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there are no winners in price wars. consumer experience has replaced low prices and price power as the new consensus for e-commerce growth. to improve consumer experience, e-commerce platforms need to upgrade the supply side and reshape the merchant ecosystem.

author: dong xiaohua

editor｜anxin

the trend of the e-commerce industry has changed.

over the past period of time, e-commerce price wars have been raging; in the context of sluggish consumption, it seems that "whoever wins the users wins the world" cannot be overemphasized. judging from the recent statements and actions of various e-commerce platforms, subsidies, support for merchants, and reshaping the merchant ecosystem have become the new focus of e-commerce competition.

pinduoduo seems to be making intensive moves. in the q2 earnings call, chen lei, chairman and co-ceo of pinduoduo group, said frankly that the company's management is ready to sacrifice short-term profits for long-term investment; the platform will invest tens of billions of resources to support new quality merchants, reduce and exempt 10 billion yuan in handling fees for high-quality merchants in the next year, continue to improve the quality and efficiency of the supply chain, and improve ecological governance to cope with the increasingly fierce industry competition.

since mid-august, pinduoduo's "10 billion tax exemption" plan has implemented a number of tax exemption policies, including: refund of technical service fees, refund of promotion service fees, etc., and upgraded the refund of technical service fees, and reduced the handling fee rate for pay-later activity orders to 40%; reduced the basic deposit for merchants' stores from 1,000 yuan to 500 yuan; and exempted merchants from logistics transit fees for orders in remote areas.

on september 3, wang puchong, ceo of meituan’s core local business, announced that the “prosperity plan” for catering merchants will be upgraded, including investing hundreds of billions of yuan to promote user consumption; upgrading the “brand satellite store” 10,000-store commission rebate plan to provide catering merchants with 6 to 12 months of commission rebates and other measures.

since the beginning of this year, alibaba, jd.com, and douyin have also launched support policies for merchants. for example, taobao announced that it would cancel tmall's annual fee and charge a 0.6% basic software service fee instead, while optimizing the "refund only" strategy, etc., in order to reduce merchants' operating costs.

jd.com has upgraded its “spring dawn plan” to enhance its support for third-party sellers from three dimensions: traffic support, ai technology efficiency improvement, and ultra-light asset operation.

earlier, douyin e-commerce started from three aspects: "lowering the threshold", "reducing costs" and "strengthening the industry" to help merchants operate and grow.

it is not difficult to see that today's e-commerce platforms must not only win over users, but also merchants. they must provide users with better products and services by reshaping the merchant ecosystem, thereby achieving the growth of merchants and platforms and forming a virtuous closed loop.

this also means that a new round of competition in the e-commerce industry has begun.

e-commerce corrects price war

over the past year or so, "price war" has been a highlight word in the e-commerce industry. the two major e-commerce platforms, jd.com and alibaba, are the initiators of this price war. as early as the end of 2022, the content of liu qiangdong's internal "rage" was exposed. he emphasized that jd.com must regain its low-price strategy and return to users. in may 2023, jack ma proposed internally to "return to taobao, return to users, and return to the internet."

correspondingly, "low price" has become one of the most important strategies of jd.com and alibaba in 2023: jd.com launched a 10 billion subsidy channel, and taobao tmall listed "price power" as one of the five major strategies of the year.

obviously, they all need a price war to reshape the low-price mentality, fight against the competition from latecomers such as pinduoduo and douyin, and regain growth. after all, low prices are a tried-and-tested strategy in the retail industry, and "affordable" is an important factor that has enabled pinduoduo to grow from the gap between alibaba and jd.com in the past few years and achieve high growth against the trend.

throughout 2023, almost all e-commerce platforms and merchants were involved in this price war. entering 2024, e-commerce prices have intensified, even from low prices to the absolute low prices and the lowest prices.

but after more than a year of fierce battle, not only are merchants overwhelmed, but e-commerce platforms also seem to have failed to achieve the expected results.

