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"Prices are competitive, and the market is even more competitive. Prices are competitive, services are competitive, and advertising is competitive... Involution has become the keyword for the e-commerce industry this year. We can only be more competitive than others." This is the evaluation of this year's e-commerce industry by a merchant manager on the 1688 platform.

Since the beginning of this year, e-commerce platforms have frequently adjusted their rules, only offering price-cutting models such as refunds, freeloading, and selling at a loss, which has led many merchants to generally reflect that business is becoming increasingly difficult this year. Merchants on many e-commerce platforms said that there are three major challenges weighing on their heads: difficulty in operating, high costs, and low profits.

In an environment where the e-commerce market is intensifying, at a critical juncture in the second half of the business, on August 12, Alibaba's 1688 launched a series of "anti-involution" initiatives, including an "efficiency improvement and revenue increase" plan for source manufacturers in the industrial belt, and released a free "AI Business Assistant" to make business easier for merchants.

The head of 1688 Business said that this plan mainly relies on comprehensively simplifying the business model of merchants on the platform to improve their operating efficiency and business results. The platform will guarantee the order volume, number of customers and reasonable profits of new merchants, and all AI products for merchants on the platform are free.

The internal competition among merchants is not just about price wars

Unlike traditional e-commerce platforms targeting individual consumers, 1688, one of Alibaba's "Four Little Dragons", is an e-commerce platform targeting the B-end (manufacturers). Founded in 1999, 1688 is the second business unit of Alibaba Group and one of Alibaba's first strategic innovative businesses. Currently, there are more than 1 million source manufacturers on 1688, and in recent years it has also attracted an influx of small and medium-sized manufacturers and individual consumers.

The internal competition of merchants in traditional e-commerce has also spread to the source manufacturers. "Take Hebei as an example. Through our team's visits and investigations, we found that the business performance of almost all industrial belts in Hebei has declined by 20%-30% year-on-year since the beginning of this year, including towels in Gaoyang, luggage in Baigou, daily chemicals in Zhending, and carpets in Wuqing, Tianjin. Among them, the carpet industry in Wuqing has basically declined by 50% year-on-year." The head of 1688 merchant business introduced.

Price war is the main problem faced by e-commerce merchants. Under the price comparison rules of e-commerce platforms, many merchants mark their products at prices below cost in order to achieve extremely low prices.

The general manager of a 1688 food manufacturer found that mooncakes on the 1688 platform are generally sold for 4 or 5 yuan each, while some mooncakes have been reduced to 1 yuan per piece this year. "The cost of raw materials for making a mooncake, not including labor, is more than 1 yuan per piece. I don't know how they make it." The general manager said that he later discovered that many businesses rely on earning advertising fees by slipping game promotion cards into express parcels for game companies to make up for their losses.

In addition to price wars, the refund-only rule has also had a significant impact on merchants. He Yudi, a "factory second generation" born in the 2000s, runs a fishing tackle and fishing line factory in Dongyang, doing OEM for brands. In addition to selling products domestically, his products are also sold to more than a dozen countries around the world. He Yudi said that after various e-commerce platforms launched refund-only services, the return rate of the entire fishing line industry increased to 20%, causing costs to soar.

"The essence of the volume is that my country's production efficiency is increasing significantly, but our transaction costs are decreasing rapidly, so in fact our current supply is far greater than demand." A 1688 business manager pointed out.

Ma Shuzhong, dean of the Digital Trade Research Institute of Zhejiang University, said that the era of "making money without doing anything" in e-commerce is gone forever. In the era of rapid development of industrial Internet and artificial intelligence, merchants can no longer use the original sales, marketing, operations, products, and business development solutions. Perhaps they need to learn to solve problems using digital technology and artificial intelligence technology.

"For e-commerce platforms, merchants and buyers, future e-commerce consumption will definitely be supported by digital supply chains. One end of the digital supply chain is connected to massive source supply, and the other end gathers large-scale buyer demand, using AI for efficient matching. The core of future competition between platforms and merchants will be AI's efficient matching capabilities, but if the platform is unwilling to do the dirty work, it will not be able to build a digital supply chain," Ma Shuzhong pointed out.

Breaking the Volume with Differentiation and Certainty

For e-commerce to break through, on the one hand, the platform needs to take active measures to help merchants reduce their burdens and increase their revenues; on the other hand, the merchants themselves need to plan a differentiated development path.

The head of 1688 business said that after the release of this efficiency improvement and revenue increase plan, merchants will be able to do business in 1688 in two modes: self-operation and supply mode. Self-operation uses AI, and supply mode uses trusteeship. "The self-operation mode is usually suitable for merchants who have a certain team, want to accumulate customer assets, want to manage their own stores, build their own brands, and interact directly with customers; the supply mode is more suitable for merchants who focus on production and supply chain management."

At the same time, the 1688 platform will also provide merchants with free AI business assistants. In the early grayscale test, the platform gave priority to merchants with weak e-commerce operation capabilities. It is understood that during the grayscale test of the AI ​​business assistant, the business difficulty of merchants using the product was equivalent to 60% of the original, and the average business opportunities increased by 50%.

"Through the free AI operation capabilities provided by the platform, the work that previously required a professional operator to complete can now be completed with only 0.2 manpower costs," said a 1688 merchant.

For merchants, the path to breaking the volume or breaking the low price may also need to start from differentiation and certainty. "Merchants must go for differentiation, whether it is market differentiation, channel differentiation, user differentiation, marketing strategy differentiation, or service differentiation, product differentiation, all are feasible; the other is certainty. At present, most industries in my country's domestic trade have entered the stage of stock game. Merchants need to make precise plans for different categories and price bands and choose more certain channels. Merchants who can maintain growth in the current internal environment basically cannot do without these two solutions." The head of 1688 merchant business analyzed.

Dong Fanming, general manager of Shanghai Xinmai Food Industry Co., Ltd., a 1688 vendor, said that in the current relatively involuted e-commerce environment, its vendors are still actively breaking through the three aspects of price, service and advertising. "By breaking through the price, we achieve product differentiation. By breaking through the service, we achieve an improvement in the customer experience across the entire chain. By breaking through the advertising, we want to optimize our old customer retention." The next step to breaking through the price is to continuously expand into the overseas market.

Shanghai Xinmai is a mooncake manufacturer that manufactures mooncakes and souvenirs for brands such as LV, Gucci, and Dior. After taking over the factory, Dong Fanming defined it as the "source factory of the world's top luxury brands." According to data disclosed by Dong Fanming, due to the accelerated iteration and upgrading of products, Shanghai Xinmai's product revenue increased by 80%-100% year-on-year in the first half of this year. "In the mooncake market of the 1688 platform, I found a good point this year, that is, some of our big customers who customized last year still have repurchased this year. Among the customers with the top 20% of revenue, 100% will repurchase." He said.

Dong Fanming said that Shanghai Xinmai's mooncake prices are higher than 90% of the merchants on the 1688 platform, but it is expected that orders will still increase by about 15% this year. In Dong Fanming's view, the reason for the volume is that the differentiation is too small, and in the future, it will continue to consider breaking through the siege with differentiation and widening the gap.

"Broken volumes are the theme of the history of our time. Low-quality internal circulation is mutually detrimental, and competing on price is a dead end. The key is what can we do if we don't compete on price? We have to make the pie bigger. How can we make the pie bigger? The answer lies in technology and innovation," said Ma Shuzhong. In his view, current innovation means breaking the old market balance and creating new markets and industrial forms by introducing new products, new technologies, new production methods, new markets and new organizational forms.