On the surface, it is a price war, what is JD anxious about?

Image source: @VisualChina

Text | Hedgehog Commune, author|principal, editor|Shi Can

From March 2023, open the Jingdong App, and the tens of billions of subsidy zone that appears on the homepage is bright and shaky, almost making people mistakenly think that they have entered another e-commerce platform. Especially after entering the tens of billions of subsidies channel, the first thing users see is the "classic" tens of billions of subsidized goods - iPhone, iPad and other Apple hardware, which is even more indistinguishable.

In the elevator rooms of office buildings in first-tier cities such as Beijing, JD.com's "tens of billions of subsidies" advertisements also continue to brainwash workers virally with the help of elevator advertisements. It's just that the advertising slogan of tens of billions of subsidies needs to be listened to for a while to understand which platform it is.

Compared with e-commerce shopping festivals such as Double 11 and 618, the preferential treatment of "tens of billions of subsidies" may not be as good as that of e-commerce shopping festivals, but it means that the price war between platforms has begun. This is because all products that enter Jingdong's tens of billions of subsidy channels, whether they belong to JD.com's own operation or POP (third-party sellers stationed in JD.com), must have a price not higher than the same product on competing platforms, otherwise consumers will be doubled.

Therefore, the shopping festival can be said to be the joint efforts of e-commerce platforms to earn consumers' money, and tens of billions of subsidies are really cost-effective for consumers: several major e-commerce platforms are better than taking out lower-priced goods.

Featured page of JD.com's tens of billions of subsidies

In people's original impression, a considerable number of JD.com consumers do not value "low prices" and "subsidies" the most: if they want to buy cheap goods, other platforms have them. What they really value is the quality assurance composed of the products represented by JD.com's self-operated products combined with the services of JD.com. Now, JD.com is also adjusting, hoping to ensure an advantage in price. At an internal JD retail conference at the end of 2022, Liu Qiangdong mentioned "low prices" dozens of times in a speech of more than three hours; CEO Xu Lei also said, "Today we are determined to do low prices, everyone's will is unified, and there are many and difficult changes in the future, but there is no way, (low price) this road, we must go on." ”

Hedgehog Commune judged: the core of the birth of JD.com's tens of billions of subsidies is that JD.com has generated anxiety on the upstream supply side, and wants to force supply chain reform through the downstream consumption side of JD.com, thereby activating growth, tens of billions of subsidies are just a means, and the price war is also an appearance; What Jingdong is most concerned about is not the price war, the focus is actually on the vitality transformation of the supply chain side, that is, to stimulate the vitality of suppliers, through market demand backwards to push upstream those suppliers who lack vitality, lack of security, lying down to make money to make changes. This approach is promoted according to a logic similar to that of a "semi-planned economy and a semi-market economy."

We further judge: to understand the behavior of tens of billions of subsidies in the abstract, it is the "customized" production of consumer demand, and the demand is gathered and integrated with products and prices, and the consumption threshold is actively lowered, so that upstream shipments will become larger. Mobility increases, demand increases, new market behaviors will activate more links to operate, and the e-commerce industry can only earn money if it flows. Although the existing public opinion always emphasizes Liu Qiangdong's emphasis on profit margin and cash flow, this is also true, but he is more responsible for the entire Jingdong system, and profit margin and cash flow are specific references.

So we saw that in the first quarter of 2023, a price war between e-commerce platforms that had not been seen for a long time began. And after the first shot of JD.com, it is likely that there will be new players to join this "e-commerce chicken" battlefield, which is far more competitive than the shopping festival promotion.

Tens of billions of subsidies are really a price war

In the eyes of users, the difference between JD.com's tens of billions of subsidies and the preferential strength of competing platforms is not large, and even the price of some goods is slightly higher than that of competing platforms. There is no consensus on whether JD.com's tens of billions of subsidies are a price war or a simpler marketing act.

However, according to more comprehensive statistics from research institute China Merchants Securities, on March 6, the day the 10 billion subsidy officially opened, although the percentage difference between the price of JD.com's 10 billion subsidized goods and competing platforms was basically in single digits, the price trend was still clearly visible, and JD.com had a slight advantage in the "live category". After all, the field of home appliances and 3C digital and other electrical appliances is the old base of JD.com, there is no room for mistakes, and it is also due to have more advantages in price.

