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Produced by ｜ Tiger Sniffing Yellow Youth Channel

Author: Huang Qingchun, Chief Writer of Commercial Consumption

Title image｜Movie "Dunkirk"

After half a year of development, ByteDance finally stopped believing in "low prices".

Throughout July, the media began to intensively report on the "shift" of business of mainstream e-commerce platforms such as Taobao, Pinduoduo, and Douyin, from betting on "price power" to returning one by one to "pursuing GMV (Gross Merchandise Volume) growth" - which means that the mainstream e-commerce platforms are collectively in a stage of re-adjusting their business strategies.

In fact, compared with traditional e-commerce platforms, Douyin has been coveting the sinking market for a long time.

People close to Douyin said that Douyin e-commerce had internally discussed the priority of improving the price comparison function in 2023, and at the beginning of 2024, it once set "price power" as the highest priority task for the whole year. It is the fourth e-commerce platform after Pinduoduo, Alibaba, and JD.com to clearly promote "low price" as a core strategy.From hidden lines to open lines, "low price" seemed to be an obstacle that all e-commerce platforms could not avoid.

However, the growth rate of Douyin Mall, which is testing the low-price strategy, and the entire e-commerce business has slowed down significantly in the past few months, which is undoubtedly a warning signal:

According to a report by LatePost, in January and February this year (taking into account the Spring Festival holiday, the statistics are generally combined), the cumulative year-on-year growth rate of Douyin e-commerce exceeded 60%;However, the year-on-year growth rate in March fell below 40%, and after the second quarter, the growth rate further fell to below 30%.

This is obviously a situation that ByteDance does not want to see and must be reversed quickly:

• First, people familiar with the matter have told Huxiu that the actual estimated scale of Douyin's e-commerce in 2023 may exceed 2.5 trillion yuan, pushing Douyin to set its 2024 GMV target at a high level of 3.5 trillion yuan; and in the case of a slowdown in Q2 growth, in order to maintain the upward momentum of Douyin's e-commerce GMV, it must once again "urgently adjust the bow."

• Second, from Zhang Yiming to the entire ByteDance management team, they are all good at finding business gaps in the data and ultimately everything is determined by growth. Even though there is only a half-year "low-price" trial-and-error cycle, judging from the feedback from the business side, adjustments have become "urgent."

Caught in a low-price war

It is said that Douyin, which started out with "trendy and cool" content and actively embraced young people, does not quite fit the label of "low price"; but in the past two years, under the influence of the external environment and Pinduoduo's fierce growth, business decisions were inevitably "distorted."

One background that cannot be ignored is that the consumption downgrade in 2022-2023 and Pinduoduo's counter-cyclical growth drove the entire industry into growth anxiety. Growth once became the "inner demon" of many platforms, so the "lowest price across the entire network" price comparison system once became the standard configuration of the platform - each company "gritted its teeth" and sacrificed profits to subsidize users in order to grab more market share in close combat.

Turning our attention back to Douyin, its e-commerce business has passed the climbing period and the explosive period. Currently, the business is striving to maintain its growth momentum. To catch up with Pinduoduo, it must pry open the plates of low-priced small merchants. The core logic is to lower the threshold for merchants to put in business, and then reduce their operating costs, thereby attracting more low-priced supply.

It is worth noting that Douyin e-commerce's fierce offensive in 2023 is largely due to the traffic recommendation and industrial belt layout that promote the growth of various sub-categories, thereby grasping the budgets of a considerable number of white-label merchants and small and medium-sized brand merchants.

During this period, Douyin began to focus on promoting low-priced goods (it even launched a low-price strategy to test the independent APP "Douyin Mall Edition"). The incentives included: reducing commissions, weakening top anchors, controlling slot fees, supporting merchants to broadcast themselves, introducing service providers, etc., hoping to achieve long-term operation and merchant retention.

It must be admitted that low prices have stimulated the release of the potential of Douyin's shelves (Douyin Mall, store windows, etc.) to a certain extent. Wei Wenwen, president of Douyin's e-commerce, once disclosed that the platform's GMV increased by more than 80% in the past year (May 2022-May 2023), including:

• E-commerce search GMV increased by 159% year-on-year;

• The mall's GMV increased by 277% year-on-year;

• The overall share of shelf scene GMV increased to over 30%;

• The platform sold more than 30 billion items throughout the year.

Behind the data, Douyin Mall carries users' rigid consumption needs and has stronger certainty. The gradually enriched SKU (Stock Keeping Unit, the basic unit for measuring inventory in and out) also facilitates price comparison and can subtly cultivate users' search and browsing scenario mindsets.

Simply put, we adopt an invitation system for some brands.Huxiu has learned that only about 10,000 customers have received invitations from the platform to test, with the aim of making optimization adjustments based on the test results of these customers. 

It is worth mentioning that although Douyin e-commerce started as live streaming e-commerce, it has mixed the model of traditional shelf e-commerce and derived many component channels, including: brand hall, low-price flash sales, 10 billion subsidies, live streaming selections, Douyin supermarket, etc. Therefore, there are more advertising spaces, including search ads, brand ads, live streaming ads, etc. Huxiu obtained data showing thatOver 90% of Douyin’s advertising revenue from the e-commerce industry comes from internal circulation advertising.

It is not difficult to see that Douyin's plan for the mall is to build it into a large shelf gathering place and lock in more users' certain consumption. Therefore, when the e-commerce business set its annual goals for 2024, low price rate and MAC (e-commerce monthly active user buyers) were the key indicators to focus on.

In this regard, an Internet analyst believes that Douyin Mall has become an indispensable puzzle piece for Douyin's commercialization. "The mall is the fulcrum for prying the shelves, and live broadcasting is the 'vanguard' for conquering the city."

