On May 16 2023, TikTok Shop made an announcement that they would launch the “all-inclusive” consignment model (全托管模式) from cross border ecommerce targeting the Middle East and the UK, with the potential of rolling that model out in other markets.
The announcement has triggered a lot of discussions amongst China’s vast cross border ecommerce community. Because such “all-inclusive” consignment is exactly what Temu has used skilfully in its aggressive push in the North American market.
Advantages of TikTok Shop’s “all-inclusive” consignment model (Source: TikTok Shop)
How does it work?
Under the consignment model, merchants supply products to TikTok Shop and TikTok Shop handles all the ecommerce operations. This includes managing pricing, product uploads, customer service, marketing and fulfillment.
Under this model, you can think of TikTok Shop as a retailer running on a consignment model (i.e.: ‘consignment retailer’) – TikTok Shop takes the products from merchants and sells the products; it only pays the merchants once the products are sold.
This is a tried and tested model by Pinduoduo’s Temu and SHEIN.
In recent months, AliExpress (Dec 2022), Lazada and Shopee (April 2023) have also made announcements launching their respective versions of the consignment model.
Temu runs on a consignment retailer model (For more refer: Who is Temu report)
Why is it better, what are the implications?
Pinduoduo has demonstrated, through Temu, that consignment is a superior model for ecommerce which can increase basket size and improve customer experience.
Especially when it is compared to the marketplace model, which Taobao and Shopee have been focusing on. In a marketplace model, sellers upload their products, run promotions, and arrange for logistics. Quite often, the resulting customer experience is not consistent – for example, the customer orders five items in one order, and receives them in three different packages on different days. Such experience would obviously impact the customers’ willingness to return, or make higher value orders.
And when it comes to cross border, where many manufacturers and sellers do not have the capabilities to operate, market and serve effectively in foreign markets, the platform taking over with a consignment model could potentially lead to more product selections from manufacturers at cheaper prices.
The consignment model also gives the platforms a good margin without inventory risk. It, however, is quite demanding on the platforms as they will have to manage all the operations efficiently and seamlessly. That will not deter larger platforms such as TikTok Shop and AliExpress.
More large platforms jumping into the consignment model will have profound implications on the ecommerce ecosystem. Manufacturers will have an easier job, but potentially depressed margins; same can be said about logistics players, as platforms will have pooled much larger volume and negotiation power; while other platforms offering a marketplace model might gradually be forced to join the involution.
We will dive into some of these nuances in our upcoming Ecommerce in Southeast Asia report. Stay tuned!
More insights
You can refer to Momentum Works’ “Who is Temu” report for structured analysis and insights about the company and its consignment model; you can also read our book “Seeing the unseen: behind Chinese tech giants’ global venturing” for more case studies, analyses, and reflections.
Momentum Academy has also conducted a number of sharings and workshops on global ecommerce players (e.g.: Alibaba, Pinduoduo / Temu, Shopee), on their key success factors, people and organisation practices. If you are interested in bringing such learnings to your organisation, please contact [email protected].
