Why Taotian gave up the low-price strategy

In the fierce competition in the e-commerce industry, price wars have always been an important means for major platforms to compete for market share. However, with the changes in the market environment and the upgrading of consumer demand, the low-price strategy no longer seems to be a panacea. Taotian Group's recent strategic adjustment, from pursuing absolute low prices to paying more attention to user experience and service quality, marks that the e-commerce industry has entered a new stage of development. This article will deeply analyze this transformation of Taotian Group and explore the future development trend of the e-commerce industry.

In the pursuit of extremely low prices, Taotian Group can no longer "roll".

Not long ago, according to the venture capital platform 36Kr, after the end of 618 in 2024, Taotian Group held a closed-door meeting for merchants, with first-line business executives attending. Several changes were clarified at the meeting and will be implemented in the second half of the year.

At this closed-door meeting, the most obvious change of Taotian Group is to weaken the absolute low-price strategy. The search rights are no longer based on the "five-star price power", but are more focused on allocation according to GMV. It is reported that the "five-star price power" began in early 2023. Under this system, the lower the price of the product, the more traffic it will get.

After sticking to the low-price strategy for a year, Taotian Group chose to change its mind, largely because the strategy did not bring the expected impressive performance. Next, Taotian Group will make more operational adjustments based on the "user first" concept, which to some extent shows that China's e-commerce industry has entered a new round of competition cycle.

1. One year later, low prices no longer apply to Taotian

The reason why Taotian Group increased its low-price strategy in 2023 is largely because Pinduoduo's strong rise due to low prices has brought huge competitive pressure to the former.

As we all know, around 2017, China had set off a consumption upgrade boom. Taotian Group, which previously focused on low prices, catered to the trend and focused on mid-to-high-end products, and achieved outstanding results. Alibaba's 2019 financial report shows that Tmall's physical goods transaction volume increased by 31% year-on-year, far exceeding the industry average.

Image: iResearch

However, since 2020, affected by external factors, Chinese consumers have become more cautious and started to pursue low-priced goods. The "2023 China E-commerce Market Research Report" disclosed by iResearch Consulting shows that in 2023, among the many factors that Chinese online shoppers consider when choosing websites/APPs, "price-price discount" ranks first.

Against this background, Pinduoduo vigorously took over the white-label merchants abandoned by Taotian Group, and relying on business model innovation, it provided extremely low-priced goods, rose strongly, and became a giant in China's e-commerce industry.

Financial report data shows that in 2023, Pinduoduo's revenue was 247.6 billion yuan, a year-on-year increase of 90%; adjusted net profit was 25.477 billion yuan, a year-on-year increase of 110%. Due to its outstanding performance, in November 2023 and May 2024, Pinduoduo's stock price surpassed Alibaba twice, becoming the Chinese stock with the highest market value in the US stock market.

Seeing Pinduoduo's rapid rise with low prices, Taotian Group turned around in early 2023, launched the price power project, and launched the five-star price power system, committed to providing more low-priced goods. In the subsequent 618 and Double Eleven shopping festivals, Taotian Group continued to focus on low prices.

Regarding the low-price strategy, in July 2023, Bai Hong, head of search and price power campaign at Taotian Group, said, "The platform's price power strategy mainly focuses on two points: first, as long as the price is reduced, there will be traffic. The platform will give merchants definite and clear feedback. The higher the profit margin, the more significant the incentive; second, enhance consumer trust and guidance through multiple channels and methods to promote sales of price-powered goods."

Although Taotian Group is almost "all in" on low prices, combined with its performance, low prices have not put Taotian Group on a solid high-speed growth track. Financial report data shows that in the 2024 fiscal year (ending March 31, 2024), Taotian Group's revenue was 434.893 billion yuan, a year-on-year increase of 5%. Among them, the revenue in the fourth fiscal quarter was 93.216 billion yuan, a year-on-year growth rate of only 4%.

What's more, due to the limited profit margin of low-priced goods, Alibaba's net profit continues to narrow. From fiscal year 2021 to fiscal year 2024, Alibaba's net profit attributable to shareholders after deducting non-recurring items fell from 150.578 billion yuan to 80.009 billion yuan, almost halved. In the fourth quarter of fiscal year 2024, Alibaba's adjusted net profit was only 24.42 billion yuan, down 11% year-on-year.

Against this backdrop, it is naturally difficult for the capital market to look up to Alibaba. Since November 2020, Alibaba's US stock price has continued to decline, from about US$320 per share to the current US$75.8 per share, a decrease of nearly 76.31%.

2. Weakening the absolute low price, is Taotian making the right move?

Precisely because the low-price orientation did not achieve the expected effect, in the second half of 2024, Taotian Group adjusted its strategic direction again, weakening the absolute low-price strategy and no longer pursuing the high DAC (order volume) brought by low prices. The focus of assessment shifted to GMV (transaction amount) and AAC (average consumption amount).

In addition, Taotian Group has also made many optimizations in operations based on the concept of "user first", such as replacing DSR with PXI, which has become the core indicator affecting search weight. It is reported that DSR can only evaluate the competitiveness of stores, while PXI is based on commodities, and can provide different traffic support for different commodities based on factors such as negative review rate, logistics performance, and out-of-stock rate.

In fact, in addition to changes in search weight standards, Taotian Group has carried out more refined operations in almost all aspects in line with user needs.

Image source: Taobao

For example, on the eve of 618 in 2024, Taotian Group optimized the web version of Taobao and restarted the Taojianghu forum to meet the shopping needs of PC users; during the 618 period, Taotian also canceled the widely criticized pre-sale activities to reduce consumers' purchase costs.

