E-commerce platforms have launched "automatic price tracking" one after another, forcing hundreds of millions of merchants to hurry up

The new strategy of e-commerce platforms - the automatic price tracking function, is attracting widespread attention and heated discussions from hundreds of millions of merchants. This article deeply analyzes the possible impact of this function on merchants and how it will change the price war and traffic allocation mechanism of e-commerce platforms. Read this article to understand the business logic behind automatic price tracking and potential market changes. I hope it will be helpful to you.

Hundreds of millions of merchants probably didn't expect that during this particularly difficult 618 this year, they would be the first to be "cut" by the platform.

At the end of May, when the mid-year promotion was in full swing, Pinduoduo, the "catfish" in the e-commerce industry, was the first to throw out a thunderbolt: a new tool for automatic price tracking was launched for merchants. According to the official introduction, this function is to help merchants enable automatic price tracking of resource positions and reduce resource position dropouts. In other words, automatic price tracking is bound to a certain extent with the traffic and sales that merchants can obtain.

Once merchants enable this function, Pinduoduo can analyze the prices of competing products in real time, help merchants automatically adjust prices, and snatch users at lower prices. In an e-commerce environment where low-price competition is becoming increasingly fierce, Pinduoduo's move is tantamount to a strong medicine. Merchants are constrained by traffic and either actively or passively join the price comparison war, which pierces the price floor of the goods.

From the perspective of result-oriented theory, the more intense the competition among merchants at the price level, the greater the benefits consumers should gain, and strong external stimulation can also awaken the slightly sluggish consumer power. This seems to be a perfect inference in the current e-commerce era.

At present, this price comparison function gives merchants the right to participate independently, but merchants tend to be cautious about this function.

"As long as you open the backend marketing page, this automatic price-following pop-up window will pop up from time to time." Qiqi (pseudonym) and her husband run a jewelry store on Pinduoduo. "The profit margin of small commodities is not high to begin with. If the price is lowered further, it will really be a loss."

Some brands have already taken a tough stance, saying, "We will never enable this feature. At worst we will just close the store." A women's clothing brand that has grown rapidly in the past two years has opened a store on Pinduoduo. Its founder Xie Jin (pseudonym) told Doujiao.

Although the reaction from the merchant side is not yet completely clear, the actions of a number of e-commerce platforms are already aggressive.

Before Pinduoduo, Douyin e-commerce had already tested the "automatic price change" function on a small scale. The "Price Pusher" launched in early March was also a warm-up for the price comparison function. Taobao's recent actions are also aimed at low-price wars, and even began to limit the flow of high-priced goods. JD.com, led by its increasingly powerful procurement and sales team, raised the banner of "manual price comparison".

A new round of low-price tug-of-war has begun.

1. Platform price comparison puts pressure on merchants

Although this e-commerce price war is not mandatory, hundreds of millions of merchants have been involved in it.

"I received several calls from the waiter in the past two days, urging us to enable automatic price tracking, saying that if we didn't, our resource position would be removed." Compared with the promotion efforts of previous marketing activities, Qiqi can clearly feel Pinduoduo's urgency this time.

Some brand merchants also revealed to Doujiao that "Pinduoduo's storekeeper directly asked about our store's profit margin, just to get us to enable this feature."

What worries merchants the most is the traffic distribution constrained by the price comparison system.

Price is increasingly becoming a core factor in allocating traffic on e-commerce platforms. Compared with traditional e-commerce platforms such as Taobao and JD.com, users' decision-making process when shopping on Pinduoduo is simpler and more direct, mainly driven by price. They will buy from the store with the lowest price. If prices converge, the platform's recommendation mechanism will start to play a role, directly affecting the sales of goods.

Traffic shifting towards low-priced goods has become a trend in e-commerce. Xie Jin is well aware of this, as his women's clothing brand is available on Taobao, JD.com, and Douyin. "During the 618 shopping festival this year, Taobao and Douyin both limited traffic to high-priced goods, and many stores with high customer spending had no traffic at all."

JD.com is not far behind. Screenshots of JD.com's procurement and sales team asking for "low prices" have been circulated on social media, and the product pages on JD.com are clearly labeled "lower than XX (e-commerce platform)".

When the platform redistributes traffic within the site by means of circular price comparison, many merchants will fall into a passive situation. Qiqi said that after refusing to enable this function, the sales of the store plummeted, "The platform obviously does not promote traffic to us."

It seems that merchants have the right to choose independently, but the accompanying impact of the rejection option link has blocked the way out for many merchants. "The platform uses traffic to urge them at the front desk, and the waiter calls them at the back."

It is not without reason that merchants are particularly sensitive to the automatic price-matching function. The main reason is that the uncertainty caused by the price comparison system has shifted the pricing power that was originally held by merchants.

"Although the backend system shows that merchants can automatically modify the price reduction ratio and range, after we make the changes, the platform will change it back, and we have no way to control the price at all." Zhang Ting, an e-commerce operator of a book brand, discovered this problem after trying the price comparison function of Pinduoduo and Douyin. "This means that books that cost 30 or 40 yuan may be sold for a few yuan in this price comparison system."

Stimulating sales through extremely low prices is indeed a business strategy. However, this strategy has its own targeted products and sales nodes. "Generally, only inventory books or products that are about to expire will be sold at low prices to reduce inventory pressure. After all, even if such products are sold at a loss, it is better than leaving them in your hands, which can reduce some losses."

"During big promotions, brands will also launch several low-priced products to attract customers to their stores." In Zhang Ting's view, merchants still have pricing power behind these low-price operation strategies. However, once they participate in automatic price comparison, the active position of merchants will decline, which will in turn affect the overall operation of e-commerce.

