How did low prices return to the first competitive point of e-commerce platforms?
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Author | Luo Lixuan Jia Yang
Edit | Wang Xiaoling
In 2023, low prices, or benefits that can be felt by consumers, have been put back on the first competitive point of e-commerce platforms.
On March 2, Jingdong's 10 billion subsidy channel has launched some new products, and it was revealed that it will be officially launched in the early morning of March 6, 20 hours earlier than the original time.
In terms of communication effect, JD.com won the first battle. A few days before the launch, the media broke the news that JD.com's tens of billions of subsidies are mainly based on explosive big-name signs, and this corresponds to the market that Pinduoduo began 4 years ago and was snatched from JD.com by tens of billions of subsidies.
And Ali is also emphasizing "price power" in these days.
So, what is the difference between this round of price war and the previous one?
JD to the left and Ali to the right
In the 2019 618 E-commerce Festival, Pinduoduo's "10 billion subsidy" was officially launched, which can be regarded as one of the most successful marketing cases in the history of e-commerce. Unlike Pinduoduo's own slash and the traditional full reduction game of the e-commerce festival, the direct price reduction of tens of billions of subsidies is the most effective marketing for all consumers.
According to a previous report by Ebang Power, JD.com directly proposed that commodity prices should be benchmarked.
Specifically, we can see that in the tens of billions of subsidy channels, JD.com's iPhone 14 128GB version is priced at 4979 yuan. The price of the same version of Pinduoduo is 5029 yuan, which is 50 yuan cheaper. The most intuitive is the pricing of Wuliangye, a double bottle of 52 degrees of 500 ml of Badai Pu Wu, priced at 1836 yuan, nearly 200 yuan cheaper than the market price.
Ali's focus is significantly different from JD.com's.
At the Alibaba results meeting on February 23, Alibaba's chairman and CEO Daniel Zhang said that price subsidies are not new, and every once in a while someone will take the initiative to jump out to do some price subsidies, hoping that subsidies can turn the situation around and win the first opportunity. Simply put, it is Daniel Zhang to show his attitude: tens of billions of subsidies, Ali does not follow.
However, Ali also proposed the concept of price power this year. At present, an important measure that can be seen is to launch the factory on the hand-to-hand Tao, aiming to point to the source of good things and improve their corresponding voice in the supply chain. This can be regarded as corresponding to commodities other than Pinduoduo's tens of billions of subsidies, such as Pinduoduo's 1 yuan drawer paper in the early stage, plastic bags, and agricultural products such as fruits and vegetables in the later stage.
According to LatePost, price power is embodied in improving the cost performance of goods. These include the design of market mechanisms, various marketing products, and the breakthrough of the business model of low-price platform Taote agricultural products and 1688 factory goods directly to consumers.
Why didn't Ali follow up with tens of billions of subsidies, or that tens of billions of subsidies are useless to Ali?
Because Pinduoduo's tens of billions of subsidies hurt JD.com the most. Ali's dominant category is clothing, which pays attention to thousands of people and thousands of faces, and mainly non-standard products. The traditional advantage category of JD.com lies in 3C, high-unit digital products, mainly standard products.
Tens of billions of subsidies This large-traffic marketing model, the best effect is the high-unit price of big-name signs. The simplest example is that buying an iPhone now, in addition to really not bad money, many people's first choice will be to follow the promotion rhythm of tens to hundreds of cheaper Pinduoduo, because they believe that tens of billions of subsidized channels absolutely guarantee authenticity, so why not?
However, no matter what kind of users Ali and JD.com compete for with the concept of "low price", the effect they can achieve is likely to be inferior to Pinduoduo.
Pinduoduo does low prices, the core logic is that low prices can achieve increments and create new demand. In the early days, Pinduoduo organized a series of white-label goods, and later attracted inventory demand, which was ignored by JD Ali, which pursued consumption upgrades. In other words, this is also the "business mechanism innovation" emphasized by the Daniel Zhang.
