news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

"Low price" has enveloped everyone, but now, everyone has to cut ties with it.

According to media reports, 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.

It is not just Douyin that chooses to weaken low prices. After the end of 618 in 2024, Taotian Group held a closed-door meeting for merchants, clearly weakening the absolute low-price strategy. Traffic distribution is no longer based on "five-star price power", but will focus more on distribution according to GMV.

This looks like a collective retreat from the "low price" strategy.

Prior to this, low prices were one of the most important development goals of many e-commerce platforms. Liu Qiangdong vowed to lead JD Retail to fully shift to "low prices"; Jack Ma made it clear that he wanted to "return to Taobao, return to users, and return to the Internet." The subsequent low prices, red envelopes, and 10 billion yuan in subsidies also became the most prominent changes in Taobao and Tmall.

At the beginning of this year, Douyin E-commerce set "price power" as the highest priority task in 2024, and launched a series of activities centered on low prices, including "Super Value Purchase" with 10 billion subsidies, multi-person groups, and price comparisons in live broadcast rooms.

According to media reports, in order to maintain its advantage in low prices, Pinduoduo has increased its budget for subsidies, which had previously been reduced by 10 billion yuan, to more than 10 billion yuan.

However, after half a year of low-price internal competition, the platforms have obviously not achieved satisfactory results. Obviously, many e-commerce platforms have realized that the low-price strategy in the past was a bit too much.

So, will the price war between e-commerce platforms really come to an end?

Can the trend of low prices stop?

Recently, Han Juan, co-founder of Keshilifu, has received many invitations from platforms, most of which are about supporting emerging brands and training on the application of platform tools. It seems that the platform's attention and support for brands is indeed increasing.

But the trend of low prices will not stop just like that.

The recent Tmall 88VIP promotion still requires merchants to provide products below 10 yuan. For this reason, Keshilifu has put out a trial package for 9.9 yuan. One user ID can only place one order, and the limit is 1,000 orders. For brands, this way of not breaking the price, following the platform's activity policy, and effectively attracting fans can be regarded as a compromise under persistence.

But not all brands can survive on compromise.

“By the end of this year, a wave of them will definitely disappear, because their profits can no longer be sustained.” According to Han Juan's observation, under today's price pressure, many mid-range brands can neither achieve absolutely low prices nor increase sales quickly. In this state of neither high nor low, a number of stores with hundreds of thousands of fans have been closing one after another.

This price pressure comes not only from the platform, but also from consumers' increasingly cautious consumption attitude. According to the "2023 China E-commerce Market Research Report" released by iResearch Consulting, in 2023, among the many factors that Chinese online shoppers consider when choosing websites/APPs, "price-price discount" ranks first.

Therefore, since consumers' rigid demand for low prices has not faded, it is not easy to get rid of the low-price trend.

The game between low price, traffic and satisfaction

Caught in the middle of the price game, shop assistants have the most say in the changes in market atmosphere.

Three or four years ago, when Douyin shop assistants, who held the power of policy allocation, visited merchants, they were treated like gods - watermelons and fruits were arranged nicely, and lunch was served well. Are you tired at night? Why not go for a foot massage...

But since the platforms started to catch up with the trend and launched the price comparison system, the treatment of the waiters has started to take a sharp turn for the worse. If you want to go out to visit, you have to find a friendly merchant first, and leave as soon as you are done with the business, so as not to delay their work. If you meet an unfriendly merchant, you may even be squeezed out...

It’s no wonder that merchants change their attitude so quickly. After all, after low prices became the overwhelming trend in the market, the most common thing that shop assistants said to merchants was “lower the price”.

“Why are you selling this product for 100? Products that sell for 80 on other platforms look similar to yours.” “Why are you selling it for 100 on our platform? No, you have to lower it to 80. As long as you lower it to 80, we will support you with traffic.”