taking the first half of this year as an example, jd.com's retail business revenue was 483.9 billion yuan, a year-on-year increase of 3.9%. taobao's revenue in the first half of the year was 206.6 billion yuan, a year-on-year increase of 0.8%. the growth rate of the two major platforms in the first half of the year was lower than that of the domestic e-commerce market. according to data from the national bureau of statistics, from january to june this year, the national online retail sales increased by 9.8% year-on-year, of which the online retail sales of physical goods were 595.96 billion yuan, a year-on-year increase of 8.8%.

at the same time, they have not curbed the growth of pinduoduo and douyin. take pinduoduo as an example. in the first half of this year, its revenue was 183.9 billion yuan, a year-on-year increase of 104%; its adjusted net profit increased by 175% year-on-year.

strong performance supports the rise of pinduoduo's market value. in november last year, pinduoduo's market value surpassed alibaba for the first time, becoming china's largest e-commerce platform by market value and the largest chinese stock in the u.s. in may this year, pinduoduo's market value surpassed alibaba again, attracting market attention and heated discussions.

according to a report by goldman sachs, from 2023 to 2025, the market share of pinduoduo, douyin, and kuaishou will continue to grow, while the share of taobao and jd.com will be further squeezed.

for e-commerce platforms, it has become imperative to revise their low-price strategy.

according to media reports such as 36kr, at the beginning of 2024, taotian group will no longer pursue high order volumes brought by low prices, but will set gmv and aac (average consumption amount) as the most important goals.

"latepost" reported in july this year that douyin e-commerce has adjusted the priority of its business objectives and no longer puts "price power" first. it will focus on pursuing gmv growth in the second half of 2024.

in the view of digital industry analyst hao zhiwei, alibaba and pinduoduo have "different genes". if alibaba continues to compete with pinduoduo on low prices, it will be dragged into an endless war and a negative cycle.

ma yun's recent comments on the intranet can be seen as officially putting an end to alibaba's price war. he said, "we must always remind ourselves not to lose ourselves under the pressure of competition and the situation."

jd.com is still persisting. in a conference call after the q2 earnings report, xu ran, ceo of jd.com group, said that jd.com's commitment to the low-price strategy remains firm. xu ran also said that price competitiveness is a core aspect of user experience, and jd.com will continue to focus on user experience, price competitiveness and platform ecology.

it is not difficult to see that after experiencing the baptism of price wars, e-commerce platforms have realized the limitations of the low-price strategy and have begun to revise their strategies and refocus on gmv growth.

gmv growth comes from multiple dimensions such as user volume, repurchase rate, order volume, and average order value. these increases rely on comprehensive service capabilities including good prices, good products, and good services.

improving comprehensive service capabilities requires not only the efforts of e-commerce platforms, but also upgrades on the supply side.

it is not difficult to understand why pinduoduo has recently promoted the "10 billion tax relief" plan. the logic is to support new quality merchants, increase ecological construction, provide users with a better consumer experience, and ultimately achieve business growth for merchants and platforms.

new competition: reshaping the supply side

under the price war of e-commerce, merchants are overwhelmed. as operating costs and difficulties continue to rise, more and more merchants are experiencing performance declines and operating losses. merchants with operating difficulties are unable to guarantee consumer experience in terms of products and services; consumer complaints in the first half of the year increased by nearly 30% year-on-year.

there are no winners in a price war. e-commerce competition has entered a new stage: platforms urgently need to reduce the burden on merchants, support high-quality merchants, and at the same time strengthen platform ecological governance to promote the healthy development of the industry.

with the implementation of tax reduction and support policies by alibaba, jd.com, and pinduoduo on the merchant side, what operating thresholds and costs will merchants face on the three major platforms, and to what extent can they obtain tax relief and support?we compiled it based on public data and got some feedback from merchants.

in addition to qualification review, store deposit is a major threshold set by e-commerce platforms for merchants to enter.

currently, on taobao, the deposit is usually determined based on the category and store’s transaction volume in the past 30 days. for clothing, luggage, and accessories, the deposit usually ranges from 1,000 to 10,000 yuan; for jewelry and alcohol, the deposit ranges from 2,000 to 100,000 yuan.

on tmall: the deposit for a store holding a trademark registration acceptance notice is rmb 100,000, the deposit for a store holding a registered trademark is rmb 50,000, and the deposit for a flagship store type is rmb 150,000.