After completing the early accumulation, Pinduoduo officially launched a clarion call to the territory of Ali and Jingdong, and this weapon is tens of billions of subsidies. For Pinduoduo, one of the functions of tens of billions of subsidies is to strengthen the low-price mentality; For users, it is also authenticity. Through tens of billions of subsidies, users can buy genuine products at low prices, allowing Pinduoduo to obtain the original scarce "Five Rings" users, which is a huge increment belonging to the Pinduoduo platform.
Back to the present, if JD.com has a lower price than Pinduoduo, and can maintain consistent fulfillment capabilities (free shipping, delivery time, customer service in place), it will definitely be able to win back a large number of old users from Pinduoduo. Alibaba's source of good things is believed to attract some "outside the five rings" users on the platform.
Therefore, for Ali and JD.com, this round of low prices is more to meet the needs of the original users and maintain the stock.
Why it's important to rebuild the low-cost mind
This is not the first time to fight an encounter with Pinduoduo. Three years later, the three sides seem to be back on the battlefield, how did this happen?
In the context of that time, practitioners often equated low prices with the so-called "sinking market". For relatively mature platforms such as Jingdong and Ali, it has reached the stage of competition to build better commodity quality, richness, performance and after-sales service, and reap the resulting profits.
Opening another new business to compete for this part of the user is the main response of Ali and JD.com after groping. Jingdong has Jingxi, and Taobao has Taote. Therefore, when JD.com and Ali added a large number of so-called "sinking market" users, the worries brought by Pinduoduo were temporarily neutralized.
Then, the main theme of JD.com was to talk about itself as a supply chain company, and try its best to absorb the dividends of the "last two" era, and grab the previously difficult merchants from Ali. Ali operated on the organization and used content e-commerce to resist the attack of Douyin Kuaishou live streaming e-commerce. Both have also participated in the involution competition of community group buying to a deeper or lower extent, and have their own layouts in the new round of instant retail.
However, after three years of the epidemic, what is facing traditional e-commerce platforms is a new deadlock - sluggish growth, shrinking users' willingness to consume, and new business models such as community group buying and instant retail are also eroding the role function of "e-commerce".
Let's look at JD.com first, the dividends obtained in the past three years through the sinking of Jingxi and the increase in supply of "last two choices" merchants are disappearing, and the growth rate of H1 revenue in 2022 has fallen to single-digit revenue (the annual report is not out, so it is compared to the interim report). JD.com added nearly 100 million annual active users in 2021 (70% from the sinking market), and by 2022, the cumulative new users in the first three quarters were less than 19 million. JD needs the next story.
Therefore, Liu Qiangdong, who has made a full comeback, shifted the strategic focus from instant retail, which has been paving the way for a year, to price.
Ali's problems may be more difficult to summarize. It is the most comprehensive and largest e-commerce platform in China, and it is also the object of impact and challenge. In 2022, H1 revenue barely grew year-on-year, and in the third quarter, GMV declined, and CMR, which accounted for the largest proportion of Alibaba's revenue (mainly e-commerce advertising commissions), fell by 7% year-on-year, reflecting the shrinking revenue of merchants in Alibaba.
In order to reduce costs and increase efficiency dormant for the winter, Alibaba's marketing expenses contracted sharply, falling by 6.5 billion (-22.5%) year-on-year in the latest quarter. But the problem is that when Ali chose to hibernate, the clamps on Pinduoduo were also relaxed. Ali's earnings report revealed that Taote reduced user subsidies. This key pawn in the sinking market is no longer using marketing to win beautiful data like in previous seasons. After the operational focus shifted to "continuously increasing the average consumption and purchase frequency of active consumers", the loss narrowed sharply year-on-year, but Taote's market share plummeted.
On the other hand, Pinduoduo, which occupies the "low price" mentality, burst in revenue last year, with growth rates of 7.31%, 36% and 65% in the first three quarters respectively. With users to order the princes, let the merchants stage a "battle royale", Pinduoduo earned a surprising net profit, making profits for six consecutive quarters.