Driven by the continuous pressure of low prices, many merchants have evolved from the initial bargaining and waiting to today's refusal - "Don't give me traffic support, I don't want it, I just want to sell 100." "I sell 100 because someone will pay for it. I don't want your free traffic support. I will pay for the traffic myself, and I can calculate the ROI myself."

Especially for those platforms that are algorithm-based and have very little human intervention, whether the waiters provide policies or not will not have any fundamental impact on the long-term operation of the store. However, if the platform's low-price strategy is continuously followed, the gross profit margin will be squeezed out, the business will not be able to continue to operate, and the break-even point may be hit, which is the decisive issue that determines the life and death of the merchant.

Of course, some people can still make money under the low-price strategy.

According to Wen Congyin, CEO of e-commerce brand service provider Morpus, household products such as paper towels and laundry beads can often gain something through low-price strategies. These categories do not have a high demand for brand tone and the usage scenarios are very simple, so even if a relatively aggressive low-price strategy is adopted, it is possible to make money.

However, brands such as Omo and Blue Moon are more cautious. They have requirements for gross profit margins, and low prices affect the brand tone, consumer mentality and gross profit margin level that they have spent a lot of money to build in the past. For the so-called low prices, the top brands will not flock to them like white-label merchants.

At present, Douyin adopts a similar comparison mechanism. For example, in the category of laundry beads, the platform will launch a "horse race" across the entire platform for this type of product. If a brand sells it for 29.9 yuan and another white-label merchant sells it for 9.9 yuan, then the traffic will be more inclined to the 9.9 yuan. Although the entire algorithm logic will also measure a series of multi-dimensional data such as transaction volume and page views, price still has a great weight. In this process, conflicts are inevitable between the brand's investment and the traffic tilt obtained by the white-label due to low prices.

In this process, another profound impact of the low-price strategy is that it prompts merchants to further reduce product costs.

No matter what kind of refined operation methods are adopted, the fixed cost of each product is limited. However, facing the infinite price comparison strategy, it is inevitable that merchants will reduce losses by sacrificing product quality to a certain extent. These "waste products" that are put on the shelves due to lowered quality inspection standards are sold to consumers as regular products.

This will also bring about a series of chain reactions.

When the platform mechanism continues to encourage the sale of low-priced and low-quality products, consumer satisfaction has begun to gradually decline. Issues such as refunds, shipping insurance, and consumer negative reviews have begun to explode. The balance of the e-commerce market established over the past few years has gradually been broken, and the balance between consumers and merchants has begun to swing violently.

Opportunities and disasters for white-label merchants

The market was not like this in the early years. Wen Congyin remembers that when Douyin started to focus on the clothing field at the end of 2018, the return rate of clothing was only about 30%.

In the past nearly six years, consumption habits have changed, e-commerce platforms have changed, and the market has changed.

The most significant change comes from the platform. From Taobao, Douyin, Pinduoduo, to Kuaishou, as well as major cross-border e-commerce companies going overseas, all of them have been trying to increase the number of merchants in the industrial belt since this year.

In September 2023, Taobao launched the first marketing product "Taobao Star Origin" for small and medium-sized merchants in the national trending industrial belts, hoping to discover, support and surface high-quality cargo from China's newly emerging and vibrant industrial belts in the past three years.

Data shows that industrial belts have become the largest source of new brands on Tmall, accounting for more than 40% of new merchants. From April to November 2023, Guangdong added more than 12,000 new brands to Tmall, a year-on-year increase of 49.4%; Zhejiang added more than 7,000 new brands to the Tmall platform, a year-on-year increase of 51.7%.

In order to support enterprises in the industrial belts, in 2023, Taotian successively launched the "Star Generation Plan" to support the incubation of new businesses, and the "Thousand Stars Plan" and "Blue Star Plan" to support new brands and trend tracks.

Douyin is also following up simultaneously. According to media reports, as early as May 2023, in the new round of organizational adjustments promoted by Douyin e-commerce, Zhao Rui, who transferred from Byte's commercial sales department to Douyin e-commerce, was responsible for Group B, that is, the construction of the non-brand merchant system.

