The truth and illusion of Douyin's "lowest price"

When watching e-commerce live broadcasts, users always hear the phrase "the lowest price on the entire network". Is Douyin's lowest price the real lowest price? The author of this article analyzes this issue from three aspects: the illusion of the live broadcast room, Douyin's operating costs, and platform pricing. Let's take a look.

It is not realistic for Douyin live streaming to achieve the absolute “lowest price on the entire network”.

In its third year, Douyin e-commerce still maintains an impressive growth rate. At the Douyin e-commerce ecosystem conference on May 16, Douyin e-commerce president Wei Wenwen said that Douyin e-commerce GMV has increased by more than 80% in the past year, and the average daily viewing volume of Douyin e-commerce live broadcasts has exceeded 2.9 billion times - a large number of users have flocked to Douyin live broadcast rooms to "shop".

The reason why Douyin's live broadcast room makes people addicted is not only because of the lively atmosphere, but more because of the low prices implied by various live broadcast operations such as "321 link".

Are the prices of goods in Douyin’s live broadcast room definitely cheaper?

Zhimin, born in 1995, believed it all along until she bought tissues last week, when she felt she had been "cheated".

In the official Douyin live broadcast room of a certain tissue brand, 48 packs of tissues cost 87.8 yuan, an average of 1.83 yuan per pack. The host vowed that no other platform would have such a low price again.

But after Zhimin compared prices on Pinduoduo and Taobao, she found that the price of the same brand product in Tmall Supermarket was 44.9 yuan for 30 packs, an average of 1.5 yuan per pack, while the price of 44 packs on Pinduoduo was 68.7 yuan, an average of 1.56 yuan per pack. In total, Douyin is about 22% more expensive than other platforms.

Zhimin's experience is not an isolated case. On Xiaohongshu, many people said they had been "backstabbed" by Douyin. "When buying running shoes, I found that in many cases, the prices in Douyin live broadcast rooms were not cheaper than those on Taobao, and the so-called lowest prices on the entire network required waiting, and I really didn't have time to waste on those 30 or 40 yuan." "Last year, I found that Douyin's products were generally more than 10 yuan more expensive than Taobao and Pinduoduo. Recently, I saw 6 boxes of donkey-hide gelatin in the live broadcast room for 99 yuan, but I went to Taobao and searched and found that it was only 86 yuan."...

The idea that live streaming is cheaper is an "illusion", which usually comes from the low-price implications brought by the host's words or even "performance", making people subconsciously feel that it is a good deal.

Admittedly, there are live broadcast rooms that can offer the lowest priced products, but overall, it is not realistic for Douyin to fully achieve the “lowest price on the entire network”.

The reason is simple: merchants always need to make money. However, when the various costs of doing business on Douyin are difficult to cut across the board, how can merchants maintain a sustained "lowest price"?

1. The “illusion” of low prices in live broadcast rooms

Usually, many people think that the prices of goods sold by experts must be cheaper, and indeed there are some expert live broadcast rooms that can offer the "lowest prices on the entire network", but this is not always the case. Even someone as big as Brother Yang can "fail" sometimes.

In the live broadcast room of the "Xiao Yangge Snack Shop" account officially authorized by Three Sheep, the prices of many products are slightly higher or the same as those on Taobao and Pinduoduo.

For example, in the live broadcast room on August 1, the price of 429g milk lasagna toast of the brand Xiao E Xiao Man Su was 19.9 yuan, which is the same as the price in the brand flagship stores of Tmall and Pinduoduo. However, other distributors on Pinduoduo sell it at a cheaper price of around 15.6 yuan. For another example, the live broadcast price of 30 packs of Bibi Zan instant noodles is 9.9 yuan, while the price in Tmall and Pinduoduo flagship stores is 9.8 yuan, and some distributors on Pinduoduo sell it at only around 8.1 yuan.

The same is true for even the mid- to low-level influencers. For example, on July 31, the price of pumpkin toast sold by "Sister Bread" who has more than 4,000 fans on a live broadcast was 29.9 yuan, while the price at Pinduoduo's flagship store was 25.14 yuan, and the selling price at Taobao distributors was 25 to 26 yuan, all of which are cheaper than Douyin.

If the platform’s subsidized promotions are taken into account during a specific time period, the price gap may be even larger.

During the 618 shopping event this year, Cheng Cheng, born in the 1990s, saw the price of a top of a certain brand being 179 yuan in a Douyin live broadcast room of a certain influencer. After comparison, he found that the original price of the brand's Tmall flagship store was only 174 yuan. At that time, there were many discounts and Taobao coupons of -50 yuan for purchases over 300 yuan, so it only cost 110 yuan in the end. "It broke my perception. I always thought Douyin would be cheaper."

