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Source: Visual China

Some platforms are ambitious. JD.com announced that it will withdraw its 28-hour new promotion every month, where a large number of popular products can be purchased for 18 yuan. Some platforms have changed their course. Taotian Group has clearly stated that it will weaken its "absolute low price" strategy and return to the GMV distribution system. Some platforms are wavering. Douyin was once considered to be increasing its low prices due to its new investment rules, but the new news is that it plans to adjust its business goals to focus on GMV.

Over the past year, all Chinese e-commerce platforms have held high the banner of low prices, trying to find opportunities in the path of success of the new king Pinduoduo. At a time when consumer confidence has not recovered and the market environment is uncertain, this is almost an inevitable choice. It is difficult to find incremental markets, so they can only cut prices to "volume" the existing market.

Unfortunately, no platform can survive on stimulants for long.

This year's 618 promotion was a cold shower: the total sales of comprehensive e-commerce platforms reached 742.8 billion yuan, a negative growth of 7% for the first time in 16 years. Guo Peng, a brand marketing practitioner, told the author of Deep Web that "low prices are essentially involution. Participants do not pay attention to quality or service, but only to the prices of their peers, which will eventually lead toBad money drives out good money。”

"In addition, blind price wars are extremely harmful to brands," Guo Peng further said, "It is easy to change from 'luxury' (high-end brands) to 'thrifty' (low-end brands), but it is too difficult to change from 'thrifty' to 'luxury'."

E-commerce platforms have no choice but to look for new opportunities: first, they use the old method (price war) to compete for new markets (overseas). Platforms such as Temu and AliExpress are launching price wars in important e-commerce markets such as Europe, the United States, Japan and South Korea, which have had a strong impact on local e-commerce; second, they use new methods to compete for old markets (industrial belts). This model was initiated by Taobao brands and promoted by Pinduoduo factories. Subsequently, platforms such as JD.com, Douyin and Kuaishou have joined the market.

Low price is of course important, but it is not the only thing.This is a consensus among almost all e-commerce practitioners. The industry will continue to change in the next three to five years. Whoever can seize opportunities other than price wars will become the key to the survival of the enterprise.

Alibaba lets go of Taobao

In April this year, 1688, Alibaba's oldest business and the king of B-side, quietly joined Taobao; almost at the same time, Taobao Special Edition (Taobao Special for short), which was considered an important weapon to deal with the impact of Pinduoduo, incorporated its main business into Taobao.

In 2022, Taobao's business reached its peak, with more than 300 million annual active users, of which about 60 million were new users who had never ordered on Taobao and Tmall. Behind this is Alibaba's real investment. In fiscal year 2022, Alibaba's net profit decreased by more than 40 billion yuan, mainly due to increased investment in Taobao and Taocaicai.

After achieving major breakthroughs in new and old businesses such as Taobao Special, Taocaicai, and 1688, Dai Shan took over the Alibaba China digital commerce division left behind by Jiang Fan when he went overseas, and was responsible for a number of important businesses including Taobao, Tmall, and Alimama.

Soon, Dai Shan copied her previous mature experience to the newly established Taobao Tmall Group (Taotian Group for short): in March 2023, Taotian proposed a five-star price power evaluation system; in May, Dai Shan proposed three key points: good products and good prices, Taobao Good Price Festival, short videos and live broadcasts; during the Double Eleven period of that year, low prices became the most important assessment indicator for all departments.

Before 618 and Double 11, the person in charge of search and price power campaign of Taotian Group said that the price power strategy mainly focused on two points: "First, as long as the price is reduced, there will be traffic; second, enhance consumer trust and promote the sales of price-powered products."

You Ping, a senior employee of Taobao, expressed doubts about the pursuit of low prices to the author at the time, "Ali's e-commerce system was originally divided into several levels to serve different users, but now Tmall, Taobao, Juhuasuan, and Taote are all mired in the quagmire of price wars."

