Lack of competitive advantage: JD.com’s dilemma in e-commerce

This article uses the public relations war between JD.com and Li Jiaqi as an example to analyze the current difficulties faced by JD.com in its development from three aspects: business war strategy, live streaming e-commerce system and pricing power. It is recommended for students who are interested in e-commerce platform operations. I hope they can be inspired and reflect on the case of JD.com going downhill.

We have written in previous articles that the war of words with JD.com's Li Jiaqi was most likely a marketing scam to promote JD.com's Double Eleven. It was intended to deliberately stir up public opinion and convey the perception of JD.com's low prices on Double Eleven, and took the lead in launching the e-commerce platform's public relations war on Double Eleven.

Behind this public relations war, JD.com actually revealed the loss of its pricing power. As we all know, this year’s Taobao and JD.com are focusing on low prices. Dai Shan set “the lowest price on the entire network” as the core goal of Double Eleven, and JD.com also launched the slogan “Really cheap, buy with your eyes closed”.

JD.com’s purchasing and sales department complained about Li Jiaqi’s “choose one of two” policy because JD.com lost the competition with Taotian for pricing power and therefore wanted to stand on a moral high ground to stir up trouble.

Although Li Jiaqi is Taotian's white glove, it would be too cheap for JD.com to directly confront Li Jiaqi's company. JD.com itself lacks the live streaming e-commerce sector and has no white gloves as anchors available, so it used the mouth of a purchasing staff member to carry out a series of competitive public relations operations in an unofficial way.

Although some people think that JD.com’s public relations show is very clever, we think that behind it is JD.com’s own helplessness and passivity in the development of e-commerce.

We believe that the incident itself is not important, because even if Li Jiaqi characterizes this as unfair competition of "choose one of two", the Taotian camp can still use many methods to circumvent it in future operations, but the strength gap between JD.com and Taotian will not change because of this, and JD.com’s own problems will not be solved by public relations calls.

1. "Choose one of two" routine

Frankly speaking, we just want to roll our eyes at JD.com's public relations practices, because everyone in the e-commerce industry knows that "choose one of two" was actually JD.com's "invention" for early commercial competition, and JD.com is actually the originator of "choose one of two" in e-commerce.

As early as 2010, when the live-streaming anchor Li Guoqing was still full of vigor and vitality, Dangdang.com was expanding into all product categories starting with books. Unfortunately, JD.com also happened to have announced its entry into the book category from the 3C field at that time, and Dangdang and JD.com started a price war.

When the battle was in full swing, JD.com launched the killer move of "choose one of two", requiring multiple digital home appliance merchants to sell their products on Dangdang.com at prices no lower than JD.com, otherwise all payments would be stopped.

After this "choose one of two", JD.com won the game and completely secured its second place in the e-commerce market. After Dangdang was defeated by JD.com, this e-commerce platform, which was once regarded as the Amazon of China, was gradually marginalized.

Of course, we cannot accuse JD.com of glorifying Dangdang, because Dangdang’s advantage in the book category could not defeat JD.com by using the “choose one of two” approach. At that time, the e-commerce industry was still in its infancy, and the regulatory rules were not very clear. However, the “choose one of two” battle between Dangdang and JD.com can be regarded as a key turning point in the early B2C e-commerce.

Since then, JD.com has adopted the "choose one of two" strategy almost every year during the e-commerce promotion competition period. Afu Essential Oil, Mulinsen, Three Squirrels and other companies have all experienced it. It was not until 2015 that the State Administration for Industry and Commerce issued the "Interim Provisions on the Management of Concentrated Promotion Activities of Online Goods and Services", which clearly stated that platforms cannot force merchants to "choose one of two". JD.com has since restrained itself slightly, but in fact it has also circumvented it by using some other methods.

It is precisely because of JD.com’s own dark history that today’s incident in which JD.com’s purchasing and sales department complained about Li Jiaqi’s (Taotian) “choose one of two” policy added a sense of drama.