This phenomenon not only occurs in the live broadcast rooms of experts, but is also common in the live broadcast rooms of merchants who have already held up "half the sky".

According to Huxiu, the proportion of Douyin merchant store broadcasts in 2022 is close to 55%, while the proportion of expert anchors has dropped to less than 45%. This means that perhaps the pricing strategy of merchants' own broadcast rooms can better explain the problem.

Lai Qichun, a leading fruit merchant operating on multiple platforms, told "Financial Story Collection" that the prices of fruits on different platforms are generally: Douyin>Taobao≈Pinduoduo.

Taking the pomegranates it has been selling recently as an example, the price of a 5-jin package of large fruits in Douyin’s live broadcast room is about 40 yuan, while on Taobao and Pinduoduo it is about 28 yuan.

"Financial Story Collection" also sampled and investigated the brand pricing of Douyin's core categories, including beauty, clothing, and food, and similar phenomena were observed.

For example, the fitness food brand Mr. Kangaroo's 150G skinless chicken legs are priced at 24.9 yuan on Douyin live broadcast, 15.9 yuan on Taobao, and 17.42 yuan on Pinduoduo; Taoli Bread's 400G charcoal-grilled toast are priced at 19.9 yuan on Douyin, and 18.9 yuan on Taobao; Three Squirrels' 500G hand-peeled almonds are priced at 27.9 yuan on Douyin, and 24.9 yuan on Taobao.

For example, the children's sun-protection clothing sold by Jiaoxia is priced at 169 yuan on Douyin, while it is 149 yuan on Taobao and Pinduoduo. There is also an adult sun-protection clothing that has the same price on Douyin and other platforms, which is 179 yuan.

In the beauty industry, the price of a facial mask from skincare brand KAZOO on Douyin live streaming is 168 yuan, while on Taobao it is 164 yuan; the prices of many of Huaxizi's products on Douyin are the same as on Taobao.

Another research report released by Essence Securities in April this year showed that the average price of small kitchen appliances from Supor, Joyoung and Beiding on Douyin was higher than that on Tmall, while the price of Bear Electric Appliances was the same as that on Tmall.

In Lai Qichun's opinion, if other platforms and Douyin have the same importance in the merchants' plans, 90% of the merchants will set the price of Douyin higher, unless Douyin is more "important" in their strategy, or they are more dependent on Douyin to bring growth at a certain stage, then the prices of other platforms may be higher, thereby highlighting the price advantage of Douyin.

"This phenomenon is more common among supply chain merchants. They mainly rely on Douyin influencers to sell goods. Although they may also have opened Taobao and Pinduoduo stores, they are not the focus of operations. Their main role is to 'hold prices'."

Lan Lan, a children's clothing anchor on Douyin, also told "Financial Story Collection" that when she cooperates with supply chain merchants, she will definitely require that the prices of the same products on other platforms cannot be lower than those in the Douyin live broadcast room, but they can be the same.

2. Douyin’s operating costs are high

The reason why some products in Douyin's live broadcast room are more expensive is essentially because the operating costs of merchants on Douyin are higher, and the high costs will naturally be passed on to the prices.

First, the comprehensive operating costs of merchants on Douyin are relatively high, including advertising, live broadcast setup, video production, and platform commissions.

Lai Qichun told Caijing Story that on traditional e-commerce platforms such as Taobao and Pinduoduo, merchants only need to know how to place advertisements, but on Douyin, merchants need to know how to place advertisements, shoot videos, and do live broadcasts, which is quite difficult, and each link consumes a lot of money and energy. "Just talking about anchors, first-tier cities cannot do without a salary of 10,000 yuan, and even fourth-tier cities probably cannot recruit anyone without 3,000 yuan."

According to his calculations, the cost of Douyin live streaming accounts for about 6% of Douyin's GMV, which is an additional cost compared to other platforms.

In terms of advertising traffic, Douyin's ROI is generally lower than that of traditional e-commerce platforms, which also means an increase in costs.

Lai Qichun's advertising costs on Douyin account for about 20% of Douyin's GMV, while Pinduoduo and Taobao only account for 15%. He has calculated that Pinduoduo's ROI is about 1:6~8, that is, if you invest 100 yuan, you can sell 600 or 800 yuan, while Douyin's is 1:3~5, "which basically represents the status of 80% of merchants."

In some more competitive categories, Douyin's ROI continues to decline. According to 36Kr, a Douyin beauty brand service provider said that the ROI of pure advertising in beauty live broadcast rooms has dropped from about 1:2.5 in 2021 to 1:1.8 in 2022.