Source: China Merchants Securities Research Report

In the statistics of China Merchants Securities, the proportion of goods in the charged category is about 60%, in addition to about 10% of JD.com's home improvement products. This has allowed JD.com to establish a relatively strong purchase of mentally advantageous goods among consumers, forming the main force of tens of billions of subsidies. Taking out the most core commodity sector to do tens of billions of subsidies, it can be seen that the price war provoked by JD.com is indeed going to come true.

In an email in October 2022, Liu Qiangdong offered the following points about "low prices" to JD retail executives:

"Low prices are not only the core competitiveness of e-commerce, but also the foundation of all the competitiveness of all retailers around the world."

"Low price is '1', quality and service are two '0', lose the low price advantage, all other so-called competitive advantages will return to zero."

"Low price is the most important weapon for our past success, and it will be the only basic weapon in the future."

"Many brothers ... Don't pay attention to our low price advantage at all, so sooner or later it will become the second Suning! ”

The low price that Liu Qiangdong repeatedly talked about, we can see its starting point from JD.com's annual financial report released on March 9, that is, to return to the track of rapid growth. One fact that is bad for JD.com is that its forward pace has slowed down rapidly in 2022. From the financial data, in 2020 and 2021, JD.com's revenue growth rate was about 30% year-on-year, and in 2022, this figure became 9.9%, especially in the second and fourth quarters, which were only about 5% and 7%.

Seeing this data, the leader of any business will feel a strong sense of crisis. For the retail business, this sense of crisis often comes from the times on the one hand, and from itself on the other.

To change this situation, Liu Qiangdong's prescription is low prices, aiming at competing platforms, taking JD.com's most consumer-minded categories to do tens of billions of subsidies, and using prices to pull users into their own plates. Some self-media disclosed that the assessment indicators of many departments of JD.com's retail business line have changed from the past "revenue + GMV" to only GMV.

Compared with whether the contents of the plate are good or not, JD.com is more concerned about whether the plate is big or not.

Price wars are only local wars

While most business battles are fairly unpretentious and crude, price wars are not like two platforms participating in auctions, competing for the lower price of each commodity, trying to overwhelm each other on each item.

That's not a price war, and no platform can sustain this kind of money-burning behavior. Therefore, we can see that the price war of e-commerce platforms is not brainless low prices, but presents a more complex picture, some goods will be lower in a certain platform, and the price gap will not be too large.

This is not the first time JD.com has taken the initiative to start a-for-tat price war. In the early days of its business, JD.com fought against Dangdang and won the book category by relying on low prices; After that, there was a price war against Suning and Gome in electrical products, relying on radical strategies such as "zero gross profit for three years" to establish the status of JD.com's "live category" in the field of e-commerce.

In the March 2023 JD.com earnings call, Xu Lei revealed that JD.com's investment in tens of billions of subsidies reached about 1 billion yuan in the first month, and the tens of billions of subsidies are only part of JD.com's price strategy.

In addition, tens of billions of subsidies should also be combined with increasingly intensive e-commerce shopping festivals. When I fought price wars with Dangdang, Suning, and Gome, there were not so many shopping festivals, and now JD.com has made tens of billions of subsidies, which can reduce the pressure of e-commerce shopping festivals. In Xu Lei's words, "Guide users to gradually change their shopping habits, from 'big promotion stockpile' to 'low price every day'." ”

Whether the tens of billions of subsidies will affect the profits of enterprises is also a problem that must be paid attention to. Xu Ran, CFO of JD.com, explained that not all discounts are included in marketing expenses and profits, and the "tens of billions of subsidies" will reallocate marketing resources with big promotions, and there is no intention to significantly adjust the marketing budget for the whole year.

Apple products are the main force of JD.com's tens of billions of subsidies

In addition to JD.com's own operation, JD.com POP merchants can also enter the tens of billions of subsidized channels, provided that the price is lower than whom. Some self-media disclosed that half of the tens of billions of subsidies are a commodity corresponding to a merchant, and the merchants with lower prices are selected as "tens of billions of subsidies", and will also require the lowest price on the whole network to be adjusted every week. Therefore, the low price of tens of billions of subsidies is not all subsidized by JD.com, and there are also merchants involved, so the cost is relatively controllable.