In fact, the platform has long been involved in the pricing process of merchants.

"When we put goods on the shelves, the platform will check the prices of the goods and judge the merchant's pricing based on the prices of similar products on the site. If the price is too high, the platform will issue a warning to the merchant." Kiki said helplessly that small commodities such as headbands, necklaces, and rings do not have high commodity barriers, so the prices can only be increased rapidly.

2. It is difficult for white-label brands to survive and difficult for brands to control prices

In this round of price wars on e-commerce platforms, merchants of different types and sizes are affected to varying degrees.

A brand merchant told Doujiao that "the automatic price tracking function will definitely affect small merchants and white-label merchants operating in a single channel the most. These merchants are relatively weak in overall operations and supply chains and are more susceptible to platform policies."

As he said, many individual businesses and white-label businesses have indeed been affected.

Qiqi's experience is a microcosm of individual merchants. "Merchants like us often get goods from familiar factories. Our profit margins are not high, and it is difficult to continue to reduce prices. Moreover, the normalized investment costs of self-employed individuals like us are not very high." This means that individual merchants represented by Qiqi not only find it difficult to gain an advantage in the price comparison system, but also find it difficult to break through through their own operational capabilities after rejecting the platform's price comparison requirements.

"I've heard news about merchants' sales hitting zero over the past two days." Speaking of this, Kiki couldn't help but become anxious again.

In fact, in the face of the strict price comparison system, the traffic investment methodology accumulated by e-commerce operations is currently powerless. An agent of a home textile brand told Doujiao that after the price comparison system was implemented on the e-commerce platform, even if merchants spent a lot of money to invest in thousands of rivers, it was difficult to gain traffic growth. Only by offering low prices can you get traffic tilt.

A similar situation happened on the TEMU platform last year. At the beginning of 2023, TEMU sellers received requests from the platform to lower the supply price. The platform automatically lowered the product price according to market conditions, with the price reduction ranging from 20% to 30%. If the seller refuses to lower the price, there is a risk that the platform will remove the product. TEMU, which originally had a low threshold, forced out many small sellers due to this policy, which once caused market controversy.

Doujiao learned that the focus of this price comparison on domestic e-commerce platforms is mainly on white-label merchants. Through active intervention, the platform screened out a group of white-label merchants with more advantages in supply chain and quality control, while those who blindly followed the trend and sold at low prices will be cleared out faster in this round of cleaning.

For brand merchants that already have consumer awareness, the platform's price comparison mainly occurs between brands of the same level. The platform will not force brands to match white-label products, nor will it force brands to blindly pursue low prices.

However, this does not mean that brand merchants can stay out of e-commerce price comparison. As white-label merchants mature, they will also have an impact on brand merchants to a certain extent. At the same time, price comparisons between platforms have also increased the difficulty of price control for brands.

"Every platform will actively ask us to sell low-priced goods, and the platforms will also compare with each other. For example, platform A will explicitly require us to offer prices lower than those on platform B." Zhang Ting revealed to Doujiao that in order to take into account the brand's pricing system and e-commerce platform rules, they currently only control the prices of books with exclusive attributes, "and can't take care of those regular books at all."

Although this round of e-commerce price comparison war is seen as a rally for the 618 promotion, the price comparison mechanism is nothing new in the OTA industry.

OTA platforms have long conducted price comparison screening for accommodation, travel and other products. On the one hand, OTA platforms will conduct horizontal price comparisons from the perspective of product types and guide consumer decisions in the form of rankings. On the other hand, OTA platforms will also conduct vertical comparisons of single products. Once a hotel or flight has a price difference on different platforms, it will affect the platform's distribution of product traffic.

Against the economic backdrop of increasingly fierce e-commerce competition and a shift in consumer attitudes toward cost-effectiveness, the automatic price comparison currently pursued by e-commerce platforms is a further shift toward consumer rights.

The platform adjusts prices based on market supply conditions and tilts the balance of traffic to more cost-effective products, which is in line with the needs of current consumers. From the perspective of consumption trends, cross-platform price comparison and strategy making have become a fixed consumption path for young consumers. From this perspective, this move by the e-commerce platform is also reasonable.

However, when low prices become the market supply orientation and when merchants' profit margins are infinitely squeezed, the order established in the e-commerce market over the years will face a strong impact.

"As profit margins are squeezed lower and lower, merchants can only think of ways to save costs. The only way is to lower standards on the raw material and research and development ends, resulting in lower and lower product quality." This white-label merchant said that the low-price orientation is likely to cause the e-commerce market to fall into the phenomenon of bad money driving out good money.

Behind the platform's strict price comparison mechanism, consumers' rights are not necessarily protected. Take the women's clothing industry as an example. Once a hot-selling item appears, white-label merchants and brands can copy the same item at a low price in large quantities, and then distribute traffic to push low-priced and low-quality goods to countless ordinary consumers. One possible situation is that merchants cannot sell goods and consumers cannot buy suitable clothes. In the long run, the creativity of the industry and the possibility of brand development will be damaged.

Regarding price comparison on e-commerce platforms, policy-level regulation has also followed.

In May, the State Administration for Market Regulation issued the "National Anti-Unfair Competition Interim Provisions" (hereinafter referred to as the "Provisions"), which clearly stipulates many behaviors such as price competition on e-commerce platforms. Among them, the "Provisions" indicate that e-commerce platforms shall not impose unreasonable restrictions on the prices of goods. It is understood that the "Provisions" will come into effect on September 1 this year.

No matter how external factors change, the shift to cost-effective low-priced goods is an inevitable trend in the development of e-commerce. The intervention of the e-commerce platform is one of the signals. It is worth pondering that how to balance the rights and interests of the platform, merchants and users is still a longer-term proposition.