Douyin Marketing in China: The Battle for Local Services

Douyin (TikTok) is increasingly focusing on developing local life services, aiming to quadruple its total transaction volume to 300 billion RMB in 2023. Meituan and Douyin's core competitive category is in-store dining . Large chain merchants: 20% of Meituan's top merchants conduct actual sales through Douyin's life services platform, primarily from the catering industry. Individual top merchants allocate approximately 30-50% of their advertising budget to Douyin.

Douyin is undergoing a business transformation, aiming to shed its low-price image and leverage the value of its content to support merchants' long-term stable operations. In April 2023, Douyin Life Services officially announced its four major annual business themes: "Diversified Content, Long-Term Stable Operations, Brand as Results, and a Vibrant and Healthy Ecosystem." According to the Douyin Life Services Ecosystem Partner Conference:

1. Douyin hopes that the unique value of its content will be recognized and amplified, and that users will have the opportunity to earn corresponding revenue, thereby generating more and better content. Future rules and regulations for Douyin's lifestyle services will be formulated in this direction.

2. Douyin aims to be more than just a platform for acquiring traffic; it seeks to foster continuous, long-term dialogue between merchants and users. Merchants who prioritize long-term value and refuse to sacrifice long-term growth for short-term gains will be able to stand out.

Compared to June 2022 when Douyin first started charging fees, the fee rates for all categories of Douyin's lifestyle services have increased, except for food and parenting categories. The "2023 Group Buying Software Service Fee Policy" released by the Douyin Open Platform team took effect on February 1st. The software service fee for the food category is 2.5% (including a 0.6% payment processing fee).

Some merchants will no longer choose to offer deep discounts on Douyin, and their advertising on Douyin is becoming more rational.

1. During the Spring Festival, data from a survey conducted by the China Cuisine Association showed that the operating revenue of surveyed catering enterprises increased by 1.9% compared to the 2019 Spring Festival, while customer traffic remained basically the same. According to case studies shared at the Douyin Lifestyle Services Ecosystem Partner Conference, 80% of customers coming from Douyin were new customers for the featured businesses.

2. After more than a year of trial and error, merchants are returning to a more rational approach to advertising. From their perspective, Douyin is an emerging channel with numerous features such as influencers, live streaming, and videos. Initially, merchants were willing to incur losses to explore different channels, but the result was that some merchants failed to profit on Douyin after a period of operation. Merchants are gradually starting to explore more effective Douyin advertising methods, reducing blind advertising and focusing on precise targeting. Deep discounts will continue to result in profit losses. Previously, Douyin provided merchants with price subsidies for the first six months after joining the platform. These subsidies have now gradually faded.

Douyin (TikTok) marketing in China helps merchants acquire new customers, but the long-term stability of these new customers remains to be explored. Acquiring new customers is a more costly endeavor than retaining existing ones. According to some merchants, Douyin currently only allows them to acquire customers through paid advertising; once advertising stops, order volume naturally declines. Long-term stable operation requires users to find the merchant again after being recommended content, leading to repeat purchases. Price homogenization has also hindered the development of users' independent search habits on Douyin. Previously, some users approached Douyin with the mindset of "finding deals" and were familiar with the merchant search page. Currently, Douyin users primarily rely on passive content recommendations such as short videos and live streams. Although Douyin has a page similar to Dianping/Meituan in the local area section, the user entry point is relatively deep. The Douyin platform as a whole is also focusing on cultivating search habits; Douyin's current search entry points for life services include "active search entry," "local page search entry," and "merchant location page search entry."

Can Douyin solve the problems of long-term stable operation for merchants and repeat purchases by users?

Douyin's current rating system does not include commercial content, but there are still conflicts between the product format and the rating system. Douyin's exposure to merchants is essentially based on advertising logic; the more ads a merchant places, the easier it is for them to gain exposure. Meituan's pay-per-click bidding includes merchant quality (the higher the merchant's quality, the lower the bid). Passive content recommendation leads to a higher rate of negative reviews. Users on Douyin engage in passive content recommendation-based consumption; product recommendations based on attractive content create a significant expectation gap. The high rate of negative reviews means that ratings and comments actually influence user choices.

Comparison between Meituan's Must-Eat List and Douyin's Food, Drink and Entertainment List:

1. Number of comments: Meituan has more than Douyin. The number of comments for the top 10 merchants on Meituan's Must-Eat List is 136 times that of Douyin, while the number of comments for the top 10 merchants on Douyin's Food, Drink and Entertainment List is 12 times that of Douyin.

2. Ratings and Positive Review Rates: Even for products on Douyin's popularity charts, Meituan generally has higher ratings and lower negative review rates than Douyin. Of course, Douyin's high negative review rate reflects that merchants on Douyin are not currently paying enough attention to rating management. However, research shows that many merchants on Meituan focus on managing negative reviews, even using it as a performance evaluation criterion.

The rapid growth of Douyin's total transaction volume is mainly due to the rapid expansion of merchants. Douyin currently has a high coverage rate among top merchants, while continuing to expand its reach to small and medium-sized merchants. Currently, in-store dining, in-store integrated services, and hotel/travel account for 52%, 25%, and 24% of Douyin's total transaction volume, respectively. At the 2023 Douyin Lifestyle Services Ecosystem Partner Conference, it was announced that Douyin's lifestyle services business now covers more than 370 cities, with over 2 million partner stores (Meituan has 9.3 million active merchants).

In-store dining: Leading merchants have significant coverage, but there is still room for penetration among small and medium-sized businesses. Due to the high frequency and low decision-making costs of dining, Douyin has achieved the fastest merchant coverage. Currently, the number of dining businesses with actual sales is steadily increasing.

In-store integrated business: still in a rapid penetration phase. According to data from ByteDance's Research Institute, in January 2023, the number of integrated industry merchants receiving orders on Douyin increased more than sixfold compared to the same period last year, and the total order volume increased more than threefold year-on -year. By category, leisure and entertainment shopping (traditional entertainment, bathing and massage, card games, outdoor activities, etc.) has a large market share, while categories such as lifestyle services and weddings are experiencing rapid growth. Some categories continue to be developed, such as sports and fitness and housekeeping services, which began in 2023. Some categories are restricted by the platform, such as medical aesthetics (due to video demonstrations involving false advertising).

Hotel and Tourism: Taking a Differentiated Approach. The "pulse-like" sales patterns of Douyin (TikTok) can sometimes be disadvantageous for hotel and tourism businesses with limited inventory, as sudden surges in volume can overwhelm them with processing and redemption requests. Currently, Douyin is engaging in differentiated competition with Ctrip, which focuses on business travel, and Meituan, which targets lower-tier markets, in the hotel and tourism sector. Douyin is also focusing on the travel and vacation market.