E-commerce companies are scrambling to get billions of subsidies, so why are refunds automatically issued?

This article mainly discusses the automatic refund problem that occurred when e-commerce platforms such as Pinduoduo carried out the "10 billion subsidy" marketing campaign, and explores the reasons behind it and the conflicts between merchants and consumers caused by it.

Since late May, major e-commerce platforms have entered the "618" promotion mode. However, compared with previous years, this year's 618 seems to be much "calmer". Taobao, JD.com and other e-commerce giants have successively cancelled the pre-sale system and greatly simplified the promotional preferential policies.

Not only are merchants "calm", but consumers are also "terribly rational". Some netizens found that the goods they bought during Pinduoduo's "618" event were suddenly automatically refunded by the merchant.

As soon as this incident came out, it immediately sparked heated discussions on the Internet, with people saying "It's really too much fun!"

Xiaonei.com Xiaoshan Forum

Why did the "10 billion subsidies" that once set off a huge wave in the e-commerce industry last year become a hot spot for consumers to complain about? Why was the order suddenly refunded after it was clearly placed? What exactly happened between buyers and sellers, and between sellers and Pinduoduo? Are the 10 billion subsidies that once brought "quality" and users to Pinduoduo no longer popular?

1. Why are billions of subsidies frequently returned?

On May 25, a netizen from Xiaoshan, Hangzhou, posted on a local forum: "I bought a mobile phone during the 618 event. I bought it four times on a certain platform and returned it four times. I don't plan to buy it anymore. If you can't afford it, don't put it on the shelf." Coincidentally, as early as the beginning of May, some netizens posted that they usually spend normally and don't understand what caused the "order cancellation".

Xiaonei.com Xiaoshan Forum

In addition to the situation mentioned by the netizens above, some netizens on Weibo complained that since last year's Double Eleven, Taobao's 10 billion yuan subsidy has also seen automatic order refunds. In the comment area below the post, many netizens said that they had encountered the same situation on different platforms, and it was not limited to expensive products such as mobile phones. Some netizens also had their mineral water purchases automatically refunded.

Xiaonei.com Xiaoshan Forum

Some netizens said that the cancellation of orders by the 10 billion subsidy program is related to the buyer's account. The system has strict auditing, and no matter which platform, orders may be cancelled by mistake. Some netizens also contacted customer service and said that the 10 billion subsidy program has different purchase limits for different products. At the same time, if the same user submits multiple orders that exceed the purchase limit, the platform will close the transaction.

To put it simply, it means "purchase limit, the same user can only purchase one item." Such a statement naturally caused dissatisfaction among many consumers, and they called the platform "scam" and "don't play if you can't afford it."

When the order refund incident happened again on Pinduoduo, which has always been focusing on low prices, is the reason behind it that the low-price road of e-commerce has reached its peak? Is the low-price conflict between merchants and Pinduoduo intensifying?

In the view of Yidu Pro, there are two fundamental reasons: one is that merchants continue to lower prices and their profit margins are compressed; on the other hand, Pinduoduo's net profit continues to double.

On May 22 this year, Pinduoduo Group released its first quarter performance report for 2024 ending March 31. The report shows that Pinduoduo Group achieved revenue of 86.8 billion yuan in the first quarter of this year, with a market estimate of 76.86 billion yuan, a year-on-year increase of 131%; adjusted net profit of 30.6 billion yuan, with a market estimate of 15.53 billion yuan, a year-on-year increase of 202%.

In fact, since its first profit in the third quarter of 2021, Pinduoduo's net profit has continued to grow at a high rate, with an increase of no less than 50%. Such a performance is explosive, and Pinduoduo's intraday market value once surpassed Alibaba.

While Pinduoduo's net profit continued to double, merchants continued to cut prices in response to low prices, squeezing profit margins. This result, to a certain extent, led to the intensification of conflicts between merchants and the platform.

2. E-commerce competition returns to its most primitive stage - low-price competition

Why, as e-commerce continues to develop, the conflicts between consumers, merchants and platforms are further intensified?

The general environment is that with the addition of live-streaming e-commerce platforms such as Douyin, Kuaishou, and Xiaohongshu, the current e-commerce market has returned to the most basic and most lethal track of price.

Looking back at the history of China's e-commerce development, it is undoubtedly wonderful and exciting.

The earliest Taobao was the 1.0 era of e-commerce, when traditional enterprises first went online and eventually built Taobao's business empire with its three-year free model (on the merchant side).

Later, JD.com joined the e-commerce competition. In order to differentiate itself from Taobao, JD.com has always focused on genuine products, and the prices are much cheaper than those of offline mobile phone hypermarkets. At that time, buying mobile phones and computers offline was not only difficult, but also had a high premium. It can be said that the early rise of JD.com online mall was largely due to its good reputation in the electronic 3C field.

In 2008, JD.com launched its 618 flash sale event for the first time, marking the beginning of the e-commerce shopping festivals that have lasted for more than a decade. The following year, Taobao launched its Double 11 event, and the two most important shopping festivals for domestic e-commerce, 618 and Double 11, began to take their place on the historical stage. Thus, a new pattern was formed, represented by Taobao and JD.com, marking the 2.0 era of the e-commerce market.

Later, as e-commerce gradually took shape, consumers gradually got used to placing orders online. In 2013, Suning defined a new cloud business model of "e-commerce + store business + retail service provider". Its chairman Zhang Jindong proposed that the future development direction of China's retail industry is Internet retail. At this time, with the participation of physical enterprises such as Suning, e-commerce entered the stage of competing for distribution and after-sales service. This stage was also the era of the most intense competition among logistics companies such as SF Express and YTO Express.

