"Return rate" becomes a new challenge for Double 11

As the Double 11 Shopping Festival approaches, competition among e-commerce platforms is becoming increasingly fierce, and one of the main focuses this year is the "return rate" issue. The return rate not only affects consumers' shopping experience, but is also directly related to merchants' profits and the reputation of e-commerce platforms. This article explores the new policies of platforms such as Taobao and Pinduoduo, and how these policies balance the interests of merchants and consumers while addressing the challenges brought about by high return rates.

On the evening of October 14, this year’s Double 11 officially started.

As the most important promotional event of the year, the various activity strategies of various e-commerce platforms during Double 11 are "signals" released to the outside world - how to balance the relationship between merchants, consumers and platforms.

This year, the highlight of the game is undoubtedly the "battle for merchants". Taobao, JD.com and Pinduoduo have successively launched a number of policies that are beneficial to merchants, but the real secret war has already begun before Double 11.

On September 1, Taobao officially implemented the "Basic Software Service Fee Rules for Taobao Sellers" (hereinafter referred to as the "Service Fee Rules"), stating that in terms of charging standards, for orders with a transaction status of "successful transaction" (i.e. the buyer has completed and confirmed receipt of the goods), a basic software service fee of "0.6% of the transaction amount" will be charged. On the other hand, Pinduoduo, also an e-commerce giant, also released a new strategy. On September 24, Pinduoduo's "10 billion reduction" upgraded the merchant's technical service fee refund rights, and the refund scope was expanded from the previous promotional products to all products.

Every bite is for profit. After the battle of "refund only", "attracting merchants" has become a new battlefield for e-commerce platforms. In the face of the high return rate, "refunding or waiving technical service fees for returned goods" may become a new means for platforms to attract merchants.

However, for the merchants involved, whether they can sell "the most goods in history" during this "longest Double 11 in history" may be a more imminent challenge.

1. Taobao merchants

“Hope to exchange fees for services”

"When the new regulations first came out, my colleagues wailed a few times in the group," said Zhang Man (pseudonym), who runs a Taobao store selling high-priced clothing in Shanghai, "but no one seemed to care too much."

It is not new for platforms to charge basic software service fees, and it can even be called the "standard configuration" in the industry. "The logic of technical service fees is equivalent to paying rent to the platform when you sell goods on it." Chen Weiming (pseudonym), who has been an e-commerce entrepreneur for several years, defines it this way.

Previously, many platforms have charged merchants. For example, Pinduoduo has charged merchants a basic technical service fee of 0.6%-1% since 2020, and JD.com has charged a transaction service fee of 0.6% for POP merchants on its open platform. According to the basic technical service fee rate standard released by the Douyin E-commerce Learning Center, the rates for different categories range from 0.6% to 5%.

Previously, the charging models of Taobao, Tmall, and Xianyu, which are all owned by Alibaba, were different. Taobao and Xianyu did not charge this fee, while Tmall merchants had to pay an annual fee of 30,000 to 60,000 yuan. However, this year's new policy is that Tmall will cancel the annual fee, and the three platforms will uniformly charge a basic software service fee at a rate of 0.6%.

For small and micro businesses, although this fee is not high, compared with the already thin profits, its symbolic significance is greater than its practical significance.

"If you pay more money, the profit margin will be even smaller." Chen Kang (pseudonym), who runs an outdoor goods store, feels obviously melancholy. Chen Kang is an individual seller and does not recharge any advertising activities organized by the platform, but in the past two years, business has become much more difficult. In 2021, his online store's revenue reached 750,000 yuan, but in 2023 it was only 350,000 yuan, which was a direct cut in half.

However, the IT Times reporter noted that according to the "service fee rules" announced by Taobao, Taobao will refund the full amount of basic software service fees paid by Taobao to sellers with an annual turnover of 120,000 yuan or less. This may mean that small and micro businesses will not be burdened too much.

Zhang Man has run a store on Taobao for ten years. For her, the "software service fee" is not an unbearable cost, and she agrees that she should pay for the platform's services, but she hopes that the fee can be exchanged for better services.

In the first half of this year, after Taobao launched the "refund only" policy, Zhang Man encountered the largest number of customer complaints in history. Handling these complaints made her miserable. Therefore, Zhang Man hoped that the platform, after charging a fee, would strengthen the review of buyers' refund requests due to quality issues during special seasons such as Double 11, and give sellers more time to collect evidence.

"A reasonable charging model is beneficial to both merchants and platforms. Charging is not to squeeze the living space of merchants, but to provide better services." Well-known Internet analyst Ding Dao Shi also agreed with this. He believes that there is a mutually beneficial symbiotic relationship between platforms and merchants. The former should provide better services to merchants through reasonable charges, thereby achieving its own development.

2. Pinduoduo changes track

"Refund without technical service fee" poses new problems

In 2015, Chen Weiming, who graduated from a university in Yunnan with a degree in graphic design, entered the e-commerce industry by chance. Seasonal fruits and fresh cut flowers are the company's two main businesses. In his own words, the scale and daily transaction volume of the store on the Pinduoduo platform are "okay".

At the end of August this year, Pinduoduo announced the official launch of the "10 billion yuan reduction" plan, which will reduce merchants' transaction fees by 10 billion yuan in the next year. It will mainly target refund orders and will refund 0.6% of the order's technical service fee based on the refund ratio. The plan will be automatically refunded to the merchant's payment account without the merchant's application.