jd.com’s deposit is mainly for pop merchants, ranging from 1,000 to 100,000 yuan, depending on the store category and gmv scale. the deposit for alcohol and 3c products can be as high as 200,000 yuan.

pinduoduo recently lowered the store deposit for merchants from 1,000 yuan to 500 yuan. in comparison, its deposit threshold is the lowest.

a small commodity merchant in yiwu told us that they have 20 stores on pinduoduo, and after the platform's deposit was lowered, a total of 10,000 yuan was returned. on another platform, they also have dozens of stores, and the deposit alone currently occupies more than 1 million yuan in funds.

in addition to the deposit, commission and promotion service fees (traffic advertising) are the main sources of income for e-commerce platforms, and are also the main operating costs for merchants on the platform.

let’s look at the commission first. taobao recently issued new regulations. from september 1, the basic software service fee rate is 0.6% for the order amount after the user confirms receipt of the goods; for orders before the receipt of the goods, no relevant fees will be charged for refunds.

at the same time, tmall canceled the annual fee (30,000-60,000 yuan) charged to merchants, but according to the new regulations, a basic software service fee of 0.6% will be charged. previously, tmall merchants had to pay about 5% of the category deduction to the platform. this means that after the new regulations are implemented, tmall merchants will pay about 5.6% of the transaction amount to the platform as commission.

according to jd.com's regulations, pop merchants are charged a transaction service fee of 0.6%. in addition, the category deduction rate for jd.com pop merchants is usually around 5%.

recently, pinduoduo announced an upgrade to the refund of technical service fees, reducing the handling fee rate for pay-later activity orders to 40%. for product orders generated by merchants participating in on-site activities, after users initiate a refund, the platform will fully refund the 0.6% technical service fee to the merchant.

a merchant did some calculations and found that they sold 1,000 orders a day on pinduoduo, and 30% of them were pay-later orders. assuming a 20% refund rate, that means 60 orders were refunded. based on a customer unit price of 30 yuan, 1,800 yuan in refunds would be generated, saving several thousand yuan in technical service fees a month.

promotion costs are the bulk of a business's operating costs. if a business wants to get more sales on an e-commerce platform, it has to pay more traffic acquisition costs.

according to the calculation of jinduan research institute, merchants' marketing investment in taobao is about 10%-30%; the marketing expenditure of jd pop merchants is about 10%, and if the comprehensive cost of third-party logistics is included, it is about 25%.

on pinduoduo, as long as the product has a sufficient price advantage, it can attract traffic, and this method does not require paying traffic fees; the 10 billion subsidy will charge a commission of 1%-3% starting from 2021, which is about half of the corresponding category of tmall during the same period.

pinduoduo recently launched the "10 billion yuan tax relief" program, providing merchants with the right to refund promotion service fees. for orders that consumers request a full refund before shipment, the platform will automatically return the merchant's promotion service fee in the form of a red envelope, without the need for the merchant to file a complaint.

a pinduoduo merchant said that currently they mainly rely on price advantages to obtain traffic on pinduoduo, and a small amount relies on spending money on promotion.after the new policy is implemented, refunds generated by consumers before merchants ship the goods can save them about 10% of their promotion fees.

logistics, especially logistics in remote areas, is also an important component of business operating costs. take an anhui herbal tea merchant as an example. in the past, their direct delivery fee to xinjiang was as high as 18 yuan/kg. if they used cold chain air transportation, the first weight fee would be even higher. the high logistics costs and low profits in remote areas have affected the enthusiasm of merchants to ship goods.

in 2022, pinduoduo pioneered the transit and consolidated shipping model. under this model, merchants only need to bear the freight from the place of shipment to the consolidated shipping warehouse and the second-stage freight of 3-5 yuan per order.

after the implementation of the consolidated shipping model, the first-stage freight of the above-mentioned anhui herbal tea merchant to xi'an dropped to 2 yuan/kg, and the second-stage freight was 3 yuan/order. calculated based on the weight of one kilogram of goods, the express delivery fee dropped by about 70%.