In 2015, Pinduoduo was established. With its unique group-buying low price and sharing mechanism, it quickly rose and occupied the market share. The rise of Pinduoduo dealt a heavy blow to e-commerce giants led by Taobao and JD.com, breaking the pattern of the e-commerce market.

Since last November 29, when Pinduoduo's market value surpassed Alibaba for the first time, it has surpassed Alibaba many times in the past six months. Pinduoduo's first quarter report for 2024 showed that its total revenue was 86.8 billion yuan, an increase of 131%, exceeding market expectations. Transaction service revenue increased by 327%, becoming the largest source of revenue. Pinduoduo's total revenue has exceeded the sum of Alibaba Taobao + JD's advertising services, and its net profit is about 2.7 times the sum of Alibaba + JD.

However, just as Pinduoduo swept through Alibaba and JD.com, the entry of short videos and live streaming e-commerce has muddied the waters of e-commerce. According to media reports, in 2023, the gross merchandise volume (GMV) of Douyin e-commerce will be about 2.7 trillion yuan, and the GMV target for 2024 will be even higher, with an increase of nearly 50%. In 2023, Alibaba's annual GMV will be 7.2 trillion yuan, while Pinduoduo's GMV will be 4.05 trillion yuan.

The rise of live streaming e-commerce has dealt a heavy blow to traditional e-commerce platforms such as Pinduoduo, Taobao, and JD.com. In order to cope with this challenge, each company has to return to the era of low-price competition.

Since last year, all companies have put their "low price" strategy on the table . JD.com proposed "more, faster, better and cheaper", launched a 10 billion subsidy channel, opened up POP investment promotion, and lowered the freight threshold. Taobao and Tmall proposed the "price power" strategic goal. Kuaishou e-commerce has taken "low price and good products" as its business guide. Douyin merchants have also said they want to benchmark Pinduoduo and lower their prices.

Screenshot of JD.com’s official account

All signs indicate that e-commerce has returned to the price war track. During this year's "618" period, the price war has intensified. Pinduoduo, which has always been the "king of low prices", has "turned over". It can be seen that low prices are easy for a while, but how can low prices be sustainable? This is a problem that Pinduoduo urgently needs to solve, and of course it is also a problem facing all e-commerce platforms.

3. Are low prices sustainable?

Low prices are good for a while, but they are a disaster if they are kept low. It seems that in the eyes of platforms and merchants, it is difficult to keep low prices. So, how can we make low prices sustainable?

If we want to achieve sustainable low prices, the first question we need to think about is the logic behind low prices. Pinduoduo, which started out as a low-price competitor, is most familiar with this.

I believe every consumer has experienced this when browsing Pinduoduo. The product you browsed a few minutes ago, you will find another cheaper one a few minutes later. This is Pinduoduo's "horse racing system". No matter how good the goods a merchant usually sells, as long as a single product is a few yuan more expensive than its competitors, the traffic will be low. In order to obtain more traffic, merchants can only continue to roll inward and keep lowering prices. The final result is that the contradiction between merchants and platforms is getting deeper and deeper.

Such things are not uncommon. Two days ago, Motie Publishing House stopped shipping to JD.com on the grounds that low prices disrupted the order. JD.com believes that the goal of JD.com's 618 book event is just to allow more consumers to buy cheap and good books. The founder of Motie Group believes that JD.com's move is to set low prices and disrupt the market order. In the final analysis, it is actually caused by the disharmonious relationship between the retailer and the merchant.

In December last year, Wang Xiaolu and Hema stopped cooperating because the two sides could not reach an agreement on the supply price, and the conflict between retailers and suppliers deepened.

Xiaolu Political and Educational Department Official Account

If you want to make a profit by offering low prices, you cannot just rely on lowering prices to make merchants lose money. If you keep lowering prices on merchants, it will sooner or later cause merchants to rebel. However, for most of the current platforms, they are obviously still in the stage of engaging in price wars by lowering prices.

For this reason, Pinduoduo and its cross-border e-commerce platform Temu have been criticized. In addition, Pinduoduo's strategy of enjoying the domestic traffic dividend by "low prices" has become increasingly unsuitable in overseas markets. The most direct manifestation is that on third-party consumer experience platforms, consumers' ratings of Temu are constantly decreasing.

For example, in February 2023, when Temu was most popular, its consumer rating on the US business rating website BBB (Better Business Bureau) was C, and the average user rating fell to 1.78 stars (out of 5 stars). By June 2023, the Temu platform's rating on the BBB website was only 2.41 points (out of 5 points).

At the same time, some Temu sellers are overwhelmed by the meager profits from selling goods on the Temu platform and have shown signs of withdrawing from Temu.

This also means that if Temu continues to follow Pinduoduo's low-price strategy, whether it can be sustainable is very questionable. From this perspective, it will not be particularly easy for Pinduoduo to continue this low-price strategy in the future.

IV. Conclusion

If you want to keep low prices sustainable, you can't just keep lowering prices. This will only result in the platform making money while the merchants lose money, further intensifying the conflict between the two sides. If you want to keep low prices sustainable, the first problem that e-commerce platforms need to solve is how to reduce the operating costs of merchants so that they can have more profits.

At present, the e-commerce market has returned to the most primitive stage of low-price competition. It should be noted that in this process, it is not important who has the lower price. What is important is how to keep the low prices of e-commerce sustainable so that buyers, sellers and platforms can benefit together. This is the most noteworthy issue in today's e-commerce competition.

Author: Meng Ning, Editor: Xiaoying

Source public account: Yidu Pro (ID: yiducaijing2021), more love, deeper observation.