The reason why Taobao made the above adjustments is, of course, because its low-price strategy has lost its momentum, but the more important reason may be that it realized that the brand image and customer characteristics of Taobao and Tmall are completely different from those of platforms such as Pinduoduo that focus on extremely low prices, and that it cannot blindly pursue extremely low prices.

Official data shows that by June 2024, the number of Taotian Group's 88 VIP members will reach 36.27 million, with an average income of more than 60,000 yuan per user, and the GMV generated this year will exceed 2.3 trillion yuan. These high-quality members contribute more than 25% of Taotian Group's GMV.

In addition, data disclosed by LatePost shows that 88 VIP members log in to the Taobao App 25 days a month; the categories of goods purchased are about 5 times that of other users; as middle-class families, 88VIP members spend 4 times more than non-88VIP members; among the post-00s, members are 6 times more than non-members.

In contrast, in September 2023, a research report by China Merchants Securities showed that the active penetration rate of Pinduoduo users in first-tier cities was only 19.8%, and in fifth-tier cities it was 22.1%. The proportion of users in third-tier and lower cities was much higher than that of other e-commerce platforms. Currently, the average customer unit price of Pinduoduo is only about 40 yuan.

A horizontal comparison shows that the spending power and shopping habits of Pinduoduo users are completely different from those of Taotian Group's 88VIP. Considering that Taotian Group's high-net-worth 88VIP customers have stronger spending power and pursue high-quality products, the former's blind imitation of Pinduoduo and excessive promotion of low-priced white-label products will inevitably trigger the "southern orange grows in the north" effect, pushing consumers to other platforms.

For this reason, since 2024, Taotian Group has begun to focus on user needs, committed to supplying high-quality products, and optimizing the user experience throughout the entire chain, trying to tap the "surplus value" of existing high-net-worth member users.

3. Times have changed, and the e-commerce industry has entered a stage of competing in services

In fact, as the dividends of the sinking market gradually disappear, in the past few years, not only has Taotian Group found it difficult to open up growth space by relying on low-price strategies, but various e-commerce platforms that have continued to increase low prices are also facing the challenge of performance reaching its peak.

Take JD.com as an example. At the JD.com Retail Internal Conference held at the end of 2022, the company's founder Liu Qiangdong stated that "low price is the most important weapon for JD.com's success in the past, and it will also be the only basic weapon in the future." Subsequently, JD.com listed the "low price strategy" as the company's most important strategy for the next three years.

Image source: JD.com

Since 2023, JD.com has launched many activities with low prices as the main line. For example, at the beginning of the year, JD.com launched a channel with 10 billion subsidies and 9.9 yuan free shipping on the homepage of the App; during the Double 11 period, JD.com shouted the slogan of "really cheap".

However, JD.com has not returned to its high growth track. Financial report data shows that from 2020 to 2023, JD.com's revenue growth rate will be 29.28%, 27.59%, 9.95% and 3.7% respectively, and the growth rate is narrowing.

Not coincidentally, according to LatePost, after years of ultra-high-speed expansion, the growth of Douyin e-commerce has also weakened. From January to March 2024, Douyin e-commerce's sales growth rate was over 60%, over 60%, and less than 40% year-on-year, respectively. Due to the decline in the efficiency of low-price driving, Douyin e-commerce has recently adjusted the priority of its business goals and no longer puts "price power" first. In the second half of 2024, it will focus on pursuing GMV growth.

It is obvious that after years of focusing on low prices, e-commerce platforms such as Alibaba, Douyin, and JD.com have all seen their performance growth slow down. This largely shows that low prices are no longer the key to victory for e-commerce platforms.

If e-commerce platforms want to stimulate consumer spending, in addition to maintaining a certain level of competitiveness in terms of price, they also need to clear other "blocking points" in the shopping chain to create a high-quality shopping experience. Currently, many e-commerce companies are following the example of Taotian Group and optimizing the shopping process across the entire chain based on the concept of "user first".

For example, in response to the problem that couriers have difficulty delivering goods to door-to-door locations, which suppresses consumers' desire to shop, many e-commerce platforms are developing on-demand delivery services.

Image source: JD.com

In early July 2024, JD.com announced that merchants can open the door-to-door delivery service on their own initiative. Merchants can open the door-to-door delivery service on the Jingmai platform based on the product dimension. If they choose a third-party courier company, they will be charged 1 yuan within 5 kilograms. After opening, they can promise to deliver the goods to the user's door throughout the entire chain, and the carrier will deliver on demand.

Coincidentally, a few months ago, Douyin also launched an on-demand delivery service. After the goods are shipped, consumers can freely choose a variety of delivery methods, and can even make an appointment for a specific delivery time, and can choose the do not disturb service. In addition, in order to eliminate the worries of consumers who dare not shop due to the high cost of returns and exchanges, in early 2024, JD.com also upgraded the "free door-to-door return and exchange" service. All products with the "free door-to-door return and exchange" service label, regardless of size, weight and quantity, can be returned and exchanged for free at home, and consumers do not need to spend any shipping costs.

From this point of view, at this point in time in mid-2024, Taotian Group's weakening of its absolute low-price strategy seems to be just an occasional adjustment of the platform, but in fact it is also a typical epitome of changes in industry development trends.

At present, consumers are indeed more cautious in their consumption, but they are not blindly pursuing extremely low-priced goods. Instead, they are pursuing more cost-effective and high-quality goods, and they are more concerned about the shopping experience. Based on this, many e-commerce platforms have begun to refine their operations in addition to low prices, trying to build a differentiated business moat through high-quality products and services.

Although the above measures are unlikely to completely reverse the problem of insufficient consumer motivation, they are indeed conducive to reducing consumers' shopping burden. As the economy gradually improves, these humane measures may become the "new quality" driving force for the booming e-commerce industry.