When Walmart launched its first livestream sales event on TikTok in December 2020, it garnered seven times more views than anticipated and increased its TikTok followers by 25 percent. Today, the entry barrier for livestream sales is much lower, enabling not only established companies but also small brands to experiment with livestream sales on TikTok, Amazon Live, and Instagram.
“Livestream commerce has transformed the retail industry. By integrating shopping experience and entertainment into live broadcasts, it has emerged as a promising channel for product sales,” said Associate Professor of Information Systems and Technology Management Yixin Lu, whose recent research focuses on the fast-growing sales channel.
In the paper “Managing Sales via Livestream Commerce: Implications of Price Negotiation and Consumer Price Search,” published in Production and Operations Management, Lu and her collaborators, Luyi Gui and Xi Lin of the University of California, Irvine, examined whether and under what circumstances sales through livestream commerce can be more profitable than traditional sales channels.
In the eight years since Chinese e-commerce giant Alibaba launched Taobao live, livestream commerce has taken off and now grabs an estimated $562 billion in sales in China, according to marketing and advertising research company eMarketer. Lu noted that while the trend is rapidly catching on in the United States, it is not yet deeply grounded and little guidance has been provided as to how brands can best leverage this novel sales channel. Her research identifies key operational and incentive factors that affect the strategic interactions between brands and key opinion leaders (KOLs), in livestream commerce. Also known as influencers, the involvement of KOLs is a unique feature of livestream commerce.
KOLs interact with consumers and promote and sell the products in livestream shows on behalf of brands. In return, the influencers receive commissions from brands. Celebrities often serve as KOLs, using their fame and large fanbases to increase product appeal and broaden a brand’s market reach.
As more brands jump on the livestream wagon, negative stories have emerged. Lu said many practitioners are now questioning whether livestream commerce is, indeed, more profitable than traditional sales, a concern her research looks into.
“The main challenge here is that the KOL is not a regular retailer that focuses primarily on sales profits. They promote and sell products with a personal touch and care about their reputation, especially among their fans. That makes collaboration with them more complex for the brands.” Lu explained.
“It can be especially challenging for small brands, who may end up with meager or even negative profit margins due to lack of bargaining power,” Lu added.
The sales tactics adopted by KOLs in livestream sales events add another layer of complexity to the price negotiation between brands and KOLs.
“The display of the limited product quantity contrasted by the large audience competing for the deal, along with the countdown timer that shows how fast the product is selling out in livestream sales, can generate a sense of scarcity and urgency,” Lu said.
On the consumer side, Lu said buyers have become more strategic about their online purchases, actively searching and comparing prices across different sales channels. This makes livestream sales tactics a double-edged sword.
“On the one hand, the fear of missing out—FOMO—may encourage consumers to search, which leads to demand loss. On the other hand, the small shopping window signaled by the countdown timer may accelerate the conversion,” Lu said. “Whether livestream sales outperform traditional sales in the presence of consumer search depends on which of these forces dominates.”
Her research findings also provide guidance on how to improve the profitability of this trendy sales format. The key takeaway is that brands need to be aware of the hidden cost of livestream sales.
“Brands need to carefully assess the various strategic factors that come into play,” Lu said. “The complex interplay of these factors may also spark the involvement of policymakers in what is currently a largely unregulated sales channel.”
She noted that consumers generally benefit from the proliferation of livestream sales. “It allows them to be better informed about the products they intend to purchase,” she explained.
Lu is now working on a follow-up project that studies the effectiveness of livestream commerce in improving smallholder farmers’ income in remote rural areas. These areas typically have the conditions that generate high value and unique specialty agricultural products. However, lack of access to lucrative markets has long prevented the farmers from leveraging the income potential of their products.
Lu and her research collaborators seek to offer guidance to practitioners and policymakers on developing intervention programs using livestream commerce to improve farmers’ welfare.
Lu’s research, which has earned several awards, appears in top business/management journals, including Management Science, Information Systems Research and MIS Quarterly.