The new proposition of Cat and Dog Fighting: from sinking market to sinking demand

In today's consumer market, the concept of "downstream market" has changed from simple geographical expansion to a broader "downstream demand". As consumers pay more and more attention to cost-effectiveness and practicality, e-commerce platforms and brands must re-examine and adjust their strategies to adapt to this change. This article deeply explores the new trend of the downstream market, analyzes how mainstream e-commerce platforms such as JD.com, Meituan, and Pinduoduo meet consumers' downstream demand through innovative business models and strategies, and the impact of this change on the entire e-commerce industry.

When we talk about the sinking market again in 2024, the definition of this term has become richer and broader than it was ten or even five years ago. It is more accurate to use "sinking demand".

It’s not that they can’t afford it, but that they can’t afford it too expensively; it’s not that big brands are bad, but that the substitutes are more cost-effective; drinking a cup of Starbucks is not more noble than drinking a cup of Luckin Coffee. Young people who are disenchanted with brands are facing sinking consumption with a new attitude.

At the beginning of 2024, Xiao Report, DT Research Institute and New World China started from the consumption hot spots in 2023, studied the consumption phenomena of young people in first-tier cities and found that young consumers have become more savvy.

They are willing to spend the least money to buy the most cost-effective goods and services, and the logical background of consumption is gradually formed by "rationality". In the "2023 New Middle Class Survey" released by Wu Xiaobo Channel, it was found that in the product descriptions that are most attractive to the new middle class in 2023, 68.4% of people chose "cost-effectiveness", 55.9% chose basic/practical, and only 2.8% chose luxury/limited.

Behind the prevalence of "price-performance ratio" is the breakthrough of the sinking market, or more accurately, the victory of sinking demand.

Since last year, topics such as "Buy five and a half kilograms of Fenghua for 79 yuan", "Liquid foundation for 5.9 yuan", and "Buy seven eyebrow pencils for 6.7 yuan" have emerged one after another, and cost-effective and quality-price-performance products have become the new favorites in the market.

Obviously, the old proposition of "downstream consumption" has a new background footnote, and major e-commerce platforms also need to give their own new answers.

1. New moves to expand into lower-tier markets

Mainstream e-commerce platforms are still continuing to increase their investment in the lower-tier markets.

Jingxi, which has experienced ups and downs within JD.com, has recently changed its name and re-entered the sinking market with a new name of "Jingxi Self-operated". According to 36Kr, this change of Jingxi has been brewing since November last year.

In terms of business model, Jingxi changed from self-operation to the currently popular full-trust model, focusing on white-label manufacturers at the source factories. About half a year ago, Wandian also reported that in the future, Jingxi APP will benchmark "NetEase Yanxuan". In addition to focusing on industrial belt merchants, it will also customize products according to user needs, that is, the platform and merchants will jointly operate.

This project is on the same level as self-operated and POP (third-party merchants). Merchants are responsible for customized production on demand, and the Jingxi platform is responsible for sales, operations, logistics and after-sales, and earns the difference from the merchants.

Different from JD.com's traditional self-purchased products, Jingxi's self-operated business locks in the source factories and produces on demand, keeping the cost and quality control rights in the hands of the platform, thereby achieving low-priced products with a certain quality guarantee.

A person close to JD.com interviewed by 36Kr also mentioned that "in order to differentiate ourselves from competitors in terms of low-priced goods, after many internal discussions, the final standard for selecting products for Jingxi's self-operated business was set at 'having a bottom line and being sufficient'."

The sinking market is now a battleground for e-commerce companies seeking growth, and it is also a new frontier that local life is trying to open up.

In Meituan’s Q3 earnings conference call last year, terms such as “downstream markets”, “low prices” and “high cost-performance” were mentioned many times. For Meituan, the deep development of downstream markets is not only for growth, but also for maintaining market share.

"Pinhaofan" is an absolute trump card that Meituan holds in its hand as it explores the user's lower-end needs.