2. Lack of live e-commerce system

As we all know, JD.com has not made many visible moves in the field of live streaming e-commerce. At least compared with Taobao, Douyin and Kuaishou, JD.com's live streaming e-commerce layout is obviously missing.

According to the current development trend of the e-commerce industry, live streaming e-commerce has become a part that cannot be ignored. For traditional e-commerce platforms such as JD.com, the lack of a live streaming e-commerce segment also means the lack of a large new traffic growth platform.

The lack of live streaming, an extremely important traffic pool, naturally makes it more difficult for JD.com to obtain promotional pricing power from brand merchants compared to its traditional competitor Taobao. Now JD.com has called out Li Jiaqi, the MCN agency (Mei ONE), which is the white glove of Taobao, which is indeed a bit regrettable.

We believe that JD.com's lack of layout in the live streaming sales sector is mainly due to its business model of self-operated e-commerce. Similarly, the self-operated e-commerce system makes JD.com's operation and fulfillment costs higher, which makes it less advantageous in obtaining the lowest price on the entire network.

From the perspective of merchants, although JD.com is the second (or third) largest e-commerce platform, the platform's traffic vitality and growth are insufficient, and the platform costs (that is, the costs passed on to merchants) are higher. It can only be regarded as an important e-commerce channel to ensure sales volume, but it is difficult to gain incremental opportunities.

Under the general trend of live streaming e-commerce, Taobao, which has live streaming traffic and is also the largest e-commerce platform, has better advantages in terms of traffic and cost. Naturally, it should be a better choice for merchants to cede promotional pricing rights.

Objectively speaking, Taobao is still the most complete in terms of the layout and basic capabilities of the entire e-commerce sector. JD.com lacks a live e-commerce system, Douyin and Kuaishou lack a shelf e-commerce system, and Pinduoduo lacks recognition from high-end brand merchants. If merchants want to gain growth and open up a closed-loop marketing channel, Taobao is still the most playable.

3. Loss of control over pricing power

Our concern about JD.com is that the loss of its pricing power could cause its overall competitiveness to spiral downward. If the platform loses its promotional pricing power, it will no longer have a price advantage, and users will be lost again, leading to a further loss of pricing power. If the worst-case scenario plays out, JD.com's e-commerce may become a niche.

In fact, we think Liu Qiangdong is a very sober person. Previously, under the leadership of Xu Lei, JD.com was aiming at consumption upgrade and quality life. Liu Qiangdong may have realized the seriousness of the problem, but he was unexpectedly entangled in the Minnesota incident. It was not until he returned last year and decisively pointed out that "low price is the only basic weapon", and Xu Lei later announced his retirement, that JD.com's overall strategic direction was adjusted.

However, Liu Qiangdong's low-price strategy did not make much of a splash. The reason is actually that JD.com's model is mainly self-operated. On the one hand, the costs of warehousing and logistics are high. On the other hand, it is necessary to ensure the quality of self-operated products. In other words, JD.com's low prices still need to be balanced with the quality of self-operated products. It is impossible to achieve as low prices as Pinduoduo.

Therefore, although low price is the "only basic weapon", JD.com cannot sacrifice heavy investment in experience and quality to achieve low price. In addition, JD.com's previous positioning of quality life has been deeply rooted in the hearts of the people. High-net-worth individuals are indeed more recognized of JD.com. They also have more purchasing power and will be an important part of the platform's consumption.

JD.com initially focused on the authentic experience of fast, good quality and low price. That was a rough era when e-commerce infrastructure was lacking and branding had not yet taken place. But at this stage today, it is actually difficult to say that it can create a particularly meaningful difference with Tmall in terms of user experience, so price is indeed the most important thing.

But as mentioned earlier, low prices are a very tricky problem for JD.com. We believe that in order to achieve low prices, JD.com must give up something else. It depends on what choice JD.com will make next.

Author: Zhou Zai'an

WeChat public account: Spread Gymnastics (ID: chuanboticao)