On September 11, Pinduoduo once again upgraded its “10 billion yuan reduction” benefits, reducing the technical service fee for all pay-later orders from 1% to 0.6%.

"The platform policy is already being implemented, and our backend stores can see it." Recently, Chen Weiming told an IT Times reporter that because the store does not receive many returns, the benefit does not have much impact on sales in the store. However, for stores with large transaction volumes, the refund of this handling fee can indeed save a lot of money in a year.

As a "barbarian" in the e-commerce industry, Pinduoduo's move has put other platforms into a "dilemma".

It is almost a common practice for e-commerce platforms to charge technical service fees for returns and refunds. For example, the deduction rate for technical service fees of Douyin Store is 2% to 10%, and it is directly deducted at the time of settlement and will not be returned due to refunds; Taobao also stipulates that if a refund occurs after the order is confirmed to be received, Taobao will not support the refund of the basic software service fees that have been deducted in real time to the seller.

"The refund ratio still depends on the category." Another merchant told reporters.

The prospectus of express locker operator Fengchao revealed a set of eye-catching data: "From 2019 to 2023, the annual compound growth rate of e-commerce reverse parcels in China's express delivery industry was 22.7%, and the annual compound growth rate from 2023 to 2028 is expected to be 20.7%. In 2019, the number of e-commerce reverse parcels was 3.6 billion pieces, which increased to 8.2 billion pieces in 2023 and is expected to reach 20.9 billion pieces in 2028."

That is to say, in 2023, 8.2 billion items will be returned on e-commerce platforms every year. Among them, the clothing category accounts for a relatively high proportion, especially the women's clothing category. According to media reports, data from Semir Clothing showed that in 2020, the return rate on its Tmall platform was 31%; in the first half of this year, the return rate on Tmall rose to 62%.

Perhaps this is the reason why Pinduoduo chose to take action on "free technical service fees for refunds". After all, clothing is one of Taobao's most important advantage categories, and the high return rate is also an unspeakable pain point for Douyin live e-commerce. For Pinduoduo, which has a relatively low average order value, consumers have a higher tolerance for products, not to mention the "refund only" guarantee.

3. E-commerce platforms are slowly recovering

Regardless of the strategy, it is a bargaining chip for e-commerce platforms to try to balance the ecology in the "triangular relationship" between themselves, merchants, and consumers.

In May this year, Alibaba Group announced its 2024 fiscal year results. As of the quarter ending March 31, 2024, Alibaba's 2024 fiscal year revenue reached 941.168 billion yuan, a year-on-year increase of 8%. However, if compared with the revenue since 2021, it can be found that its growth rate has slowed down. The revenue from 2021 to 2023 was 717.3 billion yuan, 853.1 billion yuan, and 868.7 billion yuan, respectively.

For this reason, Alibaba carried out a series of reforms and personnel adjustments last year, and introduced various initiatives at a much higher frequency than before, such as launching the Xinjiang free shipping plan, unlimited free shipping for 88VIP returns, upgrading the website and restarting the "Taojianghu" forum, adding basic software service fees, etc.

These moves are seen as the Chinese e-commerce platform giant's continued "correction of past mistakes" in order to get back on the path of rapid revenue growth.

"The operating funds of e-commerce platforms mainly come from various fees paid by merchants, rather than directly charging consumers, such as technical service fees, promotion fees, entry fees, subscription service fees and other value-added services." Ding Dao Shi emphasized that from the current situation, it is not possible to directly link the increase or refund of technical fees with increased revenue.

But a series of measures have obviously restored the confidence of the capital market in Alibaba. Alibaba's stock price, which had been hovering between $60 and $70 in the first half of this year, has risen sharply since September, reaching a peak of $117.8, which is almost its highest point in two years.

Pinduoduo also experienced a "Waterloo" not long ago. Although the Q2 financial report released on August 26 was still impressive, with revenue of 97.06 billion yuan, a year-on-year increase of 86%, its stock price "dive". As of the close of August 26, its stock price fell 28.51% to $100 per share, and its total market value shrank to $138.9 billion. Since then, the stock price has fallen all the way to the $80 range.

The industry generally believes that Pinduoduo executives have given a not optimistic signal. "The intensified competitive environment is the main theme of the e-commerce industry, and high income growth is unsustainable." At that time, Zhao Jiazhen, executive director and co-CEO of Pinduoduo Group, said in a financial report conference call. At the same time as the financial report was released, Pinduoduo stated that it would invest 10 billion resources to support new merchants and new industrial belts with product and technological innovation capabilities, and significantly reduce the transaction fees of high-quality merchants. It is expected to reduce 10 billion yuan in the next year to support merchants.

Ding Dao Shi believes that Pinduoduo’s return strategy is aimed at attracting more merchants to join, making profits in other areas through value-added services, and achieving long-term development. "Although this strategy has financial pressure, it may bring greater benefits in the long run."

On October 17, as of press time, IT Times reporters noticed that Pinduoduo's total market value had rebounded to nearly US$176.9 billion, and the price of a single share had recovered to more than US$100.

This year, e-commerce giants that were stunned by the "random punches" are now looking for new differentiated advantages and gradually "warming up". For merchants, whether they can sell more goods in the new environment is a more important challenge than "reducing the burden".

Author: IT Times reporter Sun Yonghui Editor: Hao Junhui