After the price leveling, a new round of secret war among e-commerce platforms has begun

The price war among e-commerce platforms seems to have entered a new phase, shifting from pure price competition to a strategy that focuses more on GMV growth. This article deeply analyzes the logic and impact behind this shift, and explores how e-commerce platforms can seek new competitive advantages through innovations in supply, products, marketing, etc. when price advantages are no longer obvious.

Low prices have been a core capability that e-commerce platforms have emphasized since last year, and have gradually entered an acceleration period. Until nearly two months ago, Taobao, Douyin, and Pinduoduo successively changed the platform's first goal to achieving GMV growth.

However, cost-effectiveness is the general trend. From focusing on low prices to emphasizing GMV, it does not mean that the platform no longer attaches importance to low prices, but that absolute low prices have completed their phased mission on some platforms - price wars have always been the most direct and effective means of competition.

The shift to low-price competition is also accelerated by the supply-retail relationship that has dropped to the freezing point. When the platforms use radical means to level the prices to a stage where there is almost no difference - which is equivalent to eliminating the price advantage as a weapon in addition to the traffic advantage, the competition will only enter the white-knife stage. And as more and more suppliers become the obvious beneficiaries of the entire transaction chain, such low-price competition is naturally unsustainable.

In the long run, the competition focus of e-commerce platforms may be a continuous cycle among the core factors of supply-traffic-price-efficiency. The platforms that remain on the table will have to use the capabilities honed in previous competitions to enter a new round of more intense competition.

We observe that the core goal of the platform has shifted from low prices to GMV in order to see what core capabilities the previous round of low-price competition has left among platforms, where the next focus of the platform's development may be, and how the core capabilities in supply, products, and marketing forged through low prices will help the platform move to the next stage.

Of course, low prices are like a storm. Like any other change, when the storm sweeps through, in addition to achieving its own goals to varying degrees, it will also have some collateral effects. The same is true for low prices. In addition to directly affecting the platform, it also affects downstream merchants, industrial belts, and consumers, and ultimately brings some changes to the penetration rate and cost control of the entire e-commerce industry.

1. The low price completed the phased mission

This round of low-price competition began in 2023. The original intention of Taotian (and JD.com) to offer low prices was to increase order volume and activity through low prices.

At that time, Pinduoduo firmly occupied the mindset of "saving" in the "fast, good and economical" e-commerce, and used "saving" to attract traffic, which eventually turned into a continuous increase in GMV. Douyin e-commerce also attracted traffic through content and snatched a part of the market share.

Therefore, for Taobao and JD.com, achieving DAU, especially DAC, through low prices is a key move. And from the Q2 financial report, Taobao has achieved a phased increase in user activity and order volume.

Wu Yongming, CEO of Alibaba Group and Chairman and CEO of Taotian Group, mentioned at a recent earnings conference that "the live streaming and 10 billion yuan in subsidies we launched have brought about higher user return rates and repurchase rates."

Douyin e-commerce has enriched the goods market through low prices (mainly to supplement the supply of industrial belts outside of brands), achieved basic growth in the shelf market, and increased the daily activity of the mall. Whether in terms of product form, traffic distribution or operating threshold, the shelf market is more price-friendly and can drive start-up development through low prices.

A brand told us, "Before, Douyin e-commerce was generally recognized as expensive. The low price is helpful for establishing the richness of Douyin's price range and the breadth of its product range."

In the development process of Douyin e-commerce, it emphasized the entry of big brands in the early stage, began to emphasize low prices last year, and emphasized GMV this year, which is also in line with the rhythm of its e-commerce development stage.

“After the first 1,000 Tmall merchants have been introduced, the platform has to find ways to retain consumers. Low prices and shopping malls are a good way to increase the frequency of repeat purchases and raise the average order value,” said the person in charge of the above-mentioned brand. Currently, the shelf market accounts for about 30% of their entire Douyin e-commerce transactions.

As for the defending side, Pinduoduo's choice of GMV as the first indicator does not mean that it will reduce its leading advantage in low prices. Instead, it will continue to strengthen low prices - the introduction of price comparison tools such as "automatic price matching" and merchant policies such as "10 billion yuan in tax exemptions" are evidence of this.

As everyone already knows, Pinduoduo's low prices are a system capability that uses traffic mechanisms and activity mechanisms to allow brands to actively offer low prices.

Other platforms that offer systematic low prices like Pinduoduo have their own limitations.

Some merchants told us that Taotian had a large number of users and orders, and because the scope of subsidies was too large at the beginning, it did not focus subsidies on big-name standard products that users have a strong perception of low prices, which made it difficult to achieve or convey the same level of subsidies as other platforms. It was only later that it found a differentiated competitive advantage through strategies such as mobilizing 88VIP and focusing on standard product subsidies.

JD.com's self-operated model itself is more costly, resulting in low prices only being concentrated in individual categories with supply chain advantages.

Douyin e-commerce can only form large-scale group purchases and low-price effects because it has content-related intermediaries such as influencers and organizations, or relies on the explosive power of the content field to become a single product hit.

