How can Douyin e-commerce, which was questioned by Ye Guofu of Miniso, break the deadlock?

In the field of e-commerce, Douyin has attracted much attention as an emerging platform, but its development model and environment have been questioned by Ye Guofu, the founder of Miniso. This article will explore the challenges and bottlenecks faced by Douyin e-commerce, analyze the sustainability of its low-price strategy, and explore how to achieve healthy development of the platform and merchants by improving the "quality-price ratio" of products.

Who will pay the bill when the price war deepens?

Recently, a screenshot of MINISO founder and CEO Ye Guofu commenting on the deteriorating e-commerce environment on TikTok was leaked.

According to the leaked content, Ye Guofu posted on his Moments to advise everyone not to be fascinated by Douyin e-commerce, and bluntly said: "Everyone wake up, ByteDance had a GMV of 2 trillion last year but received 400 billion in advertising fees!" He also added that more than 40% of the 2 trillion GMV had to be returned, and in fact there were only 1.2 trillion in real transactions.

According to the content exposed by the blogger forwarded by Ye Guofu, its original traffic monetization rate is worsening its own e-commerce environment, distorting the future of Chinese brands, and tempting merchants on the platform to abandon more long-term paths and enter a dead end of price wars, operational wars and marketing innovation tactics.

Although this statement has been officially refuted, Douyin e-commerce has indeed encountered a bottleneck in its development. The previous low-price strategy was not effective, and now the continued high promotion costs have also made merchants complain. With the slowdown in growth, where is the future of Douyin?

1. Behind the scenes is the “game” between online and offline channels

The deterioration of the Douyin e-commerce environment mentioned by Ye Guofu is actually more in comparison with offline channels. The online model of short video e-commerce like Douyin and traditional brands that mainly rely on offline channels will naturally produce a game.

Specifically, many consumers will select products in offline stores, take photos, and use image recognition to find the same or similar products on e-commerce platforms. After viewing the exquisite promotional photos on the details page, they will place an order. The price can be more than half cheaper than offline. However, after receiving the goods, consumers often choose to return the goods for a refund or only a refund due to factors such as the goods not matching the order or the product being of poor quality.

Wang Meijing (pseudonym) told Jingshang: "When I was shopping, I saw a cup from Miniso for 40 yuan. I saw a similar one on Douyin for only 20 yuan. After I got it, I found that the cup was very light. Another time, I was looking at perfume in a brand store and bought the same one online, but the smell was different."

It can be seen that for the same product, the prices online and offline differ several times. Consumers seem to have gotten a bargain, but in fact they are "losing both the wife and the army". They not only fail to buy good products but also waste time.

The same thing has happened to other brands. The reason is the dilemma of merchants. Merchants seem to save offline store costs and labor costs on e-commerce platforms, but the operating costs are not reduced at all. Online sales require continuous investment, and this expenditure needs to be invested on multiple platforms, making the online operating costs of many merchants no less than offline.

As the saying goes, "You get what you pay for." As the cost of online channels remains high, merchants can only save money on the products themselves, which means that "the wool comes from the sheep", and a large number of inferior products have entered the market. Without the low price advantage, merchants will face a situation where they cannot sell their products. Based on the principle that "some people will always be too lazy to return the products", many merchants are still selling products that do not match the products they advertised.

Especially for emerging e-commerce platforms such as Douyin, a large number of merchants come here because of their reputation, but they find that the operating costs are getting higher and higher. A Douyin brand practitioner revealed to Jingshang: Now it is also difficult to have your own live broadcast room. If you don’t pay, there will be no traffic, and you need to keep buying traffic to maintain sales. However, the investment traffic basically accounts for more than half of the total GMV, and sometimes a price-breaking mechanism is needed, buy 1 get N free, and then remove the cost, which is equivalent to not making money, or even losing money. "

With traffic so scarce, the fate of merchants and brands is in the hands of the platform. Brands like MINISO cannot escape the game between channels and the invasion of price wars, not to mention some small and medium-sized merchants and white-label products.

