What contributed to the success of Red in becoming China's top E-commerce

platform and how can it maintain that success in the future?

Introduction
Overview of the e-commerce landscape in China
Lamber Bu et al.(2021) reported that the average consumer in China spent over seven
hours daily on the internet in 2021, a figure that increased by 20% following COVID-
19. Approximately two-thirds of this time was dedicated to using social content apps,
as a growing number of users rely on social media influencers to make purchasing
decisions.

The transformative impact of technology on shopping, social connections, and

business models is profound. This has led to a significant surge in the use of Chinese
E-commerce platforms. According to the 'Statistical Report on Internet Development
in China' (2024), until December 2023, the number of Chinese online shopping users
reached 915 million, an increase of 8.2% compared with 2022.

Source: https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-
insights/social-commerce-the-future-of-how-consumers-interact-with-brands
Emergence and growth of Red (Xiaohongshu)

As one of the top-ranking e-commerce platforms, Little Red Book, initially

established in 2013, began as an online community where users could share shopping
experiences and tips about overseas products. From 2015 onwards, the platform
expanded by adding an E-commerce section, enabling users to purchase
recommended goods through the app. Since 2020, Little Red Book has become a
leading content-focused social e-commerce platform. It presents the aspects of
socialization and emphasizes a sense of community, including user-generated content
(posts and short videos), social interaction (comments, likes, collections and direct
messages), combined with algorithms to enhance consumer engagement, user
experience as well as marketing strategy, which triggered the success of Red as an e-
commerce platform. Tingyi Chen (2024) found that starting in 2024, Little Red
Book's monthly active users surpassed 300 million.

Traditional e-commerce platforms earn revenue based on a shelf-shopping mode,

where consumers search for and purchase products directly. In contrast, as an
emerging e-commerce platform, Little Red Book operates in a sharing-commerce
mode, which means that it combines social media elements with E-Commerce
features. Red uses social media elements to promote information exchange among
consumers, boosting the process of making purchasing decisions on the online
platform. Specifically, consumers will look through intriguing content to entertain
primitively, little red book will then recommend products in short videos or posts
coming with the products and live streaming. Consequently, users are more likely to
consume after becoming interested in these products.
According to the data offered by Financial Times (2024), Little Red Book's revenue
was approximately 30 billion RMB in 2022, with 24 billion RMB generated from the
advertisements section, 80% of the total revenue. In 2023, the total revenue of RED
was estimated to be between 18 and 20 billion RMB.

Therefore, this paper chooses the RED platform to investigate the factors contributing
to its success as an E-commerce platform. The author will clearly show RED's
business model from the user experience perspective and propose strategies for
sustaining and enhancing Red's market position, promoting further e-commerce
development.

Literature review
Previous study on Little Red book
This paper adopts historical literature review, focusing on the evolution of Little Red
Book over time, tracing its development through past research and scholarly
contributins. The past literature offered valuable characteristics examination and
comprehensive strengths and weaknesses based on various expansion stages.

Until 2018, Little Red Book enhanced its platform with features such as short videos,
which boosted customer engagement and brought ways for followers to connect with
the influencers and product promotions, thereby attracting a broader user base. In
2018, Jing-kun ZHAO et al. analyzed the future directions and industry positioning of
RED. The cross-border e-commerce industry has received substantial consumer and
governmental support, with RED emerging as one of the leading platforms in China.
Initially focused on cosmetics, RED has expanded its offerings to include a wide
range of products. To maintain its competitive edge, RED must continue to ensure
product quality, expand its user base , and improve essential app functions, such as
user notes. They also used the SWOT analysis to evaluate RED's strengths,
weaknesses, opportunities, and threats. They identified RED's strengths as precise
user group positioning, policy advantages for cross-border e-commerce, and effective
publicity and promotions from celebrities. Nevertheless, they pointed out weaknesses,
including incomplete after-sales Service and a lack of intelligent interface design. The
authors suggested that RED should expand the user Base and develop a
comprehensive after-sales service mechanism to enhance user satisfaction. The
dissertation contributes a clear and appropriate SWOT analysis of RED as a case
study and provides practical recommendations for the platform to sustain its success
as a potential reference for this essay. However, it may heavily rely on secondary
resources without incorporating primary research, which could limit the depth of the
study.

