Xiaohongshu hunts for local life

When online traffic growth faces saturation, the offline market becomes the focus of competition among Internet giants. As the potential of the local life service market becomes increasingly apparent, Xiaohongshu has begun to focus on functions such as "Nearby" to accelerate its commercialization "variation", hoping to compete with strong rivals such as Meituan and Douyin with a mindset that has more user and traffic advantages, and gain a larger market share.

The local life "highland" has welcomed a new "leader", Xiaohongshu.

In addition to live streaming during the Dragon Year Spring Festival Gala, Xiaohongshu also made a series of moves in local life. During the Spring Festival, which coincided with the peak travel season, Xiaohongshu moved "Nearby" to the first-level entrance, which was also interpreted by the outside world as Xiaohongshu's renewed attack on local life.

In the updated version at that time, the Nearby TAG was placed at the first-level entrance together with the Spring Festival TAG. While occupying the first-level entrance position, when users click on "Nearby", they can clearly see content notes, live broadcasts, group chats and other content related to nearby food, drink and entertainment.

Image source: Xiaohongshu user @Graduation Thesiser

However, in the current version, Xiaohongshu has hidden the "Nearby" tab under the location tab, which is not easy to find. After clicking in, in addition to the nearby attractions and the number of notes contained in the attractions, the nearby group chats will also show the number of people currently online in the group.

Image source: screenshot from Xiaohongshu

Obviously, it will cover information on food, drink, and entertainment, and make recommendations through geographic location. On the one hand, this will allow Xiaohongshu users to have new ways to discover attractions and restaurants worth visiting around them. On the other hand, it will also provide merchants with the feasibility of reaching users through notes and thus increasing the number of orders.

More importantly, Xiaohongshu’s ambition to become a local life service provider is not just about simple tools, but also about breakthroughs in social attributes.

1. Notes: Xiaohongshu is a built-in BUFF for local life

In the minds of most users, Xiaohongshu has successfully established itself as a platform for sharing good things and promoting products.

From the perspective of daily active users, Douyin has 600 million daily active users, and Kuaishou has 270 million daily active users. In addition to these two major live streaming platforms, Xiaohongshu's daily active users have reached 100 million. In addition, by 2023, Xiaohongshu's monthly active users will have reached 260 million.

In addition to highly active users, what is more noteworthy is the high frequency of usage of Xiaohongshu users. According to iMedia Consulting data, in 2023, among the usage frequency of Xiaohongshu users in China, more than 80% of users said that they use Xiaohongshu every day, and more than 50% of users said that they use Xiaohongshu multiple times a day.

The high frequency of use also means that users are more willing to share their notes or find corresponding notes through active sharing and active searching, making the content of notes on Xiaohongshu richer and more diverse, laying the foundation for businesses to reach more users.

While the volume of active searches remains high, the demographics of active users on the platform also give Xiaohongshu more confidence in monetization.

According to the Qiangua Xiaohongshu platform active user trend portrait report, the user age is mainly 25-34 years old. Among the 260 million monthly active users in 2022, 72% are post-90s users, and users in first- and second-tier cities account for 50%.

At the same time, the report also divides the people on the platform into six major groups: Generation Z, new white-collar workers, urban trendsetters, single aristocrats, sophisticated mothers and hedonists.

This also means that "young", "popular" and "diverse" are the main user portraits of Xiaohongshu at present. It is precisely the difference in users that creates the difference between Xiaohongshu and other large companies that have also entered the local life market, such as Dianping and Douyin.

"The grass-growing content shared spontaneously by a large number of users on the platform is attractive enough to other users due to its authenticity and credibility, thus playing an important role in consumer decision-making. At the same time, the difference between Xiaohongshu and Douyin and Meituan is that users on Xiaohongshu pursue quality while also having requirements for cost-effectiveness." said an e-commerce practitioner.

Obviously, after the grass-growing notes laid a foundation for users to trust and stick to Xiaohongshu, "Nearby" further allowed Xiaohongshu to enter the door of local life. And from public information, we can see that in recent years, Xiaohongshu has further accelerated in the local life track by combining expert store visits and in-store group purchases.

At the Xiaohongshu "WILL Business Conference 2023" in February 2023, Xiaohongshu revealed a set of data: Xiaohongshu publishes more than 3 million notes per day on average; 60% of users conduct high-frequency searches on Xiaohongshu, with an average daily search query volume of nearly 300 million times.

In terms of building a closed loop for local life services, Xiaohongshu officially launched the group buying function in April last year, which means that the path of users planting grass on Xiaohongshu and placing orders on other platforms has finally changed. With this new function, users can directly realize the closed loop of planting grass, group buying, dining, and in-store settlement through Xiaohongshu.

The launch of the "Nearby" function allows users to plan routes efficiently and strengthen connections with nearby areas, thereby further promoting the production and sharing of content; users and merchants also have further interactions, creating opportunities for transactions.

More importantly, the display of nearby group chats allows like-minded "partners" to contribute higher levels of activity, while also providing the possibility for local creators to achieve further transformation.

2. Xiaohongshu’s Commercialization Variations

In fact, in the past one or two years, Xiaohongshu's commercialization pace has been accelerating.

Although Xiaohongshu’s founder Qu Fang mentioned in an interview with the media that Xiaohongshu’s attitude towards business is to let it grow slowly rather than eagerly harvest traffic.

However, this "variation" of commercialization from "Buddhist" to accelerated can be seen from the adjustments of Xiaohongshu's organizational structure in recent years.