Douyin once established a merchant development department to serve small and medium-sized merchants, especially white-label merchants, and launched a special support plan for Douyin brands. Subsequently, it adjusted its strategy several times and formed an operation group mainly composed of white-label merchants in May 2023. It paid more attention to GMV for brand merchants and more attention to order volume for white-label merchants.

However, Douyin still has a hard time getting out of the “Douyin brand”. Even big brands have a hard time making money, and price wars have squeezed the profit margins of small and medium-sized businesses and white-label brands to the limit. Without traffic, search, and repeat purchases, most of their life cycles cannot survive a year.

This corresponds to the video forwarded by Ye Guofu at the beginning. According to the video blogger, ByteDance ranked first in the revenue of domestic Internet giants last year with 400 billion in advertising revenue, far exceeding Alibaba, Pinduoduo, Tencent, JD.com and other leading companies. However, the advertising revenue of Douyin e-commerce is based on 2 trillion GMV. In comparison, Alibaba's e-commerce GMV is as high as 7.7 trillion, several times that of Douyin e-commerce.

However, Douyin Group Vice President Li Liang officially issued a statement on November 29, pointing out that the data was seriously deviated from the actual situation. He revealed that this false information was quoted by MINISO founder Ye Guofu in WeChat Moments, and was therefore reported by some media. After learning the truth, Ye Guofu deleted the relevant WeChat Moments content.

Although all parties have refuted the rumors, it seems that small and medium-sized brands find it difficult to achieve "long-termism" on many e-commerce platforms. Douyin, which has experienced a slowdown in growth, has become more anxious.

2. Merchants and influencers pay for the "price war"

Looking back at the many major promotions in 2023, various e-commerce platforms are striving to pursue "price comparison across the entire network" and "lowest price across the entire network."

This low-price trend continued to this year's 618. During this year's 618, the topic of women's clothing return rate as high as 80% once occupied the hot search position. Some merchants complained bitterly, and even many merchants said that "1,500 orders were sent and 1,200 orders were returned, and there was almost no profit." Outside the clothing industry, in July 2023, the return rate of Douyin jewelers was revealed to be as high as 90%.

E-commerce platforms that are aware of the problem are changing their strategies. Shortly after the 618 shopping festival ended, Taotian Group clarified several new strategic changes to be implemented in the second half of the year. The general direction is to weaken the "absolute low price" strategy and change the "five-star price power" distribution system that started in February last year back to a GMV distribution system.

Douyin E-commerce also adjusted the priorities of its business objectives in August this year, no longer putting "price power" first, and will focus on pursuing GMV (transaction volume) growth in the second half of the year.

Douyin took this action not only because the return rate made merchants miserable, but also because as a new e-commerce platform in recent years, the development of Douyin is not optimistic.

Specifically, Douyin e-commerce achieved nearly 500 billion yuan in GMV in January and February this year, with a cumulative year-on-year growth rate of more than 60%, while the year-on-year growth rate in March fell below 40%. After the second quarter, the growth rate further fell to less than 30%. By September this year, Douyin e-commerce sales growth was less than 20%.

This is closely related to the low-price strategy it has chosen. Low prices obviously cannot solve Douyin’s predicament, but only cover up the problems under the previous high growth rate. Now that the industry’s sales have collectively declined, various hidden dangers are gradually emerging.

The short-term increase in traffic and market share brought by low prices is not sustainable. It is the so-called impossible triangle between low prices, quality and service. The platform can only be profitable by infinitely compressing the profit margins of merchants and brands, which will eventually "force" merchants to reduce costs and "save" product quality and platform services. Consumers feel that the goods are not the same as the pictures, and then they fall into a vicious cycle of high return rates, causing irreversible damage to the platform.

For example, the well-known women's clothing brand "Lola Code" on Douyin announced that it would stop broadcasting and close its stores after its last live broadcast on May 30 this year. Lola Code is a leading player in the women's clothing track on Douyin, with 5 million fans and annual sales of more than 10 billion yuan.

Lola Code said, "When we started in 2021, the return rate was still 30%-40%. Now the return rate is 70%-80%, which has doubled, and the traffic cost has increased tenfold." Such high traffic costs, high return rates, low-price competition and other factors eventually crushed "Lola Code".