She even went further to express her concerns about the entire e-commerce price war, "Low prices to attract customers and drain the pond to catch fish may achieve rapid growth, but sellers will not like this game for a long time."

The price war that lasted for a year did not bring the desired results. Just half a month after the end of Double Eleven last year, Alibaba’s market value was surpassed by Pinduoduo for the first time; 20 days later, Wu Yongming replaced Dai Shan and became the new head of Taotian Group.

According to internal information, Wu Yongming made major adjustments to the low-price-only strategy after taking over. "Jia Luo (Liu Bo, the head of Alibaba's Tmall business unit and the current head of Taobao Live) quickly disbanded the Everyday Low Price Department."

After 618 this year, Taobao began to re-examine its previous "absolute low price" strategy. At a closed-door meeting attended by many Taobao front-line business executives, it was reported that Taobao will weaken its absolute low price strategy in the future and change the "five-star price power" allocation system from last year back to allocation based on GMV.

An insider of Taotian Group told the author of Deep Web that Taotian’s abandonment of its original low-price strategy does not mean it will give up price wars. “Taotian Group will still provide sufficient subsidies to platform merchants to maintain its first-mover advantage and absolute scale.” Youping also told the author that “Taotian’s multiple businesses may have greater autonomy, facing different competitors and choosing different corresponding strategies.”

JD.com regains Jingxi

Unlike Alibaba's abandonment of Taobao, Jingxi, which had been silent for a long time in the JD system and also focused on the sinking market, quietly recovered in the first half of this year.

The glorious era of this business can be traced back to 2020, when JD.com established the strategic emerging business Jingxi Business Group, which includes many businesses such as Jingxi e-commerce App, Jingxi Pinpin, and Jingxi convenience stores.

Jingxi did not bring any "surprises". In 2021, Jingxi's new business segment suffered losses of more than 10 billion yuan; during JD.com's layoffs in 2022, the community group buying business Jingxi Pinpin, which was under Jingxi, was the most severely optimized.

However, Tao Ge, an insider of JD.com, told the author of Deep Web at the time that “the top management still has high expectations for Jingxi, because other departments lack experience in sinking markets, but the model of community group buying is not very needed.”

At the end of 2023, Jingxi Self-operated started the project and planned to enter the sinking market in a fully managed mode. According to Tao Ge, "Jingxi Self-operated" has begun to recruit investors, with the core target being white-label merchants, and the operating strategy is mainly based on low prices. "The business directly reports to Mr. Xu (JD Group CEO Xu Ran), and the current team has more than 300 people."

Someone close to JD.com confirmed to the author of Deep Web that "Jingxi's main competitive target is Pinduoduo. It has explored source factories in JD.com's mature industrial belts, and has formed direct competition with Pinduoduo in some areas."

This is considered to be a continuation of JD.com's low-price strategy in recent years. At an internal meeting of JD.com Retail at the end of 2022, Liu Qiangdong repeatedly mentioned "low price", and the then CEO Xu Lei also said, "There will be many changes in the future, and they will be very difficult, but we must continue on this path (of low price)."

Throughout last year, JD.com continuously launched low-price activities such as "10 billion subsidies" and "9.9 free shipping channel". After the 618 promotion this year, JD.com announced the launch of a new promotional activity called "JD Super 18".

According to the event page, the event is held monthly, offering consumers extremely discounted 18-yuan hot-selling products. The first round of the rush sale even includes products from well-known brands such as Moutai and Dyson that originally cost thousands of yuan.

It is worth noting that the "JD Super 18" event is somewhat different from previous promotions. Related products will be put on the shelves in batches at irregular times and locations during the event, similar to the "blind box" format.

In Guo Peng's view, this means that JD.com is exploring a new promotion model to create new influence. "Use extremely low-priced products and huge discounts to attract users, cultivate users' consumption awareness of 18=JD.com, and thus increase shopping frequency."