This special takeaway group-buying product is designed to boost consumer demand, and most items are priced below 15 yuan. For Meituan's already low-profit takeaway business, Pinhaofan can achieve such an extremely low price because it shares similarities with the low-price logic of the e-commerce platform Pinduoduo.

Pinhaofan is different from the recommendation logic of Meituan’s takeaway restaurants and stores. It presents products based on the logic of single products, and through the method of users placing group orders, merchants preparing meals in a centralized manner, and riders delivering meals in a centralized manner, the entire takeaway chain can be operated on a large scale, thereby reducing the price of takeout.

After the pilot launch in 2020, Pinhaofan was almost entirely tested in lower-tier cities. The latest breakthrough is that this product has now entered most markets across the country, including first- and second-tier cities.

This means that Pinhaofan helps Meituan to expand from the countryside to the cities again.

According to Bocom International's analysis, in 2023, Pinhaofan will account for about 6% of Meituan's takeaway orders, with a total of more than 1.16 billion orders. Other data show that in the first quarter of this year, Pinhaofan's daily orders were close to 5 million, compared with about 3 million last year. At the current growth rate, Pinhaofan's share of takeaway orders is expected to reach 20% in the future.

At the shareholders' meeting held by Meituan in May this year, Wang Xing affirmed the results achieved by "Pinhaofan" and reiterated the "three highs and three lows" principle of Meituan during its early days, the first of which was "high quality and low price."

2. Stratified consumer demand

Today's sinking market is different from the low-tier city users that Pinduoduo conquered in the early days of its rise.

Ali P8, who earns a million per year, will place an order on Pinduoduo for 9.9 yuan with free shipping, and housewives in fourth-tier cities will also buy dishwashers on JD.com. This is not an era of complete consumer stratification, but an era of consumer stratification.

Consumers' demands for sinking consumption show different levels, and the potential of the consumer market is still huge. Over the past year, several established e-commerce companies have captured the changes in consumption trends and have taken responsive measures.

JD.com took action before Alibaba. Since the end of 2022, Liu Qiangdong has repeatedly mentioned low prices within the company. Last year, according to the explanation of Xin Lijun, the then CEO of JD Retail Group, JD.com's low prices are not bottomless low prices, but the constant pursuit of the ultimate cost-effectiveness, achieving low prices on the basis of ensuring service and quality, and finding the best balance between the platform and users.

Regarding the low-price strategy at the time, Xin Lijun mentioned that JD.com's future strategy would be layered - for consumers who pursue quality, it would mainly rely on self-operation; for price-sensitive consumption, it would rely on third-party POP merchants to lower prices.

Alibaba also rejects the one-size-fits-all approach. Since the beginning of last year, Alibaba has become sensitive to price power, and returning to users has also been raised to the strategic level of the group.

A number of old businesses that can capture young users have been recognized and valued by Alibaba again. 1688 is one of them. This platform has been lucky to catch the trend of sinking demand and stratification of consumption.

At a media communication meeting last year, Wang Qiang, general manager of the 1688 Merchant Development Center, mentioned that the customers acquired by merchants on the 1688 platform and the consumer groups behind the customers are completely different from those in the sinking market.

In his opinion, sinking e-commerce platforms mainly serve people who pursue the ultimate cost-effectiveness or cheap goods, and 1688's typical user groups are divided into two types: one is the new middle class with a shriveled wallet, and the other is the Z generation whose wallets are not yet bulging. They are 25 to 30-year-old users in first- and second-tier cities, with a user profile similar to that of Xiaohongshu.

These two groups of people pursue cost-effectiveness, quality-price ratio and design aesthetics of goods. As a result, the concept of alternative consumption has become popular. They flock to 1688 to find the source factories behind the big brands.

Behind these two types of people, what is reflected is the occurrence of consumption stratification under macroeconomic changes. Wang Qiang further explained that in addition to the up and down stratification according to consumer income and consumption level (consumption upgrade and consumption downgrade), 1688 also saw the problem of consumption going left and right.

Consumption moving to the right means that consumers believe that "the moon is rounder abroad" and they are more inclined to buy international brands. Consumption moving to the left means that the new middle class with shrunk wallets and Generation Z, who have high requirements for the emotional value of goods, are accepting of substitute products.