Since 2020, Little Red Book has been the head of the content social e-commerce
platform, distinguished by its strong emphasis on socialization and community
building. The platform integrates user-generated content (including posts and short
videos) and social interaction (comments, likes, collections, and direct messages)
combined with algorithms to enhance consumer stickiness and user experience as well
as marketing strategy, which triggered the success of Red as an e-commerce platform.
In 2022, CHEN Chuyue et al. analyzed RED's key advantages as an interactive
community, high user traffic volume, as well as precise Big Data Analysis, which
enable the platform to achieve a high level of personalization and implement effective
marketing strategies. However, they also highlighted a number of challenges,
including conversion rate issues, as many posts lack direct links to the recommended
products. Additionally, the platform's revenue heavily depends on advertising (80%),
with only 20% coming from e-commerce. RED also faces challenges related
to product quality concerns, as potential false advertising may undermine user trust.
RED also contends with rising costs and high taxes. To be specific, policies such as
the 25% tax on certain goods can increase costs and reduce profit. The research is
well-structured, with a clear focus on the relationship between user interaction and
purchasing behavior. While focusing on Red provides in-depth insights, the research
may lack a comparative analysis with other social e-commerce platforms.

In 2024, since E-commerce has already been an extremely prevalent way to purchase
commodities, it is essential to understand how consumer purchasing behaviour is
influenced by social E-commerce platform-Red. Regarding the factors that affect
online shopping behavior, Xiaohuan Yan (2024) summarised relevant literature and
then tested which variables affect online shopping behaviors, such as user-generated
content and social interaction. The questionnaire was sent online to 431 participants
for data collection, with higher participation of women. They found that users believe
that Little Red Book has the greatest advantage over other social media platforms, and
the trusted recommendation of products and services accounts for the most significant
proportion. They found that UGC quality, social interaction, and product interaction
showed a significant positive correlation. They found that the most influential factors
for customers to shop in Little Red Book are pushed by bloggers or friends. These
findings make much sense for businesses and marketing strategies as they highlight
the importance of positive interactions on social media and online platforms.

Research Gap
Existing studies focus on the business model combined with a SWOT analysis of
RED. This study's value is to focus on customer engagement with SWOT analysis,
combined with first-hand research containing updated July 2024 surveys and second-
hand research, which has the reference value for the development of Red and offers
conducive ideas for other companies to draw on.

Methodology
Primary research and secondary research were both employed in this study. Primary
research was conducted to gather current data in order to gain insight into the user
experience of the RED app as an e-commerce platform in China, as well as to
assess customer satisfaction towards RED.

Since available online data is too general and limited to support the research, a
questionnaire survey was designed to collect updated data. The questionnaire
comprised questions related to basic personal information, online shopping habits,
user experience, and their satisfaction towards RED. Some questions were in the form
of multiple-choice questions, and a number of questions were designed on the basis of
Likert's five-point scale.

The main multiple-choice questions were: The frequency of using RED app, the level
of understanding to the RED's shopping section, the most commonly brought goods
category on RED, the primary reason for using RED as a shopping platform, RED's
competitive advantages and the kind of publishers considered most credible for
product suggestions. The Likert scale questions involved statements for which
participants could select from five options: strongly disagree, disagree, uncertain,
agree, and strongly agree. The author used Questionnaire Star in WeChat to distribute
the questionnaires to 163 participants.

Additionally, a full review of existing literature was carried out to support the
secondary research component of this study. Secondary data, often collected by
governments, research institutions, and other organizations, provide researchers with
accessible resources for analyzing characteristics of populations or testing particular
hypotheses. As noted by Vartanian(2011), secondary data is typically less costly and
less time-consuming to collect. A literature review research can be ilustrated as a
systematic method for gathering and synthesizing previous research in secondary
data. By integrating findings and statements from many empirical findings, literature
research can tackle research questions smoothly(Snyder, H. 2019).

