Taotian Jingdong: One dilemma, two solutions

In the face of fierce competition from Pinduoduo, e-commerce giants Taobao and JD.com have chosen different strategies to cope with market changes. Taobao began to adjust its low-price strategy, seeking to find a balance between price competitiveness and merchant ecology; while JD.com continued to promote its low-price strategy, attracting consumers by increasing subsidies and expanding the price comparison range.

Pinduoduo's strong growth has set off a wave of imitation in the e-commerce industry: low prices, refund only, and the slogan "if you can't beat them, learn from them."

But recently, the wind has begun to change.

Recently, Taobao has been intensively adjusting its merchant rules, the most critical part of which is relaxing the “refund only” policy for stores with high experience points.

"Refund only" is an important function of the low-price strategy. The loosening of "refund only" seems to mean that Taotian has begun to waver in its low-price strategy.

In fact, Alibaba is not an isolated case. In July this year, Douyin first weakened its low-price strategy. According to reports, Douyin e-commerce adjusted the priority of its business goals and no longer put "price power" in the first place. In the second half of the year, it will focus on pursuing GMV (transaction volume) growth. As the initiator of the low-price strategy, Pinduoduo also took action recently and adjusted its business focus in the second quarter of this year, from pursuing commercialization and increasing profits to putting GMV back as the first goal.

The only exception is JD.com.

From launching the new promotion day "JD Super 18" to provide users with low prices and flash sales on the 18th of each month, to launching the new version of "JD Open Platform Double Compensation Service Rules", expanding the price comparison platform range and relaxing the threshold for "same products", JD, which has gone further and further on the road of competitive price butchering, now seems to be determined to trade profits for traffic.

As the only two in the industry, why did Taobao and JD.com choose seemingly opposite paths in the face of the impact from Pinduoduo?

01 Alibaba begins to correct its mistakes

Alibaba's second quarter financial report was not good, with revenue growth hitting a new low in the past year, and Taobao, the big brother, lagging behind. According to Alibaba's second quarter financial report, Taobao's revenue fell by 1% year-on-year, and the core user management revenue grew by only 1%.

The inability to collect advertising fees and commissions is largely related to the low-price strategy.

The purpose of low prices is to bring down prices and attract transactions. Although low prices have stimulated the growth of transaction buyers and order volume, due to the strong price control of large brand merchants, the ones who actively respond are usually small and medium-sized sellers. However, under the low-price strategy, these merchants are not the main paying group of Taobao: in the past, Tmall would charge sellers advertising fees and commissions, but Taobao only charges advertising fees.

Therefore, Taotian announced that starting from September, it will charge a basic software service fee at a rate of 0.6% of the confirmed transaction amount of each order, cancel the annual fees of 30,000 and 60,000 yuan charged only to Tmall merchants, and refund the annual fees paid for 2024.

For Taobao merchants, this is obviously an additional expense, which feels a bit like draining the pond to catch fish, but it needs to be viewed in conjunction with the other two adjustments.

Taobao announced two other adjustments in July. The first was to weaken pricing power and make "experience points" the core basis for traffic allocation; the second was to relax the "refund only" policy for high-scoring stores.

The intention to correct the deviation is obvious.

The problem with "low price" and "refund only" is that it simplifies the competition among merchants and increases their operating costs. However, as a comprehensive e-commerce platform, Taobao has a variety of customer price points. To maintain the richness of its business and improve the efficiency of product sales, it cannot simply tilt the scale towards consumers, but also consider the acceptance of merchants to achieve a balance between merchants and consumers.

Abandon the "refund only" policy that is overly biased towards consumers, abandon the "one-size-fits-all" management approach, turn to a more comprehensive merchant management system, return the initiative to high-quality merchants, and let them find ways to attract consumers. Only in this way can the platform's scale and profit growth achieve a positive cycle.

Huatai Securities pointed out in a research report that Taotian sacrificed profits for direct subsidies in the first and second quarters of 2024. On the surface, it was to stimulate traffic growth and mental return, but the deeper motivation was to promote the return of merchants.

Similarly, for merchants, the biggest cost must be investment in traffic. Using GMV growth as an indicator and adjusting the traffic distribution mechanism is telling merchants that there is money to be made here.

Compared with previous follow-ups, Taotian now has a clearer understanding of its own ecological position.

02 JD.com fights to the end

Unlike Alibaba, which let go of Taobao, JD.com chose to keep its prices low until the end.

Starting from August 8, JD.com launched the "Double Compensation for Expensive Purchases" upgraded service, expanded the price comparison range to platforms such as Douyin, and increased subsidies of 10 billion yuan, especially in the beauty field, with an additional investment of 3 billion yuan to ensure that consumers enjoy extra discounts. At the same time, JD.com innovatively launched the "JD Super 18" event, offering super-value hot products on the 18th of each month, priced at 18 yuan to attract consumers.

Why does JD.com choose to continue to offer low prices?

