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The low-price competition has lost one more player.

By Sun Haining
Editor: Gao Honghao

We understand that Douyin e-commerce has recently adjusted the priority of its business objectives and no longer puts "price power" first. In the second half of the year, it will focus on pursuing GMV (transaction volume) growth. At the beginning of this year, achieving low prices was still the most important task for Douyin e-commerce, followed by the "perfect order rate" that measures consumer experience and the number of monthly transaction customers (MAC) that reflects the scale of e-commerce users, while GMV ranked last.

The general background for the change is that the growth rate of Douyin e-commerce GMV continues to decline.

In January and February this year (taking into account the Spring Festival holiday, the statistics are generally combined), Douyin e-commerce achieved a total GMV of nearly 500 billion yuan, with a cumulative year-on-year growth rate of more than 60%, while the year-on-year growth rate in March fell below 40%. After the second quarter, the growth rate further fell to less than 30%. In 2023, the monthly growth rate of Douyin e-commerce can still be maintained above 50% overall.

An insider told us that Douyin knew that low prices would have a certain impact on GMV, but the rapid decline in GMV growth in the first half of the year still exceeded expectations. At present, Douyin Group executives are also participating in e-commerce business management meetings more frequently than in the past, asking about business conditions. After judging that the live e-commerce format cannot achieve the lowest prices, the company decided to put GMV back to the top priority.

Some competitors weakened their low-price strategy earlier than Douyin. At the beginning of this year, Taobao Tmall Group has set sales and average consumption as the most important goals, and no longer pursues high order volume brought by low prices. The five-star price power of many projects of Taobao has been cancelled one by one. The five-star price power is a price power evaluation system created by Taobao. According to the price of the same product on and off Taobao, a single product is given a star rating of 1 to 5 to judge whether the single product has a price advantage in the entire market.

At a meeting of Alibaba's core executives a few weeks ago, participants agreed to "focus on strategy, have determination, and know their strengths and weaknesses."

After the change in the consumption environment, the price competition over the past year or so has been like a stress response that all e-commerce platforms have collectively fallen into - as long as it can boost the deteriorating indicators, the low-price strategy must be implemented regardless of its degree of adaptability to itself and its long-term impact.

However, low prices are only a process goal, serving the ultimate goal of increasing transaction volume, platform advertising revenue and commissions, and are not the only way to achieve the ultimate goal. After being involved in price competition but the subsequent goals did not meet expectations, more platforms began to turn.

Half-year low-cost experiment

Since price power became the top priority at the beginning of this year, the work focus of employees in different positions of Douyin e-commerce has quickly shifted toward "low prices", from merchant operations, product design to commercialization.

In order to accelerate the introduction of industrial belt merchants with large room for price reduction, Douyin upgraded its support policy and will return cash to some industrial belt merchants based on the completion of GMV targets. The incentive can be as high as 50% of GMV. Service providers who recruit industrial belt merchants can also receive cash subsidies.

A price comparison system has also been gradually established. Starting this year, Douyin has tried to classify products on the platform into three categories: "lowest price on the entire network", "same product at low price" and "same product at high price", and accordingly increase, maintain and reduce traffic exposure. On this basis, it also provides price change suggestions to merchants, promising more traffic in exchange for lower prices.

When comparing prices, Douyin is sometimes more aggressive than Taobao or Pinduoduo. On the order page to be paid, Douyin will display the same low-priced products to attract users to jump. This means that although merchants have paid for publicity, they may end up attracting traffic to competitors with lower prices. Taobao also has a similar design, but the products displayed on the same page are less relevant to the ordered products.

The left picture is Douyin e-commerce, and the right picture is Taobao. The express information and order number have been hidden. For ease of comparison, some page information has been cut off.

In May, Douyin tested the "automatic price change" function, which increased the intensity of bidding again before the "618" promotion. Compared with the previous mode of only providing price change suggestions, in the "automatic price change" mode, after the merchant sets the reserve price, the platform can reduce the price in real time according to the prices of similar products on the site and the entire network. A few days later, Pinduoduo launched a similar product - according to the original plan, it should have been launched before "Double Eleven".

The operational actions of advertising staff have also changed due to the low-price strategy. In the past, Douyin would encourage merchants to combine small-sized products into product sets, thereby increasing the selling price and raising the upper limit of bids when bidding for advertisements. But when the platform began to emphasize price power, they in turn guided merchants to split large-sized products into small-sized ones, hoping that small-sized, low-priced products could stimulate user consumption.

A person close to Douyin e-commerce said that after the platform turns its attention back to GMV, some of its aggressive price comparison strategies may gradually ease.

Douyin e-commerce divides goods into two categories: "standard products" and "non-standard products". In the past, the logic of price comparison was that when comparing with other platforms, standard products should be relatively low-priced, and non-standard products that are difficult to find counterparts should lower the price range to achieve an absolute low price.

"Standard products still need price comparison, but non-standard products have become less so," said the above-mentioned person. Starting last month, some women's clothing merchants classified as non-standard products no longer have the three price tags "lowest price on the entire network" in the system background.