The author read a number of related articles published in reputable journals and
websites to gain more information about RED from diverse perspectives. The papers
outlined the introduction of Chinese E-commerce, the development of RED as a E-
commerce platform, as well as several SWOT analyses of RED. The reports read
were: (1) 2023 China E-commerce market research report, (2) 2024 Little Red Book
(Xiaohongshu) marketing – a complete guide, (3) harnessing the Power of social
commerce to fuel growth in China, and (4) social commerce: the future of how
consumers interact with brands. The information in these materials was very useful
for understanding how RED is used for online shopping in China, particularly in
terms of the strengths and weaknesses of RED as an e-commerce platform and the
areas that can be further improved to ensure its future success.

SWOT analysis is a strategic form of analysis that identifies the internal strengths and
weaknesses and external opportunities and threats that influence the future direction
and success of a business. The internal analysis focuses on resources, functions, and
competitive advantages of RED. In contrast, the external analysis pinpoints market
opportunities and threats by evaluating competitors' resources, the industry
environment, and the macroenvironment as a whole(Tanya Sammut-Bonnici et al.,
2015). SWOT analysis is essential in understanding reasons for current outcomes
being achieved(Doug Leigh 2010) and making its strategy accordingly. Organizations
typically use a wide range of information sources to assess a picture of the external
environment, incorporating a wide variety of news, academic papers, market research
reports, and commercial publications( Tanya Sammut-Bonnici et al. 2015).

Results
Among the 163 respondents available, 76.07% were female and 23.93% were female,
with higher participation of women; In terms of age distribution, the distribution of all
age groups is fairly balanced, but the under 18 years old account for 37.42%,
indicating that the users of Little Red Book are mainly young people; From the
perspective of occupational distribution, students accounted for 59.51%, 33.13% of
participants were employeed and 7.36% of people were self-employeed. Students
accounted for a large proportion; Among the monthly expense in online shopping,
30.06 percent had a monthly expense for less than 500 RMB, accounting for the
highest proportion.

The frequency of customers using Little Red Book accounted for the most for on a
daily basis, that is, 76 people in the sample thought that they use Little Red Book
every day. It can be seen that the overall frequency of users using Little Red Book is
relatively high. 53.99% of people used Little Red Book as a shopping platform for
several times, with a lower percentage of participants at 27.61% saying that they were
completely familiar with the shopping function of little Red book. It showed that
Little Red book still has to make some changes as improvement for its marketing of
shopping function.
 (Fig1. Frequency of using RED as an e-commerce platform)

The most popular goods sold in Little RED Book were clothing and cosmetics,
respectively as 30.67% and 26.38%, which shows Little Red Book is mostly a female
users dominated platform.

(Fig2. the most frequent bought product type in RED)

The most important reason for customers to shop in Little Red Book was authentic
product reviews, 94 people in the sample believed that. The second was the product
inspiration, in order to give people’s suggestions about what to buy on specific
occasions or scenes. As a consequence, these two advantages can be seen as Little
Red Book’s strengths that allows it to attract consumers effectively.

Customers believed that Little Red Book has the greatest advantage over other social
media platforms, and the high quality of product sharing posts and close community
interaction account for the largest proportion respectively. That is, 74 people and 63
people in the sample believed that the biggest advantage of Little Red Book compared
with other social media platforms was the high quality of product sharing posts and
the sense of community. The platform can continue to maintain the quality of its
products sharing posts and boost a sense of community according to this information,
and continue to improve in other aspect with the intention of enhancing customer
experience.

(Fig3. the biggest advantage of red over other platforms)

The credibility of shopping sharing posted by ordinary users was the highest,
accounting for 52.15%, while the credibility of shopping sharing posted by
KOLs （ key opinion leaders), stars and Internet celebrities was low, accounting for
11.66%, 10.43% and 5.52%, respectively. On the contrast, from the report offered by
2024 Little Red Book (Xiaohongshu) Marketing – A Complete Guide (Tingyi Chen
2024), influencers was a key strategy for RED to promote products. Specifically,
Little Red Book influencer campaigns often target building brand awareness and
creating engagement, generating strong purchase intention and directly impacting
sales. This statement from the report is highly contradicted with the result displayed in
the questionnaire, which average user reviews are considered the most trustworthy
type of shopping sharing publisher.

