2024-07-17
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On May 25, Lin Shuang (pseudonym), an online operator of a certain brand, suddenly discovered that a large number of coupons offering RMB 30 off for purchases over RMB 300 appeared in his Tmall store. The coupons continued to appear in the following days, and at one point the coupons even increased to RMB 20 off for purchases over RMB 200.
The sudden appearance of discount coupons obviously boosted sales. When Lin Shuang looked through the backend transaction data, he found that the "wool" from the discounts did not come from the sheep or the pig, but from the sickle.
According to an insider, in order to gain growth, Taotian paid out of its own pocket to lower prices. Many merchants in different categories told Photon Planet that during the 618 period, many first-level categories received hundreds of millions of yuan in official subsidies from the platform.
No one knows that the discount coupons issued by Taobao have broken the gross profit margin of some products on JD.com.
“Why do you change my price?” Lin Shuang was not happy for long. He found that the price of his own brand on JD.com was also discounted by 10%. In desperation, he had to call the purchasing department.
"You were the one who bargained for the price first." A hoarse, complaining voice came from the receiver. The JD purchasing agent didn't listen to Lin Shuang's explanation at all. Lin Shuang also knew very well that once the goods were sold to JD for self-operation, they were like water spilled. The control was not in his hands at all. He could only hang up the phone in disappointment.
Merchants may have to be mentally prepared next, because Tmall’s idea of spending money is still continuing.
Photon Planet learned that from August 7 to August 11, the "Tmall 88 Membership Day" event will have a discount anchor of 300 yuan. For purchases less than 300 yuan, a 10% discount (10% off) will be given; for purchases over 300 yuan, a 40 yuan discount (13% off) will be given; for purchases above 300 yuan, a 13% discount will be given for the 300 yuan portion, and a 10% discount will be given for the portion exceeding 300 yuan.
JD.com was the first to object. It recently launched "JD.com Super 18" to compete with Taotian's event. It is reported that the high-value products priced at 18 yuan will not be released "all at once", but will be sold in batches at irregular times and locations. Users who browse the event page frequently will have a chance to grab them - killing time with low prices.
The price and service that have been rolling up for a year have put the platform and merchants to the test. If we regard the platform as a different game, we can see that the merchants are in a dilemma.
Doing business on Tmall is like playing mahjong, where the outcome of each round will affect the next; doing business on Pinduoduo is like playing Texas Hold'em, where even the winner of the previous round may lose everything in the next; as for JD.com, its procurement and sales model determines that either the platform will work with brands to boost sales, or it will use users to force brands to lower prices. This three-party game is quite similar to playing Landlord.
To put Jack Ma’s words “make it easy to do business anywhere” in a simpler way, the platform and the merchants must be on the same page.
Taobao merchants have two budgets for the whole year: category commissions, credit cards, Tmall points, etc., which constitute the basic comprehensive expenses of the platform, accounting for about 5%-7% of the total revenue. The growth of commission income depends on the growth rate of the platform's GMV, which is almost inflexible.
Online advertising marketing revenue depends on the conversion efficiency of paid traffic, which is highly flexible and has different proportions for different categories. The proportion of marketing investment in total revenue of Taobao merchants ranges from 10% to 30%.
"There is a traffic ceiling on Taobao. If the traffic exceeds the 30% threshold, continued investment will lead to diminishing returns." According to comprehensive calculations of a brand's operations, the comprehensive operating costs of most Tmall stores are between 15% and 40%. Compared with Douyin's marketing costs of more than 70%, Tmall obviously has more room for gross profit. Therefore, there is a saying in the industry: "Explore on Douyin and make profits on Tmall."
Maintaining the profits of merchants and allowing them to continue marketing is the most important task of Taobao, or more precisely, Alimama. This is just like the basic rule of playing mahjong, "two teams" - merchants and the platform prosper together and suffer together.
In addition, there are "promotion" rules for throwing eggs, which are actually also reflected in Taotian.
In front of thousands of people, search traffic is a gold mine that cannot be missed. Especially in 2012-2013, in order to create a hit product, brand operators would set a search traffic requirement of more than 20% for the traffic share, and in practice it could reach 23%-25%. This year, a brand told Photon Planet that the weight of search traffic on Taobao was "less than 5%."
In addition to traffic structure, merchants who want to continue to operate must also meet multiple task indicators in order to gradually break through. In the past few years, in order to cope with external competition, Taobao has adjusted the traffic weight, contentization, and product sales display rules of search and recommendation. Each adjustment has added more service requirements for merchants to upgrade.
