TikTok Shop announcing record one day live streaming sale of over $1 million

16 June 2024

Don’t Believe The Sales Hype: Hard Questions To Ask About Ecommerce

by Freddy Tran Nager, Founder of Atomic Tango + Professor Who Teaches Questioning The Answers…

Whether it’s a TikTok Live Stream or a Black Friday promotion or kids selling lemonade at a sidewalk stand, whenever I see a sales figure, my mind immediately fills with questions.

Take the above proclamation circulating on LinkedIn (where everything should be questioned). TikTok execs and social media zealots trumpeted $1 million in sales for a live stream by influencer/entrepreneur Stormi Steele.

My questions here are not to cast shade on the TikTok team (I know some of them, and they’re all terrific people) or on Ms. Steele, an accomplished creator, founder and CEO of Canvas Beauty, and role model in many respects. Bravo to them all!

But as a marketing strategist and professor, I just want to learn more.

1. What do the acronyms mean?

When companies bandy about jargon — especially acronyms and initials — ask them to speak human. I did the translations for you:

  • GMV = Gross Merchandise Value = the full amount customers pay before costs such as returns and fees. We’ll get to those in a second, because they are far from trivial.
  • Show PV = Product Views = how many people saw the product in the live stream, even for a split second. I’ve written about the dubious value of “impressions” here. In this case, I’d like to know the duration of the views (a blink of an eye or long enough for the audience to comprehend what they were seeing?), and whether the views were audience initiated (showing interest) or imposed by the algorithm. Did TikTok simply thrust this live stream into the feeds of millions of people? If so, what would it cost an independent marketer to buy the same number of views?

2. What were the profits?

Want to jack up sales? Sell products at cost or a loss. (As the old joke goes, “We lose money on every sale, but we make it up on the volume.”) That’s a common practice perpetrated by most direct-to-consumer (DTC) retailers, ride-share companies, even traditional retailers employing “loss leaders.” That’s why Wall Street punishes stocks of those companies after the initial rosy glow of their IPO wears off.

Going back to GMV, there are a lot of costs I’d love to see broken out:

  • Shipping. Shipping costs are a back-breaker for most ecommerce operations in the U.S. (go to your local post office and find out how much it costs to ship an empty water bottle). Was free shipping included in every sale during this live stream? How much did it cost to ship each product?
  • Returns. Another back-breaker. In 2023, according to Statista, 17.6% of online sales were returned, totaling $248 billion. So, in this case, was free return shipping included in the price? In addition, there’s the cost of handling the returns, restocking resalable merchandise, and deducting products damaged beyond use (say, an opened package of body glaze, or a used water bottle). We won’t know total return costs for days, perhaps weeks to come, but they can’t be ignored.
  • Transaction Fees. Credit cards and other payment services all want their cut (often 2-3%), which is meaningful if you’re selling at cost or a loss.
  • Average Sale. What was the dollar value of each order? The above costs won’t hurt as much if they’re part of a high-priced purchase, but they become much more onerous if the purchase is small.
  • Influencer Compensation. Since Ms. Steele is the company owner, she presumably just received the proceeds from her sales. But for other marketers, what would an influencer have charged for their time?
  • Labor Costs. How many other people were involved in this promotion, not just in managing the live stream, but also the post-event fulfillment and publicity? Even the partial costs of full-time TikTok employees need to be factored in here.
  • Brand Impairment. This is hard to measure, but it must be estimated over the long run. When products are sold at a discount, that might reduce the perceived value of those products and their parent brands. That hurts the ability to sell the products at a higher price when the sales event is over, and likely effect brand perception (such as quality and prestige). If the company is public, it might also hurt the stock price.

3. What were the other returns on investment?

Now, on the positive tip, this promotion could have generated ROI beyond immediate profits.

  • Cash Flow + Inventory Turnover. Beauty products have a relatively short shelf life, so a big sales event like this can convert all that depreciating inventory into cash to reinvest.

On an even higher level, a successful live-stream event can produce other long-term benefits:

  • Publicity. The first-ever $1 million in sales through TikTok live streaming made for a buzzworthy headline. In addition, as a successful young African-American female entrepreneur, Ms. Steele generated more positive coverage, both on social media and in various publications. We can estimate the value of that publicity by calculating the cost of buying ads for the same amount of exposure. But positive publicity is arguably worth far more, since what others say about you is more credible than what you say about yourself.
  • Brand Enhancement. Perhaps Canvas Beauty incurred some impairment from discounting, but since it’s a new brand, that could be balanced out by millions of consumers discovering it for the first time. Ms. Steele’s personal brand also received a boost from all that publicity, making it easier for her to garner future press attention and influencer deals from other sponsors. TikTok likewise received a boost as the go-to platform for live ecommerce streaming. Given that TikTok’s brand has been battered by political issues, any positive news has survival value; i.e., banning TikTok in the U.S just became more difficult when American entrepreneurs like Ms. Steele succeed on it.
  • Proof Of Concept. Want to prove that your business has value? Generate all the positive case studies you can. TikTok just demonstrated their value as a live-stream ecommerce platform to other brands and creators. Ms. Steele just demonstrated demand for her product to third-party retailers and investors. For many DTC companies, proof of concept is the entire point of their ecommerce ventures: their goal is to land distribution through traditional retailers, or to get acquired by a larger company. Years ago, Unilever paid $1 billion for Dollar Shave Club, even though DSC was a money loser; what might Canvas Beauty be worth?

In sum, while we should always question sales figures, we should consider other returns when calculating the value of any marketing event. In this case of TikTok and Stormi Steele, the long-term impact is still being calculated.

Any questions?

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Freddy is the Founder & Creative Strategist of Atomic Tango. He also teaches graduate-level marketing communication courses at the University of Southern California (go Trojans!), shoots pool somewhat adequately, and herds cats. Freddy received his BA from Harvard and his MBA from USC.

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