recently, pinduoduo announced again that it will waive the second shipping fee for merchants when they ship goods from the transit warehouse to the destination, further reducing the logistics burden on merchants.

the yiwu merchant mentioned above told us that currently, in addition to the refunded deposit, they can also save 10,000 to tens of thousands of yuan in operating costs every month on the pinduoduo platform. he said that with the platform's enhanced governance and merchants' complaints, the refund-only situation has improved, and restricting refunds is very important for them to increase profits.

however, from a financial perspective, the monetization rate (commission + advertising fee/transaction amount) is an important indicator to measure the ability of an e-commerce platform to make money. the higher the monetization rate, the stronger the ability to make money, but it also means that the business operating costs will be greater.

as traffic has peaked and it has become more difficult to acquire traffic, the monetization rate of e-commerce platforms has been increasing in recent years.

data sources: macquarie, company financial reports, dolphin research

according to an article by dolphin research, taobao's monetization rate will rise from 3.6% to 4% from 2019 to 2022, making it the most profitable platform among traditional e-commerce platforms. during the same period, pinduoduo's monetization rate was 3%-3.3%, lower than taobao.

statistics from guosen securities show that in 2023, pinduoduo's monetization rate will be approximately 4.5%, taobao tmall's monetization rate will be approximately 3.77%; the monetization rate of douyin e-commerce will reach 9%.

alibaba group cfo xu hong revealed at an analyst meeting that the decline in taobao's monetization rate in q2 this year was because taobao's gmv growth exceeded that of tmall, and the proportion of paying merchants among small and medium-sized enterprises is still relatively low. however, with the launch of new advertising products, taobao's overall monetization rate will have further room for improvement.

according to expert interview minutes published in the market, pinduoduo will actively control the increase in monetization rate in 2024. there are many small and medium-sized merchants on the pinduoduo platform, and the platform hopes to reduce the operating costs of merchants and cultivate new quality merchants to achieve long-term development.

platforms are weakening the price war, but merchants still have their own ideas. one merchant said that low prices are a timeless strategy in the retail industry, and they will still insist on low prices; he believes that as long as the price is advantageous enough, traffic can be obtained on platforms like pinduoduo.

what should we fight for in the era of e-commerce stock competition?

as traffic growth peaked, the e-commerce industry slowed down and entered a stage of competition for existing stocks. the market structure, user mentality and supply chain fundamentals of the top five domestic e-commerce platforms have gradually stabilized.

so, in the era of stock competition, what does e-commerce rely on for growth?

it is not difficult to find from the latest narratives of several major e-commerce platforms that "user experience" has replaced "low price" and "price power" to become the new growth consensus.

alibaba executives mentioned that taobao's current priority is to improve the user purchasing experience and promote the increase in purchase frequency and gmv. douyin e-commerce emphasized that improving consumer experience is the long-term direction of douyin e-commerce.

pinduoduo launched its fourth 10 billion project after the "10 billion subsidies", "10 billion agricultural research" and "10 billion ecology", aiming to support new quality merchants through 10 billion resources in order to provide users with a better consumption experience and thus drive growth.

so, what is the model for supply chain upgrades and what is the ultimate state of consumer experience? at this stage, no one seems to have the answer. even walmart and costco, which have been in the retail industry for many years, are still exploring and evolving.

looking back over the past 20 years, e-commerce in china has been surging, with new kings replacing old kings; the emergence of each new model and new player will bring about efficiency improvements and reshape the market structure. however, when all the disputes over land grabbing disappear and the structure tends to stabilize, all e-commerce platforms will eventually return to the mean, infinitely close to the essence of retail, and follow the laws of retail.

looking back at the more than 160 years of retail history in the united states, we can find that the leading retail companies in each period have been adhering to a common business philosophy: by improving the efficiency of the supply chain and corporate operations, they pass on the cost savings to consumers in the form of "low prices", making the price-performance ratio increasingly extreme, while continuously optimizing services.

what is certain is that in the new cycle of e-commerce, if any e-commerce platform wants to win the competition and achieve sustainable operation, there will be no end to its continuous optimization and upgrading on both the c-end and the b-end. there is no best, only better.