In January 2022, Xiaohongshu merged its independent community department with its e-commerce department to form a new community department. In March last year, Xiaohongshu upgraded its live streaming business to an independent department to unify the management of live streaming content and live streaming e-commerce. In August of the same year, according to Wandian.com, Xiaohongshu's e-commerce business and live streaming business were integrated into a new first-level department, parallel to the community department and the business department.

It should be noted that there have been many discussions in the outside world about how Xiaohongshu can balance content and commercialization. Some practitioners have also raised questions about whether excessive commercialization will affect the community ecology. However, with the implementation of a series of organizational structure adjustments, the official answer seems to have been given.

In parallel with the organizational changes, Xiaohongshu’s support and incentive programs for merchants and influencers are also being implemented.

For example, at the "Xiaohongshu WILL Business Conference" in February 2023, the "True Interest Value" was launched. This value is based on the user's in-depth reading or in-depth interaction. In other words, it allows merchants or advertisers to more clearly measure and improve the effectiveness of grass-seeding marketing.

This acceleration of commercialization is also reflected in local life businesses. For example, in April last year, the media reported that while Xiaohongshu launched a group buying function, it also mentioned that on the merchant side, it launched the "Food Power Shop Plan". Xiaohongshu provided an incentive policy of 0 deposit, 0 commission and traffic support, while on the influencer side, through the "Searchlight Plan", influencers can experience the store's corresponding products and services for free after visiting the store and posting notes.

In July of this year, Xiaohongshu further launched the "Xiaohongshu Official Store Exploration Cooperation Center". As a local life transaction cooperation service platform launched by Xiaohongshu, first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen have been included in the center's first batch of store exploration cooperation.

According to the official introduction of Xiaohongshu, merchants can initiate store exploration cooperation plans through the center. After the bloggers are approved for registration, they can go to the store to experience and post notes, and add relevant stores or products. Xiaohongshu users can directly place purchase orders when they browse the notes.

3. Surrounded by powerful competitors, Xiaohongshu needs to be faster

What is the potential of the local life market? A set of data from iResearch Consulting may better illustrate the situation. The data shows that by 2025, the scale of my country's local life service market will grow to 35.3 trillion yuan, and the online penetration rate of local life services will also increase to 30.8%.

When it has become inevitable that online traffic growth has peaked, in the game of existing resources, offline traffic has naturally become the focus of competition among major companies.

Take Meituan as an example. In April last year, Meituan launched the "418 God Coupon Festival" event, upgraded the "Special Price Group Buying" to a first-level entrance, invited top anchors to attract traffic in the live broadcast room, and launched slogans such as "10 billion subsidies" and "Limited Time Discounts". It sold takeaway and in-store discount coupons through the live broadcast room, and launched a low-price subsidy war for local life.

And judging from the results, it is obviously successful. For example, on the brand side, according to Meituan data, during the 11-hour live broadcast of the first "418 God Coupon Festival" last year, more than 100 brands had an average weekly growth rate of more than 30%, the new tea brand Mixue Ice City's sales exceeded 100 million, Luckin Coffee sold 1 million cups of raw coconut latte, and Haidilao's sales growth rate reached 180%.

At the same time, during this live broadcast, Meituan’s takeaway order volume increased by nearly 50% year-on-year, and DAU increased by 75% year-on-year.

With such achievements, it is no wonder that Meituan further named the 18th of each month as the "God Coupon Festival" and made it a fixed action on the platform's live broadcast.

Even in last year's Q1 financial report, it was mentioned that Meituan Waimai will connect live broadcast coupons and merchant shelf sales. Users can purchase other items when redeeming coupons, thereby driving overall sales growth for merchants.

The data shows that on average, the redemption of one live broadcast merchandise voucher generates an order transaction amount that is 1.5 times the value of the voucher.

In addition to Meituan, the results of Douyin's continuous cultivation in local life should not be underestimated. Public data shows that since 2022, Douyin has fully attacked local life, covering 50% of Chinese cities and more than 2 million cooperative stores.

It should be noted that according to the data previously released by "Douyin Life", when the time comes to 2023, the total transaction volume of Douyin Life Service Platform will increase by 256% year-on-year, and more than 4.5 million stores will gain business growth on the platform. From the number of stores alone, we can feel Douyin's advancement in local life.

According to the research data of Haitong International, Douyin's local life GTV (total transaction volume after write-off) will reach nearly 200 billion yuan in 2023. According to the research report of Haitong International, Douyin's local life total transaction volume will be close to one-third of Meituan in 2023.

Surrounded by strong competitors such as Meituan and Douyin, Xiaohongshu has an important appeal in consumers' consumption decisions thanks to its authentic grass-planting notes, but when it comes to the real spending power of consumers, Douyin and Meituan can often increase transactions and in-store sales more simply and efficiently through discounts and low prices.

At the same time, in terms of content and push mechanism, compared with Dianping, which more intuitively marks the distance of merchants, taste ratings, per capita consumption, and available discount coupons on the page to facilitate consumer selection, Xiaohongshu's ordering link is relatively circuitous.

Moreover, based on the characteristics of users, the motivation for actively searching on Xiaohongshu and learning about products or merchants through notes is higher than the motivation for placing orders. This also allows Xiaohongshu to play the role of a "search engine" and gather higher traffic with high-quality content, but it lacks in efficient conversion.

Although, in the short term, Meituan, Dianping, Douyin, and Xiaohongshu have all sat at the local life table, the battle among major companies over local life has just begun. It will take time to tell whether the more comprehensive Meituan and Douyin will take more market share, or whether Xiaohongshu, which has its own unique audience, will gain more.

Author: Peng Xiaoheng

Source: WeChat public account "Hydrogen Consumption (ID: HQingXiaoFei)"