(Fig4. the most trustworthy product review publisher type)

More than half of the respondents (56.44%) agreed with the statement that the content
recommended by AI is extremely helpful in making purchase decisions, and 12.88%
of the respondents strongly agreed. Therefore, it can be concluded that the majority of
respondents believe that the content recommended by AI recommendation is helpful
in making purchase decisions.
Before making a purchase decision, 36.81% of the sample who participated in the
survey strongly agreed to read others' product-related reviews on Red platform. It can
be seen that most people will read product-related reviews on Red platform before
making a purchase decision.
(Fig5. the extent on agreeing with the statement of reading product reviews on RED
before making purchase decisions)

After the little red book product recommendation, respondents generally chose
Taobao to place orders in the highest proportion, accounting for 45.4%. Followed by
Pinduoduo and Little Red book online shopping section, accounting for 23.31% and
22.7%, respectively. This proves that Taobao and Pinduoduo are strong competitors
of little Red Book, and little Red book can draw on Taobao and Pinduoduo strategies
to improve their competitiveness. 51.53% were satisfied with the shopping experience
of Red. Overall, most people are positive about the shopping experience of Red, and a
considerable proportion of users are very satisfied.

For the attitude of recommending others to use Red as a shopping platform, the
general proportion is higher, at 39.88%. Relatively speaking, the proportion of people
who are not willing is also high, 30.67%. Therefore, most people hold a relatively
neutral attitude towards recommending others to use Red as a shopping platform.

The Chi-Square Test for independence is a statistical way to figure out whether there
is a strong association between two factors. The P-Value in a Chi-Square test is a
statistical measure that aids to assess the validity of your test results (Avijeet
Biswal,2024)
The criteria:
1.P <= 0.05 (Hypothesis interpretations are rejected)
2. P>= 0.05 (Hypothesis interpretations are accepted)

According to chi-square test, the p value of Factor gender and the most frequent
bought product type is smaller than 0.05(0.01). The most frequent product females
opted for is cosmetics at a percentage of 32.26%, apparently higher than the
percentage of males opted for cosmetics at a percentage of 5.13%. Males most
frequently bought food and beverage at a percentage of 30.77%, doubled over than
the percentage of females bought at 13.71%. according to this result, little red book
can promote more products like cosmetics to females, and more products like food
and beverage to males.

(Fig 6. Chi-squre test result between the variable of gender and the most frequent
bought product type)
The level of significance of age and the most trustworthy type of product review
publisher was 0.001 (p=0.001<0.05). According to the comparison difference of
percentages, 68.85% of people under 18 deemed the common users are the most
trustworthy, which was significantly higher than the average 52.15%. Those people
over 45 mostly select official accounts as most trustworthy publishers at 50.00%,
significantly higher than the average of 20.25%.
Given this result, in terms of users under 18, Little RED Book could concentrate on
the quality censorship of posts by common users and encourage more common users
to publish or comment their own purchasing and using experience; however, in terms
of users aged over 45, little red book can boost the marketing of official accounts,
encouraging more brands to cooperate with and register in the little red book platform.

(Fig 7. Chi-squre test result between the variable of age and the most trustworthy
product review publisher type)

Discussion

Strength
UGC(User-generated content) model:
Rather than other short video platform, little red book provides a user generate content
platform, where users can share and browse through information in texts and images
efficiently, significantly saving the time for acquiring product reviews information. In
addition, most of the content is common user-generated; Amblee 2011 found that any
exchanged information, opinions, and recommendations can be considered as a
dramatic source of affecting buying decisions. This implies that content published by
common users offers a more valid reference for users, as common users are mainly
not profit-motivated and they are likely to share their own authentic experiences,
which could apply to most public users’ experiences; therefore, customers have a
preference for making purchasing decisions based on little red book platform.
Nonetheless, this strength concluded by the results strongly contradicted the
advantage mentioned by (CHEN Chuyue et al. 2022) in the marketing model of KOL.
The authors found that KOLs are the main target of advertisers, who can increase
consumers’ thorough understanding of the goods, while this dissertation found that
ordinary users are the most popular and trustworthy product reviewers.

AI recommendation:
Based on algorithm recommendation, when Little Red Book acquires and analyzes
more and more accumulating information about users’ likes, collections, and
searching history, among others, it will recommend a variety of similar superior or
relevant posts to users; thus, the frequency of using the red book will be increased,
boosting customer stickiness and establishing a most personalized platform for users.
Moreover, searching is one of the most essential ways for users to gain relevant
product reviews. While users search for a keyword in the Little Red Book platform,
the more compatible publishers’ posts are with the keyword, the higher the probability
of the posts being recommended, which is also a highlight of the function of AI
algorithm recommendation(TINGYI Chen, 2024).