At the same time, in order to cope with the traffic impact from Douyin, Taobao began to increase recommendations and launched waterfall flow products after 2018. In August 2021, during Dai Shan's tenure, Taobao launched "micro-detailed short videos", requiring merchants to do a good job in content in addition to business operations.
Lin Wen (pseudonym) has been in e-commerce for more than ten years. He told Photon Planet that there are only two ways to get traffic recommended by the platform. Either the first product is a hit, or another condition must be met: good content. "Just like the assessment of short videos, the viewing rate and click-through rate will be considered, and after a hit, it must be continuously iterated."
Merchants who are engaged in operations and content creation originally thought that they could advance to the next level by creating a hit product. However, Taobao has added a new promotion task - extending the hit product cycle.
On August 16, 2023, Taobao updated the sales display rules for products, extending the sales time limit from 30 days to 365 days. "This change is aimed at JD.com," an insider revealed. JD.com products are displayed according to the cumulative reviews, which are often hundreds of thousands, and the visual effect is obviously stronger than Taobao's 30-day sales data. After Taobao is extended to 365 days, the monthly sales of a single store will exceed thousands, and the display can also exceed 10,000.
Taobao is happy to have surpassed JD.com, but it has also changed the business logic of merchants. Previously, they operated on a 30-day cycle, but now they need to operate on a 365-day cycle to see results. This has forced merchants in the inventory reduction cycle to run to other platforms to seek growth.
Comparing with Douyin and Pinduoduo in the same period, the difference is very obvious: Notland can blow up the whole market by hosting 20,000 live broadcasts on Douyin every month; among the more than 20 Pinduoduo merchants we have contacted in the past year, more than 70% rely on differentiation and pricing power, and their hot product cycle does not exceed 1 month.
Last year, after Wu Yongming took office, he also tried to make strategic adjustments.
On the one hand, during this year's 618 shopping festival, Taobao introduced a new experience score system into the factors affecting traffic distribution, trying to allow merchants to gain more natural search traffic through services. According to people familiar with the matter, this change will soon be fully tested, which will alleviate the problem of merchants' traffic growth to a certain extent.
On the other hand, Taobao and Tmall cancelled pre-sales during the 618 shopping festival this year.
"In order to manage upward, we launched pre-sales, thinking that by compressing the final payment to the day of the big sale, GMV would continue to grow. In 2020, JD.com moved up the sale by 4 hours, catching Tmall off guard." Lin Wen mentioned that pre-sales and 8 pm are both products of competition.
The slimmed-down Taobao 618 rules still have four types: platform-wide cross-store discounts, category coupons, merchant discounts, and additional discount coupons on the merchant side. Under Wu Yongming's leadership, the pressure of growth has not yet been found to find a particularly good solution, and the only way to do so is to sacrifice profits in the short term for long-term growth.
In the first quarter of this year, Taotian's customer management revenue increased by 5% year-on-year, but in the absence of other force majeure factors, EBITA showed negative growth.
Although the "brothers" mentioned by Liu Qiangdong fluctuate like the exchange rate, it is undeniable that JD.com's procurement and sales are definitely brothers among brothers, because JD.com is essentially a fulfillment and after-sales service provider + the largest channel or distributor.
Lin Shuang said, "Because of the procurement and sales model, we generally regard JD.com's self-operated business as a to B (wholesale) business, which is equivalent to the platform underwriting my goods, without platform fees, and only eating the brand's gross profit. Relatively speaking, the business on Tmall is considered a to C business (retail)."
For example, on May 13, Xiaomi and JD.com reached a strategic agreement. The core content of the agreement is that Xiaomi's omni-channel sales (GTV) on JD.com will reach 200 billion yuan in the next three years. It is essentially an underwriting agreement. In the underwriting agreement, JD.com will set a gross guarantee clause to protect its own interests.
Photon Planet obtained the implementation process of Mao Bao from JD.com operations of multiple brands.
The "supply price" will be set in the agreement signed between the brand and JD.com. At the same time, a gross margin of 10%-25% will be set depending on the brand and category.
Earlier, the price competition between platforms was not so intense. When product A could be sold for more than 100 yuan, the gross guarantee clause would not be triggered. The merchant could get 100 yuan back, and JD.com would earn the part above 100 yuan. However, once the price exceeded 100 yuan, the gross guarantee was triggered, commonly known as "breaking the price". Then, according to the 20% gross guarantee calculation, the merchant could only receive 80 yuan.
Since 2023, when JD.com launched the slogan of the lowest prices on the entire network, Mao Baorang’s self-operated brands have become the “landlords” who draw cards in every round.
