ASIA BUSINESS AND ECONOMICS

Do astronomical commission fees bring proportional rewards for live-streamers in Yiwu?

By Jingshuo Wu, Gaofanjie Wang, Yida Wang


The live streaming industry has become the gold mine in China. The top live streaming host Viya (薇娅), who is as famous in China as Beyoncé is in the US, has a net worth of over 1 billion dollars, accumulated from the high commission fees paid to her by the companies whose products she promotes. [1]


“She is at the top of the live streaming pyramid and as the most famous pioneer of the live streaming commerce industry in China, has refused to promote Yiwu products several times,” according to the aspiring Multi-Channel Network (MCN) company manager Mr. Jin. Even though the commission fee was as high as millions of RMB, Viya was still unwilling to endorse the cheap products since she has attracted a huge fan base by promoting products of a higher perceived value. She is very careful about which products to favor because her reputation is enhanced by her selection of products. Even though Viya declines association with Yiwu’s inexpensive commodities, the popularity of such products internationally has nonetheless contributed to the success of the market in Yiwu.     

The high commission fee that Viya can command is an extremely rare treat, but for others, this is almost impossible to achieve. She is far from the ordinary example of what a webcast presenter earns. More commonly, the average live-stream host generates more like $1500 per month[2], and many who explore the market are unable to make a reasonable living, and a career as even a moderately successful live-streamer can carry unexpected risks.

 500,000 followers vanished in a blink

“I used to be a part-time software engineer when I was still a college student, but it is axiomatic that life is not always easy. My school was squashed flat by bombing.” His voice turned subdued, and his mood appeared to be one of resigned sorrow. God will open a window while closing a door. He sees opportunity amid the gloom; this guy, whose name is Bashar, considers himself one of the lucky ones.

Capitalizing on his attractive appearance, Bashar started modeling and posting fitness videos after emigrating to China. At that moment, he never imagined that seven months later, he would become a professional live streamer. At one point, following a pleasant conversation with an Iranian saffron supplier, Bashar had been deeply attracted by the idea of live-streaming, so he decided to sell the saffron while live-streaming, which he did successfully. But one effort was not enough. It was hard to form a sizable fan base to sustain his business. Eventually, he signed with an agent, which helped him attract followers through marketing.      

 “I attracted 500,000 followers in three months–that was the highlight of my live streaming career,” Bashar said. The agent used his 500,000 followers to get Bashar a lucrative contract with a Yiwu company, selling their products online. “I thought my career would rise all the way up after achieving so many things.” But things weren’t going the way he’d expected.

Although he developed a promising following, Bashar himself was never paid for his efforts, with the company constantly finding reasons not to fulfill their part of the deal. Bashar eventually canceled the contract. The cost of the cancellation was to forfeit his fanbase, which, since it had been developed in conjunction with the company’s products he was promoting. That is to say, all the reputation and followers Bashar got belong to the MCN company but not him. Bashar has since turned to a new venture. All this makes him understand live-streaming isn’t a friendly industry to every newcomer.

Not only are skillful live-streamers like Bashar sometimes unprotected and therefore taken advantage of by the manufacturers, MCN’s and agents, but they are not all skillful at their jobs. Many of those who attempt to enter the profession of live-streaming host do not have the skills or personality to sell products in this highly competitive, rapidly evolving market. They may seek to command fees that they do not deserve as their resulting sales do not maximize profits for the producers. The consumers also might not trust them, and thereby develop a negative impression of the products which such live-streamers are trying to sell.

With so many live-streamers attempting to enter the job market in places like Yiwu, it is a risk for both the live-streamers like Bashar who got unpaid, and also for companies which are hard to recruit skillful live streamers. The market is brand new therefore still unregulated in many aspects, there are opportunities for a great deal of less than desirable conduct on all sides.

Above, Bashar (on the right) is pictured during his interview.

  “We are only the ligament of the supply chain and consumers.”

 Live-streaming commerce has expanded rapidly in recent years. More and more people hope to gain wealth on this “fast track.”

In Yiwu, a place known for a trading hub of inexpensive, lower-quality commodities, the market of live streaming commerce also inevitably has become popular, as a matter of fact, the earliest live streaming selling mode was born in Yiwu.

 “The part of profit the live streamers get could be up to thirty percent,” said by Mr. Jin, a businessman in Beixiazhu Village, one of a small neighborhood in Yiwu, where is known as the “NO.1 Live Streaming Selling Village in China”. The industry was developed from the wholesale and overstock industries, where the price of goods is very low. Initially, the live host could sell goods at reasonably low prices. Even though this cut of profits is high for a gathering place of low-margin goods like Beixiazhu Village, the number of live streamers exceeds 4000[3].

The president of the China-African Business Council, Mr. Zhu, told us that “only fast-moving consumer goods can be sold in large quantities in the live streaming industry.” The pricing of the FMCs (fast-moving consumer goods) by the factories is not much higher than the cost, so paying a high live streaming commission would reduce a company’s profit to less than 10% overall. [4]However, for the purpose to attract more people to buy them, goods sold by live-stream have to have a “price shock”, according to Mr.Jin.