The difference in ROI is closely related to the characteristics of the platform. On traditional shelf e-commerce platforms, users mostly search and purchase actively and purposefully, but on Douyin, users are more likely to consume "impulsively" because they are inspired by content. This means that multiple repurchases are difficult and new customers must be continuously attracted.

In addition, in terms of commission deductions, Douyin's ratio is relatively high. According to feedback from many merchants, the deduction rates for most categories are basically between 2% and 5%. For example, Lai Qichun said that the deduction rate for fresh fruits is 2%, while Taobao does not charge any commissions, Tmall is 0.5%-5%, and Pinduoduo only charges a withdrawal fee of 0.6% for products that are not subsidized by the 10 billion yuan. According to LatePost, the commission for products subsidized by the 10 billion yuan will be 1%-3%.

Even Douyin's top account Dongfang Zhenxuan cannot avoid the high cost problem caused by commissions. Dong Yuhui mentioned in the live broadcast on July 17 that due to Douyin's profit-sharing mechanism, Dongfang Zhenxuan's own APP products can be priced lower.

According to Yilan Business statistics, on July 26, the prices of many products in the Oriental Selection Douyin live broadcast room were more expensive than those on the Oriental Selection APP. For example, the price of Chu Orange's grape juice on Douyin was 128 yuan, but only 98 yuan on the APP.

If merchants find influencers to promote their products, they must also pay the influencer a commission. According to anchor Lan Lan, the commission rates for different categories and products are different, generally between 10% and 30%, but there are also lower or higher rates.

A beauty industry entrepreneur told Caijing Story that because her newly created beauty brand was not well-known, the commission rate for bringing goods was as high as 40-50% at one time, "basically working for the platform and the anchor." In 2022, she closed the beauty startup project and started to be an anchor this year, "I also want to make money upstream."

In addition, the return rate under "impulsive" consumption in live e-commerce is generally higher. The "2020 China Live E-commerce Industry Research Report" points out that the average return rate of live e-commerce is 30%-50%, which is higher than the 10%-15% return rate of traditional e-commerce, which will further increase the cost of Douyin merchants.

Second, Douyin has very strict requirements on merchants’ products and services.

Specifically, Douyin will "assess" merchants from three aspects: product experience score, logistics experience score and service experience score. For example, indicators such as bad review rate and logistics collection timeliness rate will affect the score. The score will directly affect factors that are closely related to the interests of the merchant, such as live broadcast and store traffic, settlement period, etc., which will force merchants to do a good job of self-management.

Lan Lan, the anchor, said that if there are too many negative reviews, the live broadcast may be restricted, and even advertising cannot "save" it, which will affect the fundamental survival. "But on other platforms, it will not be so serious. Even if there are negative reviews, merchants can still continue to invest in advertising to attract traffic and do business."

Not only that, when "necessary", Douyin will also intervene in warehouse inspections to further control the quality of merchants.

Lai Qichun, who mainly sells fruits, told "Financial Story Collection" that for perishable products such as fruits, if the store's orders exceed 5,000 orders a day, Douyin will arrange for a special third-party agency to inspect the warehouse, and shipment will be prohibited if the products are unqualified.

"For example, if it is found that the warehouse is a civilian house rather than a professional warehouse, Douyin will think that you may not be able to provide good service and may harm the interests of consumers, and will prohibit delivery."

Other platforms rarely get so deeply involved in early-stage quality control. For example, e-commerce platforms don’t pay much attention to the quality of goods, but instead fine merchants when problems arise in the later stages.

The phenomenon of "you get what you pay for" and "for the same product, the product supplied by Douyin is of better quality and more expensive" may occur in certain categories.

For example, for fruits, “for the same grapes, the ones shipped by Douyin are usually first- and second-grade fruits with better appearance and color, while the ones shipped by e-commerce platforms are second- and third-grade fruits. Moreover, Douyin’s packaging and express delivery are also better arranged,” Lai Qichun told Financial Story Collection.

Li Zhe, a merchant in the beauty and personal care supply chain, said that the sanitary napkins he supplies to sellers on a certain e-commerce platform are generally inferior to those on Douyin in terms of material and liquid absorbency, and the supply cost will also be lower. For example, the supply price of a pack of sanitary napkins on Douyin is 4.5 yuan, while on a certain e-commerce platform it will be reduced to 3.5 yuan.

The difference in price and quality is to differentiate the user mindsets of different platforms. On Douyin, users can see the product presentation in a three-dimensional way through videos and live broadcasts, and they consume based on "interest", so they have higher expectations for the goods they receive.

Third, many Douyin merchants currently open stores without sources of goods and can only purchase goods from platforms such as Pinduoduo and 1688, so naturally there is a price difference for their products.

