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In March this year, Nicole Rechtszaid, co-founder and co-CEO of Ghost Agency, witnessed some clients seeing six-figure monthly sales on TikTok Shop, enjoying up to 8% click-through rate (CTR), a metric outperforming ecommerce giants like Amazon.
Fast forward three months and Rechtszaid is not sure how long this windfall will last.
TikTok Shop rolled out widely in the U.S. last September. Rechtszaid’s clients, especially mid-sized brands in the food and beverage, beauty and electronic verticals, have been making use of the discounts the platform offers to juice sales, especially with first-time buyers.
But Rechtszaid has noticed TikTok scaling back its discounts over the last six months.
Not only this, but marketers are seeing TikTok has reduced the discount it offers via coupons to shoppers—typically added to entire shopping carts rather than individual products—and they require higher cart values to receive coupons. TikTok also increased the minimum threshold for free shipping subsidies earlier this month, four sources told ADWEEK.
“That, to me, is a signal that dynamic pricing is going to go away,” an agency executive who wasn’t authorized to speak to media told ADWEEK.
TikTok has aggressively pushed its commerce levers, incentivizing merchants by offering free shipping, zero commissions, warehousing space, and covering the cost of discounts, to get more products on the site and more people shopping. That’s paid off for some. In the U.S., TikTok is driving $752 million in sales for brands, according to research by Dash Hudson and NielsenIQ. Health and beauty shoppers make approximately 2.5 trips, spending more than $22 during each visit. And people are spending up to $4 million per day on TikTok, per eMarketer.
However, not all brands are eager to join TikTok Shop precisely because the platform controls the pricing of product discounts. Sources said that understanding the criteria that influence these discounts is unclear.
Marketers assumed TikTok’s courting tactics were only ever meant to be temporary. Taking these changes in pricing together suggests TikTok will keep walking back discounts, leaving sellers questioning how this will impact revenue and sales.
TikTok spokesperson told ADWEEK it will continue offering promotional deals for merchants and customers but did not provide any additional details.
Fewer discounts
In March, 40% of Ghost Agency’s brands that sell products on TikTok Shop saw additional discounts added by TikTok to all the items for sale on the platform. For shoppers, these discounts were displayed by striking through the product’s original price and showing the reduced amount. For some products, total discounts were as much as 60% off. TikTok controls and funds these discounts, while the merchants still earn the full price.
TikTok’s CMS platform for merchants lets sellers see all of their products running on Shop, as well as what discounts they can access, shown via pop-up notifications. The amount of discounts merchants can access varies by merchant, but sources are not clear on what criteria this is based on.
Now, Rechtszaid is seeing fewer additional discounts from TikTok, but she couldn’t share specifics.
“It’s elusive and challenging to understand what TikTok does per campaign,” said Rechtszaid. “It varies significantly for every brand, but brands decide whether or not they want to participate.”
Higher shipping costs dent margins
When TikTok launched Shops, the platform covered free shipping for products priced at $20 or less for returning customers.
Earlier this month on TikTok Shop Academy, the platform’s information hub, TikTok outlined the minimum price for free shipping as $30, said Rechtszaid.
At social-first publisher 10 PM Curfew, which works with brands like e.l.f and Shein, TikTok covering shipping costs for brands meant those brands could make up to 40% margin on those first-time buyers, according to co-founder and CEO Raz Romanescu.
“Now you get that free shipping on a product priced around $25-$30,” said Romanescu. “If [free shipping] gets taken away, your margins instantly start looking worse and you might not be as profitable as you thought.”
From discounts to higher LTV
TikTok highlights key seasonal sale moments, like Cyber Week, in its platform for merchants that brands can opt into and have their products further discounted by TikTok—in addition to their discounts— incentivizing more TikTok Shop purchases.
TikTok also pays the delta back to the brands in these cases, the first agency executive said.
Previously, pop-ups would ask merchants if TikTok could offer additional discounts. Now, buyers have noticed a shift, with TikTok asking merchants to partially fund these additional discounts run by TikTok.
The focus is on whether the brand can accept some loss on sales that could potentially result in higher lifetime value, the first agency executive said.
“Anybody that’s expecting these subsidies to last forever is in for a surprise,” said Romanescu.