Big anchors also suffered similar experiences as brands. For example, Dongfang Zhenxuan, which got rid of its dependence on Dong Yuhui this year, ranked second on the Douyin platform during the Double 11 period this year, according to data from the third-party platform Chanmama, while the main account of Dongfang Zhenxuan rarely fell out of the top ten and ranked 20th.

According to the comparison of Guosen Securities, the GMV of the top anchors on each live broadcast e-commerce platform has declined to varying degrees in 2024 compared with the same period in 2023, combined with the comparison of the number of live broadcasts. In short, the anchors' ability to bring goods has declined, and consumers are no longer willing to pay.

Douyin e-commerce now seems to have entered a "vacuum period". When the nest is overturned, all the eggs will be broken. For brands and influencers, this slowdown is a reality that they have to accept.

3. Breakthrough in product quality-price ratio

For small and medium-sized businesses to survive, the platform’s rules may need to change.

There are two types of traffic orientation promoted by most e-commerce platforms now. One is that merchants spend more money on traffic to have more display opportunities, which corresponds to the centralized logic of "people looking for goods".

However, resources are limited, but merchants are countless. This model leads to the problem described in the first part. Merchants spend most of their budget on traffic investment, fall into the quagmire of bidding, and find it difficult to make a profit. Small and medium-sized merchants who cannot afford traffic promotion fees can only produce low-quality products that do not match the specifications, otherwise there will be no traffic. The early Taobao, JD.com, and Douyin e-commerce all followed this logic because this model is conducive to the rapid expansion of the platform.

The other is that if the product price is low enough, it can get more display opportunities, which corresponds to the decentralized logic of "products looking for people", that is, the recommendation mechanism is based on price advantage. How much exposure a product can get does not depend on the investment cost, but on whether the price is low enough. Pinduoduo has always been based on this logic, which is conducive to strengthening its own low-price advantage.

This traffic mechanism will also lead to difficulties for small and medium-sized businesses, and it will be difficult for big brands to make money. If brands cannot lower prices, they will find it difficult to compete with "factory stores"; if brands lower prices, they will lose brand awareness. For some categories of small and medium-sized businesses, the limited order volume makes it difficult for them to continue to follow the model of small profits but quick turnover. Only factory stores can survive, but in the constant price involution, factory stores can only "hurt the enemy a thousand and hurt themselves eight hundred" if they want to survive.

Of course, in the low-price craze in recent years, e-commerce platforms have combined the two traffic models and various algorithms to match people and goods.

Many e-commerce platforms, whether launching tools such as Pay-per-view Linkage and Massive Qianchuan, or innovating AI technology, are all aimed at allowing merchants to obtain more natural traffic, but the author believes that this is just scratching the surface.

Especially for the Douyin live streaming platform, only a part of its revenue comes from e-commerce business, and most of its revenue comes from non-e-commerce information flow advertising. However, Douyin has always had the "shelf e-commerce dream", and it has clearly stated that it expects the GMV of content scenes and shelf scenes to account for half each in the future.

If Taobao chooses to use brands to strengthen its shelf foundation, then Douyin needs to use price advantages and a large number of Douyin brands to strengthen its shelf. After all, only big anchors have money to invest in traffic, and sales mainly come from live broadcasts. Few people will actively search for related products. Most small and medium-sized businesses find it difficult to get a share of the pie.

In the future, in the next stage of the price war, perhaps making products more "quality-price-performance ratio" and supply chains more "quality-price-performance ratio", that is, letting merchants shift their focus from paid promotion to the comprehensive evaluation of product quality, price, and service, may be more conducive to the healthy development of the platform and the long-termism of merchants. Readers joining the group Media reprint, seeking coverage and business cooperation Add the secretary's WeChat: duoyu605 When adding, please note your name + position + company

Author | Hu Duzhi This article is written by the author of Operation Party [Jingshang], WeChat public account: [Jingshang], original/authorized to be published on Operation Party, and any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.