However, people close to TikTok said,The surging Douyin e-commerce has penetrated the main site traffic too fiercely. According to the estimated data, the proportion of Douyin e-commerce traffic may have exceeded 10%.Coupled with the impact of the low-price strategy on the entire brand ecosystem, it caused some internal concerns, so the company began to intentionally control the proportion of e-commerce traffic (planning to reduce it to around 8%) and refocus its attention on GMV.

An interesting aspect is that the user conversion link in some brand live broadcast rooms is long, and the conversion data is not ideal. Huxiu has learned that exclusive data shows thatThe user viewing ratio (room entry rate) of Douyin live broadcast (divided into display PV and viewing PV) is less than 10%, and the order conversion rate (watching the broadcast - placing an order) is less than 5%.

In addition, advertising revenue is different from sales commission revenue, and the monetization rate cannot be maintained at a high level all the time. For example, many brands have high initial investment costs and find it difficult to sustain in the later stages. Some merchants even make false quotations or post low-price flash sales links to attract traffic - thus stimulating Douyin to no longer focus on "price power" and instead pursue GMV (transaction volume) growth again, giving people a sense of "decision being withdrawn."

Douyin brand secretly develops

While most people's perception of Douyin's e-commerce is still that big brands control the market, Douyin has already advanced into the sinking market. Unlike its previous bets on big brands, Douyin is supporting the growth of more "Douyin brands" through subsidies, and in 2023-2024, Douyin Mall will change its investment strategy, mainly focusing on small and medium-sized brands combined with some white-label brands.

For a long time in the past, Douyin e-commerce has divided brands according to the P sequence, that is, dividing brands into different levels from P1 to P6. Products below P4 are classified as white-label by Douyin e-commerce. Even if they may be domestic second-tier brands or well-known brands in the category, their brand influence and tonality are limited. In brand peak seasons such as November, December, and January, the proportion of white-label sales may be relatively low (brand sales are higher), but if the time is extended to the whole year, the proportion of white-label sales is relatively stable.

In terms of operational strategy, brands are divided into two groups, A and B. Group A is the brand, including P5, P6 brand stores and official flagship stores; Group B covers all dealers and specialty stores. In 2023, Douyin E-commerce handed over P5 and P6 dealers to Group A for operation to provide more low-price supply, and in 2024, Group A will still cover dealers.

Data obtained by Huxiu shows that the branding rate of Douyin e-commerce is approaching 60%, and the share of "Douyin brands" in the entire e-commerce ecosystem is steadily rising. In order to achieve the goal of reducing the high-price rate and increasing the supply of low-priced products, Douyin has taken a variety of measures:

• On the one hand, Douyin has introduced a large number of white-label products by introducing new merchants and cultivating industrial belts;

• On the other hand, Douyin increases the popularity of white-label products through influencer promotions and industry traceability activities.

This is largely due to the strong content ecosystem of Douyin. According to third-party data statistics, there are now over 2.8 million active creators on Douyin (Douyin internally defines active creators as creators with valid submissions and valid live broadcasts), among which the largest number of creators have less than 1 million fans, and there are over 2,000 creators with 10 million or more fans.

It is such a huge creative team that feeds back an all-encompassing content supply ecosystem: Douyin generates about 50 million valid submissions every day (referring to submissions with a playback volume higher than a certain data), and the daily peak of Douyin's valid submissions in 2022 was close to 60 million. It is worth noting that even though the number of short video creators far exceeds that of live broadcasts, active live broadcast hosts will also post short videos. According to monthly active statistics, the overlap between the two is more than 90%.

Therefore, in horizontal comparison, the ROI Pinduoduo performed best (low gross profit), and its low-price route + community fission successfully attracted price-sensitive consumer groups, while the traffic aggregation effect of Douyin and the brand marketing of Tmall and JD.com were more about the long-tail conversion of products.For example, on the Douyin platform, merchants can promote and sell products through Dabo, stores, and shopping malls.

Specifically, Douyin divides commodities into non-standard products, fast-moving consumer goods, and durable consumer goods, and formulates corresponding growth strategies for each category: for non-standard product categories (such as clothing and jewelry), Douyin focuses on supporting advantageous brands and enriching SKUs; for fast-moving consumer goods categories (such as beauty and food), it vigorously develops dealer channels and improves price competitiveness; for durable consumer goods categories (such as home furnishings and large appliances), it focuses on promoting new products and introducing low-priced products.

However, even for TikTok, it is difficult to quickly complete the compatibility of brand expansion.

• First, the redundant information on Douyin will greatly weaken its service attributes, and ByteDance has previously leveraged only light businesses, and has not proven its offline capabilities in a strict sense;

• Secondly, the distribution volume of Douyin shelf promotions is low, and merchants are more inclined to participate in promotions on platforms such as Taobao. It is worth mentioning that Douyin Mall is not zero commission, but releases some commission-free opportunities through mall activities. This way of collecting commissions can ensure the sustainable development of the Douyin platform and provide merchants with a stable sales channel.

Therefore, the solution for Douyin e-commerce is: since Douyin is known for its content, it should use videos and live broadcasts as its frontiers, and increase the frequency of platform promotions and increase operational tilt to improve the awareness of live broadcast users towards the Douyin shelf market. Specific indicators include:

• (Increase) the number of new payment users at the mall entrance;

• (Increase) the number of search payment users;

• (Optimize) User negative feedback rate;

• (Reduce) high price rate.

A person close to Douyin told Huxiu that Douyin's business had proposed to hold a big promotion event every month to make promotions a regular practice. "In order to implement this proposal, we have discussed internally how to ensure the effectiveness of a single promotion by investing resources in different levels and regions."