Even so, the real price subsidies still slowed down Pinduoduo's development. Some securities firms predict that Pinduoduo's domestic e-commerce GMV growth rate will remain at around 24% in 2024 - a figure that is slowing down in absolute terms but still far ahead of its competitors and social retail growth. Pinduoduo's management's aggressive management of market value expectations during the Q2 earnings conference is also roughly related to this.

2. What does the low price leave for the platform?

A simple and basic understanding of the retail industry is that the fundamental driving force for business innovation is to enter the market at a low cost. The same is true for e-commerce.

Therefore, we pay special attention to the products, tools, and even mechanism gameplay and organizational ideas that have long-term value and are precipitated actively, passively, intentionally or unintentionally in the process of various platforms offering low prices, which can improve the platform's traffic operation capabilities, price control, supply screening capabilities, etc.

For Douyin e-commerce, low prices have driven the growth of the first phase of the shelf market, and promoted the improvement of the shelf market, that is, the mall, in terms of products, tools, and gameplay, such as the mall's exploration of gameplay and mental sedimentation in "super value purchases" and "flash sales".

Especially for Super Value Purchase, it is said that the promotion is very strong, and the price of some products can be 1/2 or 1/3 of that of other platforms. Some brands said that if Douyin e-commerce can "further promote standard products through this mechanism, the potential for sales growth is still huge."

Of course, next, under the premise that GMV is the primary goal, Douyin e-commerce needs to continue to think about how to make the GMV contribution of the shelves increase in addition to low-price promotions and low-price supply, that is, to find the next growth engine of the shelf market.

Some merchants predict that Douyin Mall’s extremely low-price strategy will continue; but the content field will not have extremely low prices, but will achieve perceptible price power, that is, allowing consumers to perceive the cheapness while ensuring the quality of the goods.

In any case, the next key move may be to open up Douyin's e-commerce global traffic pool.

Only by opening up global traffic can users who have bought products in the live broadcast room or in the feed gradually develop the habit of trading in the mall. After the traffic is unblocked, it will be more logical to provide path guidance and tool updates based on global traffic, rather than becoming castles in the air.

The CORE hot product management methodology recently launched by Douyin e-commerce is based on the unification of traffic. Under the new traffic structure, products based on any basic capabilities of products, content, marketing, and services can automatically attract traffic from the Douyin e-commerce traffic pool. The sources of traffic are diverse and the links are diverse. It does not necessarily have to be low-priced or big brands, and it does not necessarily have to rely on big anchors.

Some consumers have already experienced that after viewing content related to related products on Douyin several times, the platform will push large discount coupons to them, and "the prices are cheaper than on other platforms."

Taobao attracted some small and medium-sized merchants to return by offering low prices, and introduced some industrial supply chains through 1688 and Taobao Factory in a self-operated manner. In terms of marketing capabilities and marketing tools, Alimama is also becoming more refined, looking for new traffic across the entire network in more ways, and at the same time changing from simply making money from merchants through traffic to doing better business with merchants.

Whether the full-site promotion combined with Alibaba's AI capabilities can solve Taobao's current difficulties is the key - several merchants believe that Taobao's current traffic is relatively scattered, and there is still a gap between its peers in terms of the ability to focus traffic and promote single products.

JD.com has explored the form of live streaming of purchasing and sales through low prices, which is essentially a marketing-style low price, but it is also in line with and can give full play to the genetic positioning of JD.com's retail channels. More systematic capabilities need to be re-exploited by projects with more "own brand logic" in the retail context such as Jingxi and Jingzao.

3. Cascading Effect

The platform's low prices will also have a two-sided impact on upstream merchants and even upstream industrial belts.

First of all, the low price will change the platform’s supply structure at the white-label and brand levels.

Some merchants in the fast-moving consumer goods industry said that in the past, the top 100 stores on Taobao were all brand stores, but now the top 100 also include many industrial belt merchants and Taobao’s own brands (Taobao Factories).

But this is a definite trend that brands need to accept. With the endorsement of e-commerce platform content, algorithms, and channels, a group of consumers will shift from brand consumption (and trust) to product consumption (and trust), which is directly reflected in the increasing presence of channel-owned brands and high-quality white-label products in industry belts.

In an environment where cost pressure and platform traffic rules have not changed for the time being, some leading brands with brand power, supply chain capabilities and willingness to participate in low-price competition will further strengthen their head effect. Some merchants with limited supply chain capabilities, insufficient brand power and difficulty in resisting low prices will either be forced to give up low prices or shift their core business positions to other platforms that are more profitable and have higher ROI.

Of course, the direction of flow is different for different businesses.

The aforementioned fast-moving consumer goods brands said that they will now put more brand budgets on JD.com and Douyin e-commerce. Although JD.com's traffic pool is small, it has more traffic that can be controlled manually and can make money; Douyin's ROI is relatively certain, and there is output for investment, and it also earns exposure.

Another chain reaction of the platform’s low prices is that it accelerates and affects the stratification of industrial belts.

Objectively, low-price-oriented competition will screen out a batch of low-cost, quick-response advanced supplies, thereby reducing merchants' production costs.