In order to achieve the lowest price on the entire network, product A not only broke the 100 yuan mark, triggering the gross guarantee, but also broke the part after deducting the 20% gross guarantee. "If the final transaction price of product A is 80 yuan, JD.com will take another 20 yuan, leaving only 60 yuan to the merchant." A 3C brand operator said that when the price breaks through 60% of the supply price, almost no big brand can bear it.
Of course, under normal circumstances, when other platforms offer low prices, JD.com will not simply and rudely ask merchants to lower prices, but will use courtesy before force.
The person in charge of a certain brand's JD channel said that the logic of operating JD is equivalent to wholesale procurement, which requires high communication skills and personal connections. When JD procurement and sales require price reduction, both parties will consider face and exchange resources with each other.
“Purchasing and sales usually use a combination of threats and coaxing to say, ‘Your current growth is inverted, and the growth rate is so negative. If I don’t give you a lower price, how will you make up for the sales gap?’” Price cuts will definitely make brand operations bear a lot of multiple pressures from internal and omni-channel price control. In this case, other methods are needed to hedge, such as additional operational follow-up investment costs, on the condition that prices are restored to normal levels.
The procurement and sales model and the platform model also have different styles before and after the big promotion.
Jiang Wen (pseudonym) operates both Tmall and JD channels. "One or two months before the big sale, we are extremely busy. We make all kinds of preparations and formulate various plans. Then I just have to proceed step by step." While on JD.com, she needs to keep tracking the pallets while keeping a close eye on the sudden large coupons.
In addition to being on guard against large-value coupons from Tmall, you also have to be on guard against low-price offensives from Pinduoduo and Douyin.
JD.com’s “wholesale” attribute has destined it to be “price-sensitive”. As long as there is a platform with a lower price than JD.com, JD.com must follow suit. The most recent example is the 618 period mentioned at the beginning, when Tmall suddenly issued discount coupons for categories that broke the reserve price.
A JD.com employee told Photon Planet that during the promotion period, all products must be more affordable than Pinduoduo, "even 1 cent is fine."
In the purchase and sales model, JD.com, merchants, and users are in a three-party game. When the merchant's gross profit is stable, JD.com's channel wholesale attributes can easily obtain the best price and earn the difference, providing users with certain performance and after-sales service. This is a positive-sum game. But when the market turns to the price narrative, the original win-win situation of the three parties is broken and it becomes a zero-sum game like "fighting landlords": either the landlord eats all the peasants, or the peasants overthrow the landlords.
During the 618 period, when many publishing houses boycotted JD.com, JD.com's book purchasing and sales were a model: "I just want to do my best to promote sales and create value for society." It was like pulling users along and playing the game of "farmers fighting landlords."
Relatively speaking, the situation of POP merchants on JD.com is slightly better than that of self-operated ones. According to calculations by an industry insider, the commission deduction of POP merchants is the same as that of cat and dog stores, which is about 5% (excluding special categories such as family planning and sex toys). If JD Logistics' integrated solution (warehousing) is not adopted, the marketing expenses on JD.com are generally around 10%, and the comprehensive cost including third-party logistics is about 25%.
The traffic on JD.com is relatively small, so most merchants can reach the margin with a small investment.
"For our small SKU, the refund rate on Pinduoduo is about 20%-30%. Two years ago, Tmall only had 5%. Now they are all benchmarking against Pinduoduo, and the refund rate on other channels is actually higher than Pinduoduo."
Unlike cats and dogs, merchants need to follow the platform's guidance to open a store, operate according to a certain cycle, and grasp the rhythm of traffic, and even create content to finally achieve a breakthrough. On Pinduoduo, merchants only need to focus on one goal and do two things. The goal is absolutely user-oriented, and the two things are related to price and demand.
This does not mean that all businesses can succeed by relying on a single hit product. On the contrary, if a hit product is released, the business will return to the starting point. If there is no continuous hit product, there will still be huge business challenges. What's more, there are a large number of "copycat" businesses. When a business's single product becomes a hit, a new hit product will appear soon.
The so-called "follow-up products" refers to some means such as price, product differentiation, and operation, which make some low-threshold or basic products become popular in the site, and then other merchants follow and take over the overflow traffic. In some cases, if some "follow-up products" merchants still have advantages in certain areas, they may be able to overtake.
For example, the herbal tea industry in Bozhou, the small home appliance industry in Dongguan, and the lighting industry in Zhongshan have all exploded on Pinduoduo. However, the risk of copycat products is extremely high. Most copycat merchants rely on price to seize the market. Once the trend is over, they will often copy a product, increase inventory, and eventually exit the market.