Alibaba, which pays particular attention to brands and stores, has also become more calm amid the craze for "price-performance ratio".

Recently, 36Kr reported that in the second half of this year, a core change of Taobao Group is that Taobao has weakened its absolute low-price strategy. Since last year, the system of allocating search weight according to "five-star price power" has been weakened and changed back to allocation according to GMV.

This means that the previous "five-star price power" distribution system, the logic that the lower the price of the product, the higher the traffic will be, will no longer work. However, weakening the distribution of traffic by price does not mean not to set low prices, but it needs to be more targeted.

For example, the five-star price power index is still retained for branded products, and product prices cannot be more expensive than on JD.com and Pinduoduo.

3. Pinduoduo defends the "downstream market"

The definition of the sinking market has become broader, and Pinduoduo, once a pioneer, has to defend its position and even need to innovate.

Last year, as Taobao and JD.com were caught up in the "low-price vortex", Pinduoduo increased its subsidies, investing another 1 billion yuan on top of the original 10 billion yuan in subsidies. After the additional subsidies, mobile phones and home appliances on Pinduoduo were once about 20% cheaper than those on other e-commerce platforms.

In 2024, LatePost reported that Pinduoduo originally planned to control the budget of the 10 billion subsidy channel this year, but adjusted the plan in the first quarter of this year and increased the annual budget to more than 10 billion yuan.

In addition to the 10 billion yuan in subsidies, Pinduoduo has also launched a new series of tools to help merchants optimize their operating efficiency and improve the competitiveness of product prices on the platform.

In late May this year, Pinduoduo first launched the "Automatic Price Tracking" system tool. Once merchants agree to enable the "Automatic Price Tracking" function, the platform will help them automatically monitor the prices of competing products. If the system detects that the competitor's price is lower, as long as it is within the merchant's authorization range, the platform will automatically lower the price.

This combination of "price comparison + price following" will help merchants gain more traffic and orders, but it will also inevitably accelerate the degree of internal competition among merchants.

Shortly after the "automatic price tracking", Pinduoduo also launched a "grab order artifact" tool. When a consumer has recently consulted, collected, or browsed the same product of a competitor, the merchant can use the "grab order artifact" to push the store's products to the consumer. At this time, you only need to slightly lower the price of the new product to get more traffic and help the product enter the homepage recommendation pool, thereby skipping the cold start and quickly gaining traffic.

Whether it is "automatic price following" or "order grabbing tool", they are actually in the same vein in encouraging merchants to compete on low prices.

These new "price-adjusting tools" clearly demonstrate Pinduoduo's determination to defend low prices, and Pinduoduo has not relaxed at all during the major promotional events from last year to this year.

During the Double 11 Shopping Festival last year, Pinduoduo launched the "instant discount for one item" for the first time on the basis of "10 billion yuan subsidy". In other words, the price was directly reduced on the basis of subsidy. At that time, the products participating in the "instant discount for one item" activity were given additional subsidies by the government.

During this year's 618, Pinduoduo directly adjusted the search recommendation traffic rules during the event to help lower prices. During the event, all products with price cuts will receive a higher site-wide traffic weight, up to 9 times. And the prices of event orders completed during the event will not be counted as the historical lowest price.

Low prices are an important part of Pinduoduo's ability to connect with lower-tier markets. Over the past year, major e-commerce platforms have been competing in a price war. As a pioneer with the deepest understanding of "outside the Fifth Ring Road" and the most advantageous position, the lower-tier markets and consumer demand will be the territory that Pinduoduo is determined to defend.

It’s just that when the definition of territory changes with the tide of the times, the old battlefield will become unfamiliar, and everything is still changing. As Diao Ye, the founder of Afu Essential Oil, said in 2019, "All consumer products are worth redoing."

Perhaps similarly, today's sinking market also needs new solutions, and people's sinking consumption needs also need to regain new understanding of the platform.

Written by: Li Huan, edited by: Zhai Wenting

Source: New-Daybreak (ID: new-daybreak)