Weakness
The limit of operation model:
Although RED has a wealth number of notes and short videos for users to browse
through, providing a way for users to understand the content of products more deeply,
this operation model has a heavy toll on the conversion rate of RED, especially some
products of this app does not have the direct purchase link under the introduction of
product post, which significantly increases difficulty in finding the corresponding
product. Consequently, a large number of users only check product reviews and do
not purchase on the platform; they will transfer to other platforms to place orders,
straightly giving rise to the increase in revenue for its competitors such as Taobao or
other e-commerce platforms. This result can also be shown in the survey finding,
where a great number of people opted other e-commerce platforms for placing oders
after being interested in RED’s product review.
Incomplete after-sales service:
Mentioned by Jing-kun ZHAO et al. 2018, the weakness of the supply chain and
physical distribution has a negative impact on RED as an E-commerce platform. As
proved in the survey, a number of participants gave feedback of incomplete after-sale
service, including slow physical distribution and incomplete after-sales service
containing refunds and returns, which in turn gives rises to the negative shopping
experience on little red book.

Opportunities

Favorable domestic and international environment:

According to the content mentioned by 2023 Chinese E-commerce market research
report, red can also rely on the policy of Belt and Road Initiative, boosting the
development of market share in Southeast Asia. Currently, mentioned by data offer
by www.gov.cn, the status of China and ASEAN as each other's largest trading
partners has been further consolidated. In 2022, the trade volume between the two
parties will be US$975.3 billion, a year-on-year increase of 11.2%, an increase of 1.2
times from US$443.6 billion in 2013, which is a 1.2-fold expansion in ten years. In
the meanwhile, China's investment in countries along the Belt and Road continues to
grow rapidly. In 2022, China's non-financial direct investment in countries along the
Belt and Road will increase by 7.7%. As of July 2023, the cumulative two-way
investment between China and ASEAN countries has exceeded 380 billion US
dollars. This indicates that Red as an E-commerce platform can capitalise on the
international trade to develop foreign market. In general, the regulation is in favour of
cross-border e-commerce development.

Opportunities arising from the targeting group:

According to the data offered by the Ultimate Xiaohongshu User Demographics
Guide 2024, as of 2021, reports showed that females making up 90% of the user
group. Despite the app has some growth around the number of male users, it is still an
overwhelmingly female-user dominated application. This result can also be exhibited
in the survey, where over 76% of participants are female, around 3 times the
proportion of male users. Consequently, red can widen its user base and promote
more male users to engage in the platform, by adding contents including electronic
device or sport-item content products to attract more male users.

Threats
Fierce competition:
Although there is a rapid growth in the market share of social e-commerce platform,
nonetheless, it is still the traditional e-commerce platoform which is operated based
on shelf-shopping is the leading position in the market share(eg., Alibaba, Jingdong,
Pinduoduo). In oder to maintain its position, the traditional E-commerce platform is
likely to make some updates on its operation model, specifically, by promoting some
video contents to attract consumers to purchase items based on content-based mode.
The similar competition is also shown in social e-commerce platform. A top social E-
commerce platform leader called Tiktok also has powerful artificial intelligence
technology, a sense of community, a large number of young users with the puchasing
power to buy products. Therefore, till June 2022, TikTok has earned approximately
$5.5 billion in entire lifetime revenue(Parichat Jaipong, 2023), which gives red as a
newly developed e-commerce platform a large amount of pressure.

Over commercialisation:
RED also faces difficulty in balancing the presence of advertisements and UGC (user-
generated content) (Chen Chuyue et al., 2022). Fulfilling user experience plays an
important role in the customer stickness and brand loyalty; however, too much
commercialising may has a negative impact on customer experience, as little red book
is not only a E-commerce platform, it also serves function as a searching engine.
When users look through too much posts with a tag of ‘sponsor’ at the lower right
corner, users will immediately believe that the publisher has alrady coorperated with
the business, with less probability of truly recommending the product based on
personal experience. This comment has also been revealed in the survey, where a
number of respondents giving feedback of too much advertisements. In this case,
users will be less satisfied with the little red book platform. How to strike a balance
between content quality and commercialization is the challenge faced by Little red
book, which determines whether little red book can retain users and continue to grow.
Conclusion
In conclusion, three essential factors contributed to the outcome of RED as one of
Chinese leading social e-commerce platforms, containing its user-generated content
(UGC) model, the high credibility of its user reviews, and its AI personalized
recommendations. The platform has established a trustworthy community where
users, especially females, can browse, share, discuss and discover authentic product
reviews.

