikTok App.
2. US Market Research
Social commerce — selling products and services directly on social platform — has gained momentum during the pandemic since 2020 when everyone had to reply on shopping online. Sales from social commerce market grew 34.4% in 2022 to $53.1 billion and expected to double by 2025 to $107.17 billion.
The size of US TikTok buyers grew exponentially by 72.3% in 2022 to reach 23.7M, which shows potential for TikTok’s goal this year in 2023 to generate up to $20 billion in merchandise sale through TikTok Shop which is just a bit less than half of last year’s sales from the entire market. Along with the fast-growing social commerce market, TikTok is doubling down on becoming a leader in the social commerce space among its competitors.
3. Competitor Analysis
- Meta’s primary focus for Instagram’s commerce feature is Shop Ads in Instagram feed, Story, and Reels to target relevant user groups to improve marketing campaign performance for US merchants.
- YouTube has been focusing on its affiliate program that allows creators to earn commission from products featured in their videos. YouTube already has been the biggest platform where consumers come for shopping reviews and has established strong partnerships with creators.
- Weakness: compared to its competitors, TikTok has a smaller number of MAU than Instagram and YouTube and less matured creator/ brand partnerships than Youtube. But this makes sense given that TikTok only started to grow in the US market in the last several years.
- TikTok’s competitive edge is its incredible algorithm that enables highly personalized FYP for its users, so much so that it has successfully shifted user’s content consumption habits from actively choosing what they want to view to passively receiving what TikTok suggests users — and they like it. TikTok can leverage its powerful algorithm solutions to put a lock on hyper-personalized product discovery and inspiration and generate high traffic that can convert to purchases.
4. User Feedback & Analysis
To identify problems and opportunities for TikTok Shop from user experience perspective, I conducted a survey with 20 active TikTok users between age of 19 and 27 who are Gen Z and Millennial, TikTok’s largest user demographics.
Below is my analysis on the user survey results.
- 50% of the participants expressed product ads they see on their FYP are not relevant to them or interesting. It breaks their engagement away from the feed.
- While 100% of the participants are aware of TikTok’s commerce feature, 10% of them have made a purchase directly on TikTok. The other 90% of users prefer to purchase products on brand’s website.
- The biggest reason for not purchasing products directly on TikTok is because the users do not think social media is an appropriate place for making a purchase. This shows that users strictly separate TikTok as a platform for product discovery and not for making a secure and legitimate purchase.
- The second biggest reason is that users are skeptical about end-to-end commerce journey on social media. There’s resistance to trusting the quality of products sold on on social media especially from small merchants as well as the process of in-app checkout and post-sales experience (refund/exchange policies).
5. TikTok Shop Growth Strategy Recommendations
6. Strategy Execution #1: Build reusable and modifiable user segmentations for effective product matching and marketing campaigns
Behavioral user segmentation model (target)
There are different user segmentation models like demographic, geographic, psychographic, behavioral (i.e. RFM). But TikTok’s greatest strength comes from its immense repository of accessible behavioral data that its algorithm is already fully leveraging for content-to-user matching. Example below is how TikTok’s behavioral user segments with sales funnel would look like, which can be used as a general framework reusable or modifiable depending on the goal of marketing campaign/ brand.
Using differentiated marketing/ promotional campaigns to target each user segment showing corresponding behaviors with preferences and interest in certain product catalog can effectively increase conversion through the funnel. The user segments based on behavioral preferences can be also synthesized with user’s demographic and geographic data such as: gender, age, location, timezone for more refined product matching.
Structuring and enriching product attributes (source)
Attaching enriched attributes to product catalog serves as an important source data that increases relevancy of product to user segment matching depending on which point of sales funnel the targeted user segments exist.
Examples: Product to user profile matching with differentiated promotional campaigns
- Goal/Metric: new customer conversion
2. Goal/Metric: Loyal customer conversion
Loyal customer conversion is important as it is often easier to get more purchases from existing customers than to acquire new customers. Targeting subgroup of this user segment who shows high engagement and AOV can especially increase ROI.
7. Strategy Execution #2: Create marketing contents focused on TikTok Shop experience to build trust with in-app purchase
The marketing contents focused on TikTok Shop experience is important for TikTok in bringing the success of its commerce feature in China to the US market.
Social Commerce in the US (Decentralized) vs. China (Centralized)
As observed from the user survey, the biggest barrier to user’s engagement with TikTok Shop in the US is due to user’s clear separation between the usage of different platforms. In the US, users perceive social platforms like TikTok as only intended for entertainment, crowdsourcing for reviews to learn more, or serendipitously discovering new products. But ultimately, users exit TikTok and go to a brand’s website to actually make a purchase because they perceive eCommerce platforms as the ‘right’ place to make a transaction and thus they feel comfortable and secure. Users in the US have not fully caught up to the shopping habit of purchasing products on social media and this friction stems up from such decentralized App usage in the US, using different Apps for different purposes — social, e-commerce, task management, P2P payments, etc.
This is very different from China where social commerce has gained an immense success. WeChat has been already deeply embedded in Chinese user’s every day life, even before the spike of social commerce during the pandemic. WeChat’s Mini Programs host different Apps and offer features like e-commerce, coupons, task management (i.e. cab service, food delivery) with which users directly pay on the platform for services and products — marrying the concept of social and commerce. Users in China have been already primed to do in-app shopping and having everything centralized within a social platform.
8. Final Thoughts
Social commerce market in China, accounting for billions of dollars, has proven that it holds a lot of potentials to shift consumer’s shopping habits and bring the new business value to social media platforms. I believe in TikTok’s potential to shift US consumer’s shopping behaviors the same way — if anyone can do it, it would be TikTok. Focusing on instilling social commerce and in-app purchase in US shopping culture and refining product to user segment matching strategy will give TikTok Shop an immense boost against its competitors. And, if TikTok is really planning on opening up its own in-app eComm store in the near future as the news has been surfacing, these are without a doubt important prerequisites.