This is like Texas Hold'em, winning a round can certainly get all the chips on the table, but in the next round, if you don't plan carefully, you may lose everything once you get too excited. To be precise, in Pinduoduo's poker game, no matter how big or small the cards are, anyone can win, but winning a round cannot help you win the next one.
"Taobao, JD.com, and Douyin all have marketing thresholds, but Pinduoduo's threshold is very low. Even if you spend money on traffic, you may not be able to get a position. If you switch to Douyin, as long as you are willing to spend money, even if you can't get conversions, at least you can get some brand awareness."
Li Rui (pseudonym), whose brand also opened a store on Maogou Pindou, mentioned that Pinduoduo allows merchants to directly reflect their advertising investment in prices. This means that Pinduoduo's so-called "low prices" actually exclude most or even all online marketing costs.
It is conceivable that merchants can sell their products on Pinduoduo at a lower price than other platforms if the commissions of different categories are similar. In addition, the product settings on the merchant side of Pinduoduo are also very interesting. Li Rui half-complained: "Such a large pop-up window considerately helps you set the price reduction. If you accidentally touch it, you will cut your own price."
In fact, when many merchants complained about the low prices on Pinduoduo, it was actually an illusion that some merchants adopted a segmented business strategy.
Most merchants who have been "disciplined" by Tmall often reserve a portion of their gross profit as promotion expenses and make paid traffic. This approach does not apply to Pinduoduo. Many merchants have reported that when making paid ads on Pinduoduo, products must be very nitpicking, otherwise "the platform mechanism can make you lose the whole game."
Therefore, many businesses usually practice something very similar to the Semi-bluff technique in Texas Hold'em (a Texas Hold'em term that means one has bad cards but pretends to have good cards), selling in large quantities in the early stages and reaping the benefits in the later stages.
Specifically, they first ship out goods at a certain inventory ratio at a very low profit, or even slightly lower than the gross profit, giving people the illusion of mindlessly bidding at a low price, just to gain price weight. When the volume increases and most of their peers switch to other categories, they will then buy out the remaining inventory at a higher price.
Although many merchants are complaining, they all see that Pinduoduo is carrying out a kind of "reverse domestication" of e-commerce. On Tmall, JD.com, and Douyin, merchants' marketing costs are unlikely to be less than 15%, and most of this expenditure is eliminated by Pinduoduo, allowing merchants to sell goods at a lower cost and with less effort.
"You don't have to worry about strategy, you don't have to be distracted by content creation, and you don't have to worry about other platforms breaking prices and triggering gross insurance." The person in charge of a heating product line said that its underlying algorithm has only one: the only optimal one under the same circumstances.
“When a brand makes a budget at the beginning of each year, it is impossible for it to make a negative growth budget just because of the market environment, or it will definitely be fired by the boss.” Lin Shuang said that under normal circumstances, no matter how conservative the brand is, it will make a 20% growth, but when it comes to the execution level, they will find that it cannot be achieved at all.
To achieve a 20% growth, at least 20% more goods must be prepared. In order to handle the impossible task, the only way is to pass the buck to the dealers. Products have a shelf life or a sales cycle, and dealers are not fools. Once they can't bear it, they will inevitably sell at a discount. When a group of dealers resonate, the price list will collapse.
"If you were a dealer, would you quickly enter and exit Pinduoduo and Douyin, or work hard on Tmall and JD?" The above-mentioned merchant mentioned the industry inertia of only being able to achieve growth, which is like a "ratchet" that can only turn in one direction, making the business go in one direction.
Does that mean that the game between Douyin and Pinduoduo is definitely more attractive to merchants than Tmall and JD.com? Obviously not.
Merchants pay for Douyin traffic, which is similar to the logic of advertising payment. The cost share of over 70% has hindered most traditional big brands. Like many overseas beauty brands, the profit space has long been divided up by distributors and platforms such as Tmall and JD.com, and the gross profit is relatively transparent, so there is no spare capacity to share with Douyin.
Douyin has its own problems, and Pinduoduo has its own limitations. The price power and the service that is completely user-oriented make it difficult for non-standard and personalized products to survive on the platform. On the contrary, on Tmall, they have enough scenarios to capture more traffic; on JD.com, users can enjoy deterministic services beyond products.
Merchants are not lambs to be slaughtered. Faced with price benchmarking between platforms, some merchants with industrial belts have begun to export "exclusive" products to different platforms: slightly cutting down on the basic version.
The bad thing is that the executives of Taobao and JD.com blindly benchmarked against Douyin and Pinduoduo, either for growth or to passively fight. If benchmarking can really cope with the challenges of the external environment, then why did so many creatures in the biological world that have evolved in a similar way eventually go extinct?
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