The most critical aspect contributing to Little Red Book's success is its strong sense of
community and reliance on UGC. This has cultivated trust and authenticity among
users, since user generated contents can be deemed as the modern-day word of mouth,
consumers believe them over those exaggerated advertisements. The survey results
demonstrate that the credibility of shopping recommendations from ordinary users far
surpasses those from influencers, KOLs, or celebrities, with over 50% of respondents
expressing a preference for reviews from everyday users. This indicates that Little
Red Book's user-driven content has become a pivotal role in elevating Red’s market
position.

Red’s AI recommendation system has also strengthened red’s ecommerce position by

personalizing the user experience. As users interact with the app, it collects valuable
data on their preferences, such as likes, saved posts, and search history, to promote
content that is aligned with users’ preference. This recommendation mechanism is
extremely successful in keeping users engaged and increasing their browsing
frequency. According to the survey, more than half of the respondents agreed that
Little Red Book's recommendations influence their purchasing decisions, emphasizing
the importance of the platform’s AI recommendation.

Futhermore, how can red maintain its successful position of the leading social E-
commerce platform?
In terms of the shortcoming of the operation model, little red book can increase the
number of direct purchase links or ‘Buy Now’ buttons inserting in the product posts,
especially for items featured in user-generated notes and videos, allowing users to
make purchases without leaving the platform. In order to further reinforce the
purchasing decision, little red book could launch an in-app rewards that affording
customers the opportunities of discounts or coupons for purchasing directly in the
little red book, instead of switching to other substitutes of e-commerce platforms. As
Chinese E-commerce platform can be deemed as an oligopoly market structure, where
there are few firms and high barriers to entry. Firms are price makers as they have
some control over price, so red can adopt price strategy to attract more customers to
buy on Red.

Regarding with the problem of red, specifically in terms of supply chain inefficiencies
and customer dissatisfaction with refunds and returns, RED can cooperate with top
logistics companies that have proven expertise in fast, reliable delivery and returns
management. This can help deal with issues related to slow physical distribution.
Although this suggestion has an obvious drawback of increasing costs for the
cooperation with the top logistic company, increasing the likelihood of passing high
costs on customers in the form of expensive price. In addition, the little red book
should offer quick refund and return policies, which can reduce customer frustration
and negative shopping experiences. Furthermore, implementing simple return
processes with transparent timelines and automated refund systems could boost
customer trust as well.

Taking about over commercialisation, red can solve this problem by upgrading its
search algorithm to allow user to fill out commercial content if they prefer common
user generated content. This would avoid over amounts of sponsored posts, making
the platform’s search engine more user-friendly, improving customers’ satisfaction.

Evaluation
The paper still has three aspects to further improve.
To begin with,if the author could interact with the staff or business owners in the little
red book platform by conducting interviews, the statements in the dissertation would
be more generalizable to real-world applications. The dissertation would be more
applicable and more detailed if the research process included more interviews with
industry experts, which would more significantly enhance the contribution to the
business area of E-commerce.
In addition, since this dissertation is a case study investigating little red book as a
single case in depth, the paper may not fully compare the advantages and
disadvantages of little red book company with other influential social e-commerce
platforms, such as Tiktok and Taobao. If the dissertation can provide a comprehensive
view of strengths and drawbacks in similar e-commerce platforms, then the readers
may have a clearer idea of what little red book lacks in its operating model. This
would also allow the little red book company to draw on other platform’s success
factors.

As AI recommendation is of great importance for red to promote its development as

one of the top E-commerce platforms, including the content of machine learning or
AI. This paper would be better if the paper focused more on the content of Ai
recommendation in depth and details, specifically how red could use AI to personalize
content to enhance the shopping experience.

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