According to the evaluation of Guojin Securities, this is due to "Pinduoduo's cost-effective platform characteristics attract more merchants and consumers in a weak consumption environment". Consumers who have used Pinduoduo should feel this way, the price of the same product on Pinduoduo is often not cheaper than other platforms, but Pinduoduo's low-price mentality is far stronger than other platforms.
According to QuestMobile data, in the past year (February 2022 - January 2023), the average number of monthly daily active users of Pinduoduo App has steadily exceeded that of HandTao App.
How can Pinduoduo's old rivals be at ease?
In addition to Pinduoduo, similar to the low-price mentality is also the jittering e-commerce live broadcast room, these traffic entrances no longer direct consumers to JD.com and Ali, but complete transactions in a closed loop on their own, and can promote consumers' "passionate consumption" through content.
Instant retail, which is more time-effective than e-commerce, has begun to invade the territory of traditional e-commerce in another sense. Now the inventory of offline merchants is gradually becoming online, and the epidemic has accelerated this process. Local demand can be directly connected to local supply through takeaway platforms, bypassing traditional e-commerce.
In the instant consumption, people's tolerance for the premium space of goods is actually higher, from buying three meals, fresh food, daily necessities, to clothing department stores and 3C, the unit price of instant retail is increasing, which also threatens the dominant categories of e-commerce platforms.
After the drastic changes in the environment, rebuilding the low-price mentality has become a choice that the e-commerce big brothers cannot refuse.
Involuted Infinity War
So, where is the end game of this round of competing for low-priced minds? Or, how will it change the competitive landscape of e-commerce?
Price wars have always been a double-edged sword, and Pinduoduo's low-price label has brought a lot of negative effects. In addition to the difficulty of making profits due to the low unit price of customers, it has also led to the early big brands not being able to look at this platform outside the five rings.
In order to make the products on the platform look more high-end, Pinduoduo once needed to spend money on purchasing popular brand goods, putting them in its own warehouse, and then selling them to consumers at a discount, that is, self-operated business. This part of the self-harvested commodity business, until the second half of 2021, disappeared from the earnings report (not completely disappeared, there is still about 1% of the inventory).
There is no longer a need for self-procurement, the reason is that tens of billions of subsidies attract brand goods to settle in, and Pinduoduo does not need to purchase it itself.
However, when more and more brands settle in, the subsidy dividend gradually disappears. In addition to the peak of new users, the vast majority of brands have been able to control prices on several new platforms, and there will be no situation where the price of one platform is lower than that of other platforms. In other words, for platforms, subsidies can create less and less demand.
The impact of tens of billions of subsidies on JD.com may be more complicated than that of Pinduoduo. More than half of JD.com's GMV comes from self-operated goods, which also allows JD.com to maintain advantageous services while also having a high level of gross margin. If JD.com still maintains the original service level while establishing a low-price mentality, then whether the discount comes from self-operated or POP merchants, it will eventually be transmitted to JD.com's gross profit margin.
The development of e-commerce to today, has long been from the spring and autumn to the Warring States, each platform has its own advantages, no one can kill anyone. The goal of this round of price war is not to really defeat the opponent with price.
Whether it is JD.com's special campaign to protect low-price minds or Taobao's price power, the goal is not to make users feel that their prices are more expensive than others. The kind of vigorous and cost-effective investment we remember in order to suppress the other party to death is impossible to achieve today.
As for who can eventually grab back more users, in the final analysis, it depends on who can better control the cost, this cost in addition to the price of goods, but also logistics, warehousing, distribution, and labor costs, etc., to minimize the comprehensive cost of all links, that is, to maximize cost reduction and efficiency.
For each company, the key to establishing a low-price advantage without losing money is to improve the operational efficiency of the entire system. This kind of stock competition, or industry involvement, in the final analysis, still relies on cost reduction and efficiency to roll up peers. In 2023, the probability of cost reduction and efficiency improvement will still become the norm.