Merchants have also sensed the change. When Douyin e-commerce employees communicate with them, they will begin to guide them to provide different packages from other platforms, or provide gifts in the product combination, making it more difficult for consumers to compare prices across platforms and avoid falling into price competition. Innovative products in sub-categories are welcomed even if they are a little more expensive - now, they are believed to increase the differentiation of Douyin e-commerce supply and increase GMV.

Some departments that did not pay much attention to GMV have also updated their goals. Douyin's merchant operation department has two groups, A and B. The former operates brand merchants, while the latter mainly serves white-label merchants. Previously, Group A focused on GMV, while Group B focused on order volume. This is because brand merchants often have high customer unit prices and are more able to take on the task of increasing GMV, while the low-priced products provided by white-label merchants are good at stimulating users to increase the number of orders.

It is understood that since late June, Group B no longer emphasizes order volume, but GMV. "Now that we have fully turned to GMV orientation, the growth rate in the second half of the year should be improved." The above-mentioned person said: "After half a year of low prices, everyone is frustrated."

The dilemma of live streaming e-commerce: unable to achieve extremely low prices, but also having to bear the cost of low prices

Offering low prices is not the strong point of live streaming e-commerce.

Compared with the traditional shelf model, in the live broadcast e-commerce model, there are also influencers and service providers between consumers and merchants, which increases the cost of commodity circulation. Top merchants can also choose to broadcast themselves, and distribute this part of the additional expenses to each product to alleviate cost pressure. However, small and medium-sized merchants do not have the ability to broadcast themselves and their sales volume is limited. The distribution commissions paid to influencers significantly erode the room for price reduction.

The content distribution mechanism of live e-commerce also makes it difficult to screen low-priced goods. When the platform allocates traffic to the live broadcast room, it needs to consider the content quality and product characteristics. This means that even if the merchant drops to the lowest price on the entire network, it may not get the expected traffic due to the poor on-site performance of the anchor. In contrast, the picture and text cards in the shelf mode do not need to take into account both content and goods. "On Pinduoduo, lowering prices will definitely bring traffic, but Douyin is not so certain." said a Douyin service provider.

It is understood that before the implementation of the low-price strategy, Douyin e-commerce had weak pricing power, and the price difference between many standard products and Pinduoduo was as high as 50%. Although Douyin e-commerce achieved multiple pricing power series goals in the first quarter, it was still unable to achieve a low price comparable to Pinduoduo, and the price difference of many products was still between 10% and 20%.

As the low-price competition between platforms becomes increasingly fierce, the pressure on merchants is becoming increasingly unbearable. Zhang Yang, founder of Shusong Consulting, who is a Douyin store consultant for merchants, interviewed nearly 180 customers after the 618 promotion and found that no more than 20 of them did not lose money during the promotion. The platform requires both buying traffic and lowering prices, "many merchants can't continue."

The speed of merchants clearing out their products may be accelerating. "Many merchants may sell goods on Douyin for a quarter, and then do the math to decide whether to continue operating. Now, after lowering the price, merchants can see that they are definitely not making money by looking at the daily return on investment (ROI), so they can reduce their investment earlier," said Zhang Yang.

The pressure on merchants will inevitably spread to influencers. The above-mentioned Douyin service provider said that this year, the industry generally saw the phenomenon of "reducing commissions and investing", that is, influencers lowered their commission rates and used the saved money to buy more traffic to maintain the ROI of merchants.

As commissions decrease and income becomes insufficient to cover expenses, influencers may leave the platform or form alliances. The former will reduce content supply, while the latter will lead to the expansion of the power of the top MCN companies, both of which will impact the platform ecosystem.

The user side cannot escape the influence of price comparison. At present, the price comparison system cannot take quality into consideration very well. "Products that look the same have completely different material costs, but they will be compared by the system." said the above service provider. In other words, poor quality products are more likely to be pushed to consumers because of the price, and the return rate will naturally increase.

The way for merchants to deal with the rising return rate is to extend the delivery time, wait for the previous batch of customers who received the goods to send back the returned goods, and then reorganize the returned goods and send them to the next batch of customers, thereby reducing inventory risks.

From the perspective of consumers, the result is that not only are the goods they buy not what they ordered, but they also receive them more and more slowly. Douyin regularly uses the Net Promoter Score (NPS) to measure user satisfaction with the platform, and this indicator has declined.

Merchants, logistics, users - in the e-commerce chain from supply to demand, in theory, no resource can be monopolized by a platform. If the platform hopes to achieve sustained low prices without subsidies, it needs to strongly bind traffic and low prices and let bidding happen naturally. However, Douyin, which still has content attributes and cannot distribute traffic based on price alone, cannot do this. In the process of price reduction, the platform also needs to coordinate the experience of merchants and users, hoping to achieve a balance.

When the extremely low price cannot be achieved and the balance point is slow to arrive, the shift begins.

Title image source: Visual China