WeStore or AppStore: How we shop differently in Mobile Apps vs. Social Commerce

Abstract

Social commerce is rapidly growing and attracting new customer segments. This channel is different from traditional retail channels in that it relies on social media platforms for product discovery and purchase. We examine customer behavior and search patterns in an emerging social commerce channel, namely WeChat mini-programs, and in retailers' native apps. We show that customers' fixed and marginal search costs and preferences differ across these two channels. Our research constitutes the first attempt to study customer behavior differences between traditional mobile apps and social media-based channels. Rather than focusing on customers' final purchases, we analyze customers' entire shopping journey using structural search models to quantify their search costs and price sensitivity across the different channels. Previous literature in operations management has estimated traditional discrete choice models to recover customers' cost parameters based on customers' purchase decisions. Instead, we use a sequential search model that characterizes customers’ entire shopping journey. We estimate fixed search costs, marginal search costs, and preferences in each channel and uncover differences in customers' search and purchase behavior across channels. We find that WeChat customers have higher fixed search costs yet smaller marginal search costs compared to App customers. Moreover, customer characteristics such as their user level and time of search impact search costs. Fixed and marginal costs are higher for customers with higher user levels on the WeChat channel. Marginal search costs are higher for customers with higher user levels in the App channel. We propose two channel-specific strategies that leverage customers' search cost differences across channels. The first strategy is to send friend referral discounts to lower fixed search costs in the WeChat channel. The second is to send search-triggering coupons to induce App customers to continue their search. Both strategies can significantly increase conversion rate and profit for online retailer JD.