Merchants are in trouble, Li Jiaqi is caught in the crossfire, and only JD.com is taking advantage of the situation?

The annual Double 11 battle has begun again. Let’s take a look at what happened this year?

The annual Double 11 battle has already begun, but what is unexpected is that what has attracted so much attention on Double 11 is actually a "melee."

Recently, a public opinion war broke out between Haishi, JD.com, and Mei ONE over the "lowest price on the entire network". The merchants, platforms, and live streamers fought back and forth, and under the public's attention, they gained enough attention. Consumers who originally had no expectations for this year's Double 11 were also successfully aroused by this multi-party industry melee to gossip.

In fact, compared to the excitement itself, this time the "price war" among merchants, platforms, and live-streaming anchors also heralds the arrival of a new round of e-commerce channel wars.

1. Merchants attacked JD.com and "accidentally hurt" Li Jiaqi

Looking back at this low-price public opinion war, the direction of its "plot" can only be described as "dramatic".

The whole incident began when staff from the oven brand Hai's publicly criticized JD.com on their WeChat Moments on the day of JD.com's Double 11 shopping spree (October 23), complaining that JD.com's channels were aggressively "squeezing brands" and even forcibly lowering prices and restricting merchants' backend permissions.

The next day, JD.com responded on WeChat Moments. On the one hand, they denied the accusations of the Hai brand, and on the other hand, they directed their criticism at Li Jiaqi, saying that he forced brands to "choose one of two". For this reason, JD.com "paid out of its own pocket to subsidize platform consumers, resulting in product prices lower than those in Li Jiaqi's live broadcast room", and will also face lawsuits from brands.

In fact, if the matter had only developed to this point, at best it would have been just a public complaint within the industry, not enough to attract the attention of the entire network. But the problem was that the media subsequently exposed the lawyer's letter sent by Hai's to JD.com, which brought this confrontation between the brand and the channel to the public.

In response to JD.com's accusation that it forced merchants to "choose one of two", Mei ONE and Hai's cooperated. The former responded to the media that "there is no "choose one of two", and there is no reserve price agreement", and the latter also followed up with an official statement saying that there is no "reservation price agreement" and listed JD.com's actions to oppress brands. Unfortunately, a promotion service contract in which Mei ONE required brands to maintain a reserve price or pay 2 million yuan in compensation was soon exposed by the media.

When the incident fermented to the 25th, the person in charge of JD Home posted the agreement's overbearing clause of "resisting low prices across the entire network" in his circle of friends. That night, the JD Home Appliances and Home Furnishings Division even "went all the way" and directly launched the "Low Price Li Jiaqi Live Broadcast Room" saying "10% off for spot goods". At the bottom bar of the JD APP homepage, there was also a banner ad that read "JD Procurement and Sales Call, Low Price Live Broadcast Room; 11.11 is really cheap, win 10,000 eyebrow pencils."

So far, although the low-price public opinion war has not yet been settled, the outcome has already been determined. The Jingzhe Research Institute found that the two main parties, Haishi and JD.com, had completely different statements, and it was difficult to tell the truth from the false. In the public opinion field, Haishi went from being unknown to suddenly being noticed by the public. Regardless of whether it helped the sales of Double 11, it at least earned exposure; although JD.com was questioned for violating industry rules and the spirit of contract as a platform, it also successfully tied the "low price" label and attracted many consumers to flock to JD.com to find low-priced goods; only Li Jiaqi was surrounded by enemies on all sides and was collectively suppressed.

In fact, the whole incident was caused by the "bottom price agreement". In the field of e-commerce, the bottom price agreement is a common industry consensus, but there are different statements, and it is not exclusive to anchors. Platforms that have the right to speak also have similar rights.

Before being banned by relevant departments, "choose one of two" was an important strategy for platforms to force merchants to stand in line during big sales and attract consumers with low prices. Now that the "choose one of two" promotional tool has been abolished by industry regulators, the "lowest price" has become the focus of competition among all parties.

2. Platforms are in price anxiety, and brands are suffering from both sides

It is undeniable that low prices are the core weapon in the current e-commerce competition. This year, Taotian Group announced that GMV is no longer the most important evaluation indicator, and the core goal is "the lowest price on the entire network"; JD.com announced that the theme of this year's Double 11 is "real bargains", saying that the platform must consolidate the "low price mentality". For a time, Pinduoduo, which focuses on "real low prices every day", became the price anchor of major platforms.

In fact, if we follow the trend of major platforms focusing on low-price strategies, this year's Double 11 will be a year of returning to e-commerce promotions to benefit consumers. But the reality is that behaviors like JD.com's excessive pursuit of "bottom prices" in low-price competition have once again dragged the entire industry into a vortex of vicious competition.

Many practitioners from large Internet companies said that on the eve of Double 11, "price checking" became one of the important work contents, and they all put forward the requirement of benchmarking prices with competitors without price disadvantages.

When it is found that competitors have lower prices, but it is impossible to reach a consensus on the "lowest price", the platform will "subsidize" in various ways. Some platforms choose to issue large coupons and subsidize with real money to achieve the same "lowest price on the entire network", while others "implicitly" increase the cost-effectiveness by giving gifts, samples, or offsetting points. For the platforms that have set the "lowest price" this year, the "price war" must be fought to the end.

JD.com directed the conflict to Li Jiaqi in order to gain a lower price advantage from brand merchants, seize the "low price" user mindset, and grab the GMV of the big promotion. After all, Li Jiaqi's live broadcast room has already established a "low price mentality" in the minds of consumers. If the top anchors such as Li Jiaqi can be brought down from the altar, then at least in the impression of users, the winner will become the new king of the cost-effective market.