Subsequently, Douyin E-commerce began to upgrade its support policy for merchants in the industrial belt, and directly launched GMV cashback for some merchants, with the highest ratio reaching 50%. That is, after the merchants achieved a certain sales volume, the platform would provide a GMV cashback subsidy of up to 50%.

In order to further help industrial belt merchants who lack online operation experience, Douyin also provides cash subsidies to service providers. If a service provider introduces a new industrial belt merchant to Douyin e-commerce, he or she can get a maximum cash back in the same month. If the service provider is bound to operate this store for a long time, the platform will also give cash back incentives based on the store's GMV scale.

In April this year, Kuaishou E-commerce officially released the "Hand-selected Origin" IP, which will focus on platform resources to create influential origin business cards for 10 key Kuaishou women's clothing industry belt cities such as Guangzhou, Shenzhen, Hangzhou, Zhengzhou, and Wuhan. In addition, Kuaishou E-commerce has also launched the "New Merchant Start-up Plan", which will provide 100 billion traffic in 2024 to assist new merchants in all aspects of traffic strategy from entry to growth. Qualified merchants who complete the corresponding tasks within 90 days of the first broadcast on Kuaishou can share 300 million traffic per day, and the highest single-day traffic can reach one million.

Although it has become the focus of competition among e-commerce platforms, white-label merchants also face considerable challenges in achieving sustained profitability. According to Wen Congyin's calculations, taking clothing as an example, in today's market environment where the return rate reaches 70%, it is necessary to ensure a profit of more than 70% to be eligible to compete with the market data, otherwise they will not even be qualified to play.

But this is not a universal principle. Health supplements need to follow a different logic.

"Usually, our advice to white-label health care product merchants is 1:8, that is, the cost of 1 yuan must be sold for 8 yuan." Since the purchase scenario of health care products is often mainly for the purpose of storage, the ROI of the health care product category on Douyin is often less than 2. Coupled with a series of costs such as logistics, production, inventory, and labor, health care products need a higher profit margin to stay on the table. In Wen Congyin's view, under the extreme involution of prices, consumers cannot enjoy real cheapness. Excessively low prices may result in a pile of "balls" with vitamins added to flour.

In any case, in today's market environment, the requirements for merchants are getting higher and higher.

To survive in today's low-price rules, merchants must first reduce production costs to the extreme, and secondly, learn to adapt to channel rules. However, since the algorithm mechanisms and payment scenarios of each category are completely different, it is difficult to have any universal strategy in today's market environment. Different subcategories and sub-segments have their own ways of playing.

You need to be able to analyze data, analyze consumer behavior, and be familiar with platform rules... If you don’t understand refined operations, you won’t be able to do good online sales.

For this reason, in order to help white-label merchants who lack operational capabilities and do not have sufficient profits to find service providers, major platforms are increasing their self-operation efforts - that is, merchants are only responsible for supply, and sales, logistics, and after-sales matters are left to the platform.

This seems to be a win-win situation, as the platform has low-priced supplies and merchants don’t have to worry about sales issues.

But there is no free lunch in the world.

"Many white-label merchants want to make money by supplying goods to the platform, but this is impossible. This is a strategy of getting on the bus first and then buying tickets. When the entire ecosystem matures, the platform will start to reap the benefits." In Wen Congyin's view, merchants who lack channel capabilities are always passive. As long as the channel capabilities are in the hands of others, it means that most of the profits will be handed over.

Faced with low prices, the platforms have begun to reflect on themselves, so what should white-label brands do? This question actually affects the entire system. The market and consumers do not dislike "low prices", but they need a price orientation that can benefit all three parties, including large and small brands, platforms, and consumers, and ultimately prosper together.(This article was first published on Titanium Media APP, author: Xie Xuan, editor: Fang Yu)