For example, for some companies, it costs money to start the factory, so they may make little profit or no profit by selling at a low price, but they will lose money if they do not sell at a low price. For example, if the price is really low, they can get stable orders on Pinduoduo, which is equivalent to reducing storage costs.

"It is true that some companies have squeezed out the water in the supply chain by offering low prices on Pinduoduo. After squeezing it out, they may not be able to make money on Pinduoduo, but they can make money on Tmall, JD.com, and Douyin," said a brand.

A number of industrial belts that were originally toB may therefore move to e-commerce channels, such as JD.com's Jingxi and JD.com Jingzao, Taobao's 1688 and Taobao Factory. Those with the ability may even become relatively recognized factory brands among C-end consumers.

The characteristics of these industrial belts are strong supply chain capabilities, diversified supply, and the ability to adapt to e-commerce strategies. A recent 1688 press conference also mentioned that more and more small B and C-end buyers are purchasing goods directly from the source factory, and the supply chain needs to have stronger flexible production capabilities.

The pearl industry belt merchant "Angel's Tears" was able to adapt to the low-price trend in a timely manner because of such supply chain capabilities. Originally, they only sold products priced at 1,299 yuan, but after Douyin's e-commerce algorithm tilted towards low-priced goods, they put products on the shelves for 399 yuan. This also helped them stand out from many competitors. "(Under the low-price trend) A large number of competitors went bankrupt."

Inevitably, some supply chains with good technology but high prices will be screened out or even go bankrupt, while some industrial belts that rely on producing inferior products to cater to the low-price trend will survive. The so-called bad money drives out good money.

He Yudi, general manager of Dongyang Shangdao Fishing Tackle, mentioned that there are many fishing lines on the market that are priced at RMB 5.9 with free shipping. They have tried many ways to reduce costs, but ultimately found that this pricing can only be achieved by reducing the cost of raw materials.

Recently, many people have noticed that merchants in industrial belts in Hebei and other places are snatching the business of voluntary merchants. However, a practitioner close to a merchant in an industrial belt in Hebei told us that in fact, the reason why these merchants in the industrial belt of Hebei sell so cheaply is because they don’t know how to calculate the accounts. Some of them “calculated the total accounts at the end of the year and found that they had lost 300,000 yuan.”

In short, in front of the platform that dominates the rules of the game, it is difficult for merchants to obtain long-term dividends if they only rely on traffic operation capabilities or advantages that comply with staged traffic rules. Long-term dividends belong only to platforms or brands.

True brand power is a more comprehensive capability, such as being able to have multiple channels, especially offline channels, and having differentiated products and brand recognition. As a Chenghai toy industry belt merchant said, a long-term price war is bound to lose money, because the costs of the factory are rising in all aspects. They also want to establish a differentiated advantage through exclusive products, and even enter the brand track.

4. A new, more intense stage

Overall, the low-price behavior of several platforms has led to an increase in the penetration rate of e-commerce in the entire consumer market. In the future, low prices will still be a rigid demand, competition will continue, and the penetration rate of e-commerce in terms of frequency and customer orders will continue to increase.

For platforms, when low prices can no longer differentiate them, and the low-price argument may lead to a loss of 800 yuan in GMV, it means that competition will enter a new stage that is more comprehensive and more brutal. Everyone is not only competing on low prices, but low prices serve as a basic capability to serve the focus of competition in the new stage. The focus of the new stage is GMV in terms of the overall goal, and in terms of specific goals, we believe that it may be high-quality supply (narrowcast will have a specific article analysis in the future).

Before proposing a return to GMV, each platform had already been adjusting its strategies to varying degrees and optimizing low-price-related actions.

Taotian has narrowed and clarified the low-price range and focused on standard products. Some merchants told us that after 618 this year, Taotian has gradually tilted the activity subsidies to standard product categories that are more suitable for price comparison, and narrowed the scope of subsidies for categories that can be compared with or without price comparison and non-standard categories that are not suitable for price comparison.

Douyin e-commerce cancelled the price comparison mechanism in the clothing industry in March and April this year. The core of non-standard categories is the diversity and richness of goods. Once they fall into the quotation, they will fall into the same style of internal competition, which will destroy the industry ecology and user experience. A merchant told us, "Clothing was the fastest to be cancelled because they found that the price comparison mechanism would cause everyone to chase hot items at low prices, resulting in worse and worse clothing quality." Non-standard industries such as accessories and toys have also gradually cancelled price comparisons.

As always, Pinduoduo directly gave money during the 618 promotion while other platforms provided subsidies through negotiation with merchants, and silently subsidized users who browsed the links but did not place an order.

Some merchants told us that Pinduoduo is raising the unit price of items and the average order value through some operational means, such as offering more discounts for more items and more discounts for a certain amount of purchase; in terms of supply, Pinduoduo also wants to attract more brands with high customer orders.

Cost-effective consumption is still a rigid demand, but the next competition will be a competition involving multiple factors such as price, supply, traffic, and service, and may also include deeper factors such as organizational structure and organizational management.

Preparations for Double 11 have already begun, and another round of secret battles in the e-commerce industry may surface.

Author | Yang Yiqi (Shanghai) Producer | Pang Mengyuan (Shanghai) Shao Lele (Shanghai)