But pulling away competitors with price wars may be reliable in the second decade of the 21st century, but if it becomes a path dependency for companies, it may encounter very different results.

For example, JD.com's last low-price attempt on the "Jingxi" platform did not undertake the goal of JD.com entering the sinking market, but became a drag on JD.com's revenue, and in 2021, the new business segment where Jingxi is located lost more than 10 billion.

Faced with competitors with a higher degree of organization and larger user scale than Dangdang.com and Gome Suning, it still takes time to verify whether JD.com's tens of billions of subsidies can be "eaten by the tiger". In this regard, the capital market is obviously not confident enough, and after JD.com released its 2022 full-year earnings report on March 9, it fell by more than 10% in the US stock market.

Price war, survival game that cannot be escaped

Looking at all walks of life, at first, the price war was a competition between one or two merchants, but as long as the track is long enough and the market is large enough, it will gradually evolve into a survival game in which all merchants participate in the war and no one can stay out of the situation.

Almost at the same time that Jingdong started the price war of tens of billions of subsidies, Dongfeng Citroen and other models in Hubei region came to an unprecedented price reduction, provided by the government and enterprises with double subsidies, the most favorable model Citroen C6 directly reduced the price by 90,000, 120,000 can take away a B-class car, so that this car from no one cares overnight on the major platforms hot search, and even some people from the northeast, Guangdong came all the way to join the rush.

Just look at the price, this discount for Dongfeng models is also a "tens of billions of subsidies", but it is not entirely the enterprise that pays. Since Dongfeng has "tens of billions of subsidies", other regions and car companies are also following suit, and the price reduction trend spreads throughout the country at the speed of light - "Mercedes-Benz in Beijing reduces prices by 110,000" and "SAIC Audi reduces prices by 160,000", and thirty or forty car companies have begun to reduce prices. Although there are various conditions, it is a foregone conclusion that car companies will collectively reduce prices and fight price wars in 2023.

The initiator of this price war is actually Tesla, which took the lead in reducing prices earlier. At a time when consumer confidence has not yet recovered and the market environment is facing a variety of uncertain factors, market increments are nowhere to be found, and can only be "rolled" in the stock market, and if you want to win more users, price reduction is a rational choice for all walks of life. Whether it's e-commerce or automobiles, it's all about it.

In particular, e-commerce consumers who have been "nourished" by various discounts and shopping festivals need to stimulate purchasing power with real low prices. Xu Lei said in the earnings call on March 9 that the price concessions of e-commerce companies are concentrated in big promotions, which makes consumers form the inertia of "not promoting and not selling" and "not promoting and not buying". If you want to allow users to buy things like an e-commerce shopping festival, you must find a way to "move" the price and category of the promotion to the usual time.

There is one point that Xu Lei did not mention, that is, the vast majority of consumers are not "loyal" to the platform, where it is cheap and good quality, they will buy it, and the service and brand tonality of the e-commerce platform are secondary. Therefore, tens of billions of subsidies are something that every platform can do, otherwise, competing platforms have done tens of billions of subsidies and this platform has not done it, and users can easily run to competing products.

For example, think about it, how many people bought Apple mobile phones in recent years on the first platform to play "tens of billions of subsidies", and how many people bought them on JD.com? Obviously, in order to be cheap, "consumers can do anything".

Therefore, JD.com will not be the second platform to clearly play the "tens of billions of subsidies", and there will be more and more platforms to join the e-commerce price war. Even some platforms that are good at "making miracles" organize a wave of "50 billion subsidies" or even "100 billion subsidies", which is not impossible.

"If you don't reflect on the price and blindly complain to me about traffic, then you should reflect, and no one will mention traffic to me in the future." It's not that there is less traffic, it's that your price is not attractive enough! ”

For the relationship between traffic and price, Liu Qiangdong made it very clear at a meeting at the end of 2022. At this stage, if you want to sell more and sell quickly, you have to rely on low prices.

If you don't believe it, you can ask those friends who recently bought a Citroen C6 why the same car became mature and stable when it sold for 210,000.