The dilemma of Douyin e-commerce: traffic is too expensive and merchants use it as a "propaganda platform"

Douyin e-commerce has recently made important adjustments to its business strategy, no longer making "price power" the highest priority, but instead shifting its focus back to GMV growth. Behind this change is that the low-price strategy has failed to bring the expected positive effects, but instead led to a decline in growth. This article will explore the challenges that Douyin e-commerce has encountered in the process of pursuing GMV growth, and how it has adjusted its strategy to cope with market changes.

According to LatePost, Douyin e-commerce has recently adjusted the priorities of its business objectives and no longer puts "price power" first. It will focus on pursuing GMV (transaction volume) growth in the second half of the year.

The reason for the adjustment may be that the low-price strategy not only failed to lead development in a good direction, but instead caused a decline in growth rate.

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

In 2023, the monthly growth rate of Douyin's e-commerce will generally remain above 50%.

At the same time, according to Star Chart data, the cumulative sales of integrated e-commerce platforms and live broadcast platforms in 2024 was 742.8 billion yuan, a cumulative decrease of 7%. Low prices failed to bring obvious promotion effects.

Douyin e-commerce then took action against the low price again, but this time it called a halt.

01 It took Douyin only half a year to overthrow the low-price strategy

In February this year, according to Latepost, Douyin e-commerce set "price power" as the highest priority task in 2024. So far, from Pinduoduo at the beginning to JD.com, Taobao, and Douyin, several leading e-commerce platforms have promoted "low price" to the core strategy of the platform.

Since then, Douyin has established a radical price comparison system, dividing the products on the platform into three categories: "lowest price on the entire network", "same style at low price" and "same style at high price", and correspondingly increasing, maintaining and reducing traffic exposure, while providing merchants with price change suggestions.

It is understood that Douyin is sometimes more aggressive than Taobao or Pinduoduo in price comparison. On the order page to be paid, Douyin will display the same low-priced products to attract users to jump.

In May, Douyin e-commerce tested the "automatic price change" function. After merchants set a low price, the system can lower the price in real time based on similar products on the site and the entire network to ensure price advantage.

However, even with all these measures, Douyin has not been able to establish a leading price advantage.

According to LatePost, although Douyin e-commerce achieved multiple price power targets in the first quarter, it was still unable to match the prices of Pinduoduo, and the price difference of many products was still between 10% and 20%.

With the development of low-price strategies, Douyin's e-commerce traffic dilemma has become more prominent.

An insider revealed that Douyin knew that low prices would have a certain impact on GMV, but the rapid decline in GMV growth in the first half of the year still exceeded expectations. At present, Douyin Group executives are also participating in e-commerce business management meetings more frequently than in the past, asking about business conditions. After judging that the live e-commerce format cannot achieve the lowest prices, the company decided to put GMV back to the top priority.

As the platform turns its attention back to GMV, the aggressive pricing strategy may be further eased. Industry insiders believe that after fully turning to GMV orientation, the growth rate of Douyin e-commerce should increase in the second half of the year.

02 The Difficulties of Douyin E-commerce

Low prices themselves will have obvious adverse effects on platforms and merchants.

As industry observers have said, the "impossible triangle" of low prices, quality and service will cause irreversible damage to the platform. "Because low prices squeeze the profits of merchants, it may cause a vicious cycle of declining product quality → rising return rates → loss of high-quality users → high-quality merchants switching to other platforms."

During the 618 shopping festival this year, the topic of women's clothing return rate as high as 80% occupied the hot search position. While merchants complained bitterly, many consumers also generally mentioned a point of view: it is precisely because of the poor quality of the goods that the return rate has increased.

The problem of high return rate is more obvious on Douyin.

The 2020 China Live E-commerce Industry Research Report shows that the average return rate of live e-commerce is between 30% and 50%, which is much higher than the 10%-15% of traditional e-commerce. In July 2023, the return rate of jewelers on Douyin was reported to be as high as 90%; in the women's clothing field, which is the hardest hit by returns, the return rate of e-commerce platforms is basically around 50%, and on Douyin it is as high as 70%-80%.

In fact, the development of Douyin's e-commerce is not optimistic, which may be one of the reasons why it chose a low-price strategy at the beginning of the year. However, half a year has passed, and low prices obviously cannot solve Douyin's predicament.

We see that Douyin’s traffic difficulties are causing merchants to have a less than optimistic business situation.

Douyin's operating costs are getting higher and higher. Some investors said that Douyin's branded live broadcast room "has no traffic if it doesn't pay", and it needs to constantly buy traffic to maintain sales.

According to the above-mentioned investor, it is normal for the traffic costs of merchants’ own live broadcast rooms to account for 50% or even higher of the payment GMV.

In this way, the advantage of live streaming on Douyin is that it can quickly increase the volume, but it also faces a problem - there is volume, but no profit.

On May 30 this year, the Douyin women's clothing store "Lola Code" announced the suspension of its broadcast and closure of the store after its last live broadcast.

Lola Code is a leading player in the women's clothing market on Douyin, with annual sales of more than 100 million yuan. In an interview, 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."

Factors such as high investment costs, high return rates, and low-price competition ultimately crushed "Lola Code".

Another issue hovering over TikTok is how to avoid becoming a propaganda platform and paving the way for other platforms.

In the industry's view, the exquisite images and attractive words of short videos and live broadcasts can cultivate purchasing desire, facilitate transactions, and bring more users to merchants. Malls and stores can well meet the needs of merchants' private domain operations and provide a smooth ordering process.

Douyin previously focused on live-streaming e-commerce, which resulted in the traffic generated by the live-streaming room often becoming a wedding dress for other platforms.

At the end of 2020, the old domestic down jacket brand YaYa became popular again on Douyin. By Douyin 618 in 2021, the total GMV of the YaYa brand exceeded 100 million yuan, ranking first on the women's clothing list.

In the same year's Double 11, within just an hour of opening, YaYa's Tmall flagship store sales exceeded 200 million yuan. According to media reports, in the marketing activities before Double 11, YaYa mainly directed traffic to the Tmall flagship store.

Many businesses hope to do well on Douyin because, "If Douyin is successful, the search volume of Taobao and JD.com will also increase. If they get the income based on commissions, Taobao and JD.com can also reap the benefits together."

Based on this, the layout of shelf e-commerce has become an important measure for Douyin to improve its own e-commerce matrix.

In April this year, Douyin launched the Douyin Mall App, a comprehensive independent e-commerce platform. In this app, users can complete the complete e-commerce platform shopping experience, including searching for products, comparing prices, placing orders, checking logistics, and after-sales services.

Not long ago, according to 36Kr, Douyin plans to reduce the proportion of live broadcasts by influencers to expand shelf e-commerce. Douyin denied this news.

At present, the scale of the e-commerce market has gradually approached its ceiling, and even in this year's 618, the sales of all online e-commerce companies fell year-on-year for the first time. According to this development trend, although the growth rate of live e-commerce is higher than that of comprehensive e-commerce platforms, the growth space it can achieve is not optimistic.

For Douyin e-commerce, shelf e-commerce is obviously becoming more and more important. But how much growth shelf e-commerce can bring to Douyin e-commerce is also not a simple question.

References:

1. Tingchao TI: Douyin e-commerce is anxious to get out of the "low price dilemma"

2. New entropy: The tide of "low prices and refund only" recedes, and e-commerce giants regain their "sense of boundaries"

3. China Logistics and Purchasing Magazine: Why did Taobao and Douyin adjust their low-price strategies?

Author | Lingling