The economist Mankiw has said, “Consumers are incentivized to act.” The live streamers understand what this means completely. They present their products based on a previous reference price much higher than the price in the webcast rooms, a price which likely never actually resulted in any sales. This is to let customers believe that they are being offered a sharply discounted price, which creates in the customers a desire to purchase products even though they don’t need them at all.[5]

Mr. Jin illustrated this through the hypothetical scenario of a live streamer selling a water bottle which the presenter states was previously priced at 50 RMB, but in the broadcast-room is priced at only 10RMB. While the bottle may in fact have never sold for near the 50RMB quoted price, the presumed 80% discounted price challenges the consumer’s common sense and causes a loss in the ability for rational thinking. The example is a “price shock”, and the whole industry chain in Beixiazhu Village is established around this mode.

While the original sales prices may not have come close to the quoted previous price, the resulting discounted prices are so low that factories’ profits become negligible at times. The public perception is that, for the factories to maintain their income, some factories will cut steps, resulting in a decline in product quality, which gives customers a negative impression of Yiwu products and a shortened product life cycle.

Above is a live-streamer promoting a popular umbrella by offering it at a very low price in highly limited quantities, creating an idea that the product is scarce at that price and thereby increasing immediate demand.

Based on the former information, it is clear that three distinct parties are involved in the live-streaming sales process—the manufacturer, the MCN company, and the live-streamers themselves. They are all driven by capitalizing on current trends to improve their business practices while avoiding the consumers feel defrauded. But, it’s also clear that this seems to be a balance that is hard to achieve.

A Call for Self-Revolution

Apparently, there’s immense room for the live-streaming commerce industry in China to be improved.

Firstly, it is necessary for the producers at the bottom to guarantee the quality of the goods. The large order volume and the high commission of the live-streamers cannot be the excuse for the manufacturer to cut corners. Otherwise, the inferior goods produced by those companies which are blindly seeking profits will reduce consumers’ trust in live-streaming commerce.

The MCN company serves as a platform that connects producers and live-streamers, and these companies need to implement two-sided quality control. When selecting goods, MCN companies and their representatives like Mr. Jin must ensure the quality of the goods finally provided by the manufacturer to protect the rights and interests of consumers. At the same time, MCN is responsible for ensuring that the live-streamers they sign with be professionals in the industry. While attracting fans, the advantages and disadvantages of the items can be well displayed through a live streamer’s description.

The last aspect is the improvement of the professionalism of the lower-level live-streamers. With more and more people pouring into this live-streaming market, live-streamers who want not to be eliminated need to improve their personas and characteristics. Where there’s uniqueness to attract viewers, there’s the ability to make more products exposure, and then the conversion rate will come along.

In conclusion, the live-streaming industry still has enormous undiscovered potential: suppliers benefit from high demand due to the high popularity of the live-streaming industry compared with the normal selling strategy; an average consumer may gain access to cheaper commodities resulting in reducing indirect costs; live-streaming adepts may make fortunes with their craft.

However, as noted, there are several current drawbacks to this type of marketing. Because of the high commission fees of the live-streamers, the quality of products may be affected as manufacturers seek to maintain adequate profit margins. Consumers may be prodded into spending large aggregate amounts of money on products they do not really need. The live-stream hosts themselves may be taken advantage of by unscrupulous industry predators who fail to make contracted payments. To resolve these issues, the government should impose certain regulations on the industry and its practices. For example, a limit on sky-high commission fees should be set to ensure that suppliers can retain the quality of the products being promoted. Government inspectors should monitor factories in Yiwu to validate the quality and authenticity of products being produced. There should also be a government task force regulating agents who might take advantage of those they represent.

China’s live-streaming commerce industry has revolutionized the consumer products market and social culture of its home country; with more well-regulated practices, live-streaming can export to overseas markets and revolutionize the international game in the near future.


Reference:

[1]: Bloomberg News. (2020, June 4). A millionaire at 34 and bigger than “Sunday Night Football,” China’s star saleswoman Viya rules a $60 billion world of live online shopping. Bloomberg. https://www.bloomberg.com/tosv2.html?vid=&uuid=e2945a60-e226-11eb-9bb7-970bfed0c6c6&url=L2ZlYXR1cmVzLzIwMjAtdml5YS1jaGluYS1saXZlc3RyZWFtLXNob3BwaW5nLw==

[2]: Dan, Z., & Kunyi, Y. (2021, March 3). China’s market regulator fines 5 platforms over price war in online grocery sales. Global Times. https://www.globaltimes.cn/page/202103/1217141.shtml

[3]: The West Australians. (2021, June 21). Is China running out of options in commodity price war? https://thewest.com.au/business/mining/is-china-running-out-of-options-in-commodity-price-war-ng-b881906170z

[4]: Hao, X. (2020, June 22). 直播带货的“小姐姐”们能挣多少?答案揭晓:她们干满24年=薇娅一个订单 | 每经网. http://Www.Nbd.Com.Cn/Articles/2020-06-22/1449195.Html. http://www.nbd.com.cn/articles/2020-06-22/1449195.html

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