However, why did the brands have to jump out and tear up the channels when the channels were originally competing over low prices? The reason is that the rights and interests of the brands have been damaged in this price war.

First, in the e-commerce channel environment composed of e-commerce platforms and live streamers, the profit margins of brands have been overly compressed. JD.com, as both a platform "JD Mall" and a channel merchant "JD Self-operated", has the habit of purchasing goods in large quantities and "distributing" them to consumers. In the comments section of the Weibo statement released by Hai's, many brand operators appeared to confirm that JD.com does have the phenomenon of "big stores bullying customers", and some operators said that "every platform is now engaging in bidding, which is a bit bottom-line-less and is squeezing merchants."

A merchant revealed in an interview that the costs of opening a self-operated store on JD.com include four parts: gross profit (JD.com must ensure a certain gross profit, and if it is not enough, it needs to be deducted from the merchant's payment), store fees, warehousing fees, and product costs. The approximate gross profit is only about 20% (depending on the different categories), which does not include costs such as labor and rent.

Merchants who place their products in the live broadcast rooms of big anchors will face higher profit sharing. For example, the slot fee of top anchors is about 20%-35% of sales revenue depending on the category. In addition, merchants also bear the hidden costs brought by the sales discounts provided for live broadcasts.

A product has to go through design, research and development, processing and production, marketing and promotion, warehousing and logistics, after-sales maintenance and other services. And the channels that control the traffic want both the “lowest price” and the “highest commission”. In the end, how much profit will be left for the brand?

Secondly, in the process of seeking the lowest price based on traffic and sales competition, price wars between channel dealers may also cause permanent damage to brand value. For brands that sell standard products, "breaking prices" is a very sensitive matter, because as long as consumers have bought it at a cheaper price, this brand will always be at this price in the minds of consumers. It is easy to set a low price but difficult to set a high price. In the long run, brand value will go down along with product prices.

Previously, a brand manager revealed to Jingzhe Research Institute that his brand had no plans to be on JD.com during Double 11 this year. This was because JD.com’s self-funded subsidies this year, similar to large coupons that can be stacked and cross-store discounts, were very strong and might cause product prices to fall. “After the price falls, we can’t explain it to our distributors and other channels, so we just forget it.”

No matter how the channels change, the three pillars that can impress most consumers are still "product, price, and service". Under the premise of the same product quality, compared with the invisible and intangible "service", the only thing that can really establish an advantage for anchors and platforms is "price".

3. Who can ensure the “lowest price on the entire network”?

Although platforms with different resource allocation and operating models are all competing for the "lowest price", there are actually three core supports behind the label of "lowest price competition": the scale effect brought about by traffic, the bargaining power brought by a strong supply chain, and the real money invested by the platform in concessions.

When "10 billion yuan in subsidies" have become standard, what can be squeezed is traffic. "The lowest price on the entire network" is essentially an upgrade of the "traffic concentration effect" caused by the demand game of all parties involved in the live streaming ecosystem.

How does price affect traffic? According to the caliber released at the Tmall Double 11 press conference on October 20, in the past month, the average traffic of low-priced goods provided by merchants on the Taobao platform increased by 62.5%. It is not difficult to see that traffic anxiety has now forced the platform to fully compete on price.

First of all, a growth flywheel has been formed between the top live broadcast rooms and platforms that control traffic and sales. On the one hand, they enjoy the platform's support for traffic, and on the other hand, they also use the traffic to force brands to offer the "lowest price on the entire network" to promote marketing bonuses. This advantage brings them more traffic and sales capabilities, and the platform has to continue to support them.

As a top anchor, Li Jiaqi did perform well. On October 24, PROYA launched 16 SKU combinations in Li Jiaqi's live broadcast room, of which Ruby Cream 3.0 sold 700,000 pieces at a unit price of 279 yuan, with a single link sales of nearly 190 million yuan. The morning C and evening A essence combination followed closely behind, selling 400,000 pieces. Xinbang calculated based on the sales data displayed on the front desk of the link, and estimated that PROYA's cumulative GMV this time would exceed 900 million yuan, and PROYA's total operating income for the whole year of 2022 was 6.385 billion yuan.

However, the longer-term and more fundamental issue that needs to be addressed is the exhaustion of traffic growth itself. According to data disclosed by CNNIC, as of the first half of 2022, the number of live e-commerce users in my country has reached 469 million, an increase of only 1.15% compared to 464 million at the end of 2021. The continued decline in the growth of live e-commerce users and penetration rate also means that the competition for users between platforms is becoming increasingly fierce.

In general, this "gossip" that has attracted attention to Double 11 essentially exposes the intensification of competition in online channels. When the competition in the e-commerce industry is caught in the tangle and mud of the lowest price, the consumer market itself will definitely be hurt.

In the price war, it seems that consumers can enjoy more cost-effective products in the short term, but the price system, brand system and channel system of upstream suppliers caught up in the price war face severe tests.

For example, offline stores face the risk of closing due to price disorder, and brands face the situation of "prosperity and loss together" due to the binding of channels and anchors. Under the continuous low-profit operation state, enterprises will not be able to expand production and invest in research and development to enhance product competitiveness.

The ultimate question that price wars lead to is where is the "bottom line" of each link in the entire industry chain? As for the answer to this question, it determines how the e-commerce industry can continue to prove its significance and value between merchants and consumers.

Author: Cheng Yu WeChat public account: Jingzhe Research Institute