The reason is that in the first quarter of this year, JD.com vigorously promoted the "people-friendly low-price" strategy, which made its money bulge. In the second quarter, JD.com's revenue steadily exceeded the 291.4 billion yuan mark. Although the growth rate slowed down, it was only 1.2% higher than the same period last year, but the net profit showed an accelerated growth, soaring 69% directly to 14.5 billion yuan, and the net profit margin also exceeded the 5% mark for the first time.

This seems to indicate that the more JD.com lowers its prices, the more money it makes. In response to investors' questions about the price war, JD.com CEO Xu Ran also made it clear in the earnings call that "our commitment to the low-price strategy remains unwavering."

Behind JD.com's seemingly insistent pursuit of low prices is actually a platform ecological war.

Compared with its competitors, JD.com has already established a user mindset in categories such as home appliances, but it has fewer SKUs for low-priced and other categories of goods. This can also meet user needs under the trend of rational consumption. In contrast, a sound ecosystem can open up JD.com's imagination for future growth, and low prices are still the most competitive gimmick in retail.

It is reported that under the implementation of the "Spring Dawn Plan", the number of new third-party merchants on JD.com in the second quarter of this year increased by 46% compared with the first quarter. In particular, the number of new merchants in categories other than home appliances, such as toys and musical instruments, automotive supplies, food and beverages, home decoration and building materials, sports and outdoor, etc., is particularly prominent. With the increase in quantity, sales are also rising, bringing a virtuous cycle. During the 618 period on JD.com, sales of more than 150,000 small and medium-sized merchants increased by more than 50%.

In order to further continue the price war, JD.com has also set its sights on daily necessities, such as beauty products. Recently, more apparel and beauty brands such as Hermès, SAINT LAURENT, and Massimo Dutti have entered JD.com, increasing the supply of top beauty brands. At the same time, low prices and discounts are used to attract consumers to buy and strengthen their minds.

Nowadays, in the e-commerce industry surrounded by wolves, Taotian’s exploration may not have found a definite answer. In comparison, JD.com seems to have not only tasted the "sweetness" of low prices, but also found its own strength point.

03 There is no standard answer for e-commerce

Both Alibaba and JD.com have realized that sometimes a consistent strategy is both the antidote and the key to backstab.

From this perspective, Taobao's adjustment of its low-price strategy is not to ignore price competitiveness, but to seek a delicate balance between low prices and merchant ecology. JD.com is also finding the best fit between low-price market competition and win-win for merchants to achieve further development.

For Alibaba, Taobao's advantage lies in its shelves and stores. It needs to retain high-quality users who contribute the most to the platform, namely 88VIP members, and also improve the rating system and operating rules to drive merchants to provide good services, thereby attracting transactions with different needs.

Of course, Taobao has not completely abandoned low prices. It has also made some optimizations to the supply strategy of white-label products. The entry of 1688 into Taobao is one example.

For JD.com, the low prices it advocates are based on the platform model and the accumulation of supply chains over a long period of time, which gives JD.com a certain "combat" advantage. The relatively complete price monitoring system also brings a certain sense of security, allowing JD.com to adjust prices at any time to achieve the lowest market price possible.

But for JD.com, its self-operated business has a large scale, and it is obviously not realistic to rely entirely on third-party merchants to complete its ecosystem. However, self-operation also means that it is difficult for it to achieve low prices like its competitors.

According to Decode, JD.com will set a gross profit protection clause in the underwriting agreement, commonly known as "gross profit protection". If JD.com's price cut is too large, resulting in JD.com's profit being damaged, then JD.com will deduct this loss + JD.com's contract profit from the brand's payment.

Obviously JD has bullets in its gun, but it does not have unlimited firing rights.

In fact, Pinduoduo is also adjusting its past path. On August 17, Pinduoduo responded to the media that "refund only" is a reflection of Pinduoduo's "consumer first" concept, but this policy is not "brainless" to stand for consumers. If merchants encounter unreasonable "refund only" applications, they can appeal to the platform through normal channels. The platform also supports merchants to protect their rights against wool party through legal means.

Ultimately, there is no standard answer to the low-price strategy, nor is it the end point of the platform. As the internal competition continues to escalate, how to combine the platform's own development advantages to provide consumers with unique cost-effectiveness is a common issue faced by e-commerce platforms.

References:

1. Decode: Taobao, JD.com and Pinduoduo, who can solve the problem of traffic cost for merchants?

2. Focus One: Alibaba wants to charge ahead, JD wants to stabilize*The copyright of the cover image and accompanying images of the article belongs to the copyright owner. If the copyright owner believes that his work is not suitable for public viewing or should not be used free of charge, please contact us in time and this platform will correct it immediately.

Author | Senxi This article is written by the author of Operation School [Bohu Finance], WeChat public account: [Bohu Finance], original/authorized to be published in Operation School, and any reproduction without permission is prohibited.

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