However, Guo Peng has some doubts about this model. "The inherent perception of Pinduoduo is low prices, while the relevant perception of Taobao is rich products. JD.com gives consumers the impression of superb service capabilities. Using a very unstable blind box model for promotion may damage its brand image and consumer satisfaction."

A former JD.com employee also expressed a similar view, "JD.com is under great operating pressure now. Pinduoduo and Alibaba are now holding big promotions every month. This is a forced attempt. Whether it can be sustained depends on the results." He once commented on Pinduoduo's 10 billion yuan subsidy in 2022, "Normal promotions are not the best choice for JD.com (a self-operated platform like this)."

The best strategy is to go global, the middle strategy is to go down, and the worst strategy is to go inward.

The more than 20-year history of China's e-commerce has proved that price wars are often a powerful weapon for followers, while it is difficult for leaders to fight back through price wars. In recent years, Chinese e-commerce platforms have gone overseas one after another, and carried the price war overseas as followers.

In March this year, foreign media reported that Chinese e-commerce platforms were entering the Korean market and using ultra-low prices to impact the country's e-commerce competition landscape.

According to the article, a Korean diving instructor bought an oil level gauge on Alibaba's AliExpress at a price that was only one-seventh of the price of local e-commerce. "Most products on these Chinese platforms are incredibly cheap," he said. "Delivery is slow, but if the price can be 70% to 80% cheaper, I can tolerate it."

Data shows that South Korea is the world's fourth largest e-commerce market, and its per capita online consumption ranks second. Currently, the amount of consumption by South Korean consumers on Chinese cross-border e-commerce platforms has exceeded that of the original outsider Amazon, and one-quarter of South Korean consumers are using Chinese e-commerce platforms.

Relying on vigorous marketing activities and high subsidies, AliExpress and Temu became the fastest growing e-commerce platforms in the Korean market last year, with their market share only lagging behind Korean local e-commerce companies Coupang and 11st, ranking second and fourth respectively.

Temu said that its app's entry into South Korea provides consumers with high-quality, affordable goods and a wide range of choices; AliExpress has launched a long-term "zero commission" campaign, which means a 10% to 20% profit concession.

In the US market, Temu also adopted a similar strategy as in China. During last year's Black Friday, Temu launched a promotion of "$200 coupons per person and three free products of your choice"; and for the popular low-priced products on Amazon, Temu will also launch the same products as soon as possible, but at a lower price.

SimilarWeb data shows that during Black Friday, Temu's visits increased 74 times year-on-year, while Amazon's visits even decreased year-on-year.

Amazon has taken drastic measures to respond. Earlier this year, the retail giant announced a very rare commission reduction policy: starting from January 15, 2024, the commission for clothing products priced below $15 will be reduced from 17% to 5%. This means that Amazon encourages sellers to choose lower-priced products to cope with the severe impact of China's cross-border e-commerce platforms.

In addition to going overseas, e-commerce platforms have chosen to embrace industrial belts and industrial factories in the domestic market. The price war that has lasted for a year is forcing e-commerce platforms to go deeper into the source of the industry, which is considered to be the area where Pinduoduo is best at. With the entry of platforms such as Taote and Jingxi that focus on the sinking market, Pinduoduo has been constantly challenged.

In 2021, Wang Hai, then general manager of Taobao Special Business Unit, revealed that Taobao Special had covered 2,000 industrial belts, 1.2 million merchants and 300,000 factories across the country. Another tool Alibaba has in the industrial belt is 1688. Currently, 1688 has opened three stores on Taobao. Manufacturers can enter Taobao in the form of semi-hosting and directly connect with C-end consumers.

E-commerce platforms need to be reminded that price wars can never be the ultimate form of e-commerce development. The basic logic of business must return to better quality goods and higher quality services.

(At the request of the interviewees, Guo Peng, You Ping and Tao Ge are all pseudonyms)