On Xiaohongshu, many users reported that after placing an order in the Douyin live broadcast room, they received a delivery text message from Pinduoduo. Among them, one user bought a two-piece summer suit for 185.1 yuan on Douyin, but the Pinduoduo text message clearly stated 59.7 yuan.

Anchor Lan Lan told "Financial Story Collection" that this situation is actually very common. Some Douyin merchants cannot connect with the source factories, so they can only sell goods from other platforms on Douyin. "Making a profit from the price difference naturally leads to the same products on Douyin being more expensive than those on Pinduoduo and 1688."

3. Platform pricing is fluid

In fact, the pricing system of any platform is complex. There is no such thing as an absolutely higher or lower price. The essence of its complexity stems from the fact that merchants’ pricing is mostly fluid and changing.

This was confirmed by a research report released by Guosheng Securities in June this year. The report showed that since the beginning of this year, there have been ups and downs in the average prices of skin care products between Taobao and Douyin. In January and February, Douyin's average price was higher than that of Taobao. From February to April, Douyin's average price was lower than that of Taobao. In May, Douyin's average price was higher than that of Taobao again, at 122 yuan, and it was on an upward trend, while the average price of Taobao was 109 yuan, showing a downward trend.

When it comes to specific brands, you will find that brands rarely set a single minimum price on a certain platform, but instead differentiate the "minimum prices", that is, some products are cheaper on Douyin, some are even lower on Taobao, and some are the same on all platforms.

For example, the price of L'Oreal's 50ml Black Essence Essence on Douyin is cheaper, at 299 yuan, while the price on Tmall flagship store is 309 yuan. The price of 30ml Purple Iron Eye Massage Cream on Douyin is the same as that on Tmall, both at 319 yuan, but Tmall gives away 15ml more eye cream than Douyin, which is relatively more cost-effective.

For example, the price of Three Squirrels 300G milk cake on Douyin is the same as that on Tmall, which is 36.9 yuan, while on Pinduoduo it is 29.9 yuan. However, the price of 150G durian cashew nuts is the opposite, which is more expensive on Pinduoduo at 22.9 yuan, while on Douyin and Tmall it is 19.9 yuan.

E-commerce strategy expert Li Chengdong believes that this is because merchants want to gain growth on the Douyin side but do not want to harm the development of traditional e-commerce platforms, so they will differentiate products for promotion in order to balance the profits of each platform.

But in terms of the entire ecosystem, due to its high operating costs and other characteristics, it is difficult for Douyin to have the overall price advantage of traditional shelf e-commerce. In other words, if merchants want to maintain lower pricing on Douyin for a long time, they will need to pay a certain profit cost.

According to Li Chengdong’s observation, many brands do not make money on Douyin, but they still invest because they always seek sales growth. However, if they continue to fail to make money, merchants may also put more energy back into traditional e-commerce platforms. “Although traditional e-commerce platforms are currently stabilizing and it is difficult for them to explode, they are at least profitable.”

Guolian Securities' research report released in March this year also has a similar view. The research report believes that live e-commerce is costly for merchants and can only solve some of the scenarios of merchants, making it difficult to use it as a fixed channel. Alibaba is still the most important business position for brand merchants, where merchants have accumulated a large number of ratings, user reviews and other assets, and also undertakes important functions such as brand marketing and new product promotion.

In fact, after Jack Ma set the tone of "returning to Taobao", there have been signs of small and medium-sized businesses returning to Taobao. According to TechNode and other media reports, as of June 18, Taobao has added 5.12 million new merchants in the past year, of which nearly 20% have had operating experience on other e-commerce platforms in the past year.

However, Douyin will not "sit and wait for death". The shelf e-commerce that it is vigorously promoting has increased the possibility of merchants operating in Douyin for a long time. And according to Wandian.com, it is also targeting small and medium-sized merchants at this stage.

Li Chengdong believes that the purpose of Douyin shelf e-commerce is to cultivate users' active purchasing habits and generate repeat purchases, which can reduce merchants' traffic investment costs to a certain extent.

But he believes that the biggest problem facing Douyin shelf e-commerce is the user mindset. "Douyin's genes are still a content platform. It's hard to say whether users can develop purchasing habits."

In addition, the layout of shelf e-commerce means that Douyin has "lost" its home advantage in content and live streaming, and will compete with traditional shelf e-commerce platforms such as Taobao, Tmall, and Pinduoduo on the same dimension - that is, the essence of e-commerce of "more, faster, better, and cheaper".

However, Guolian Securities Research Report believes that Taobao's advantages lie in quantity and quality, JD.com's advantages lie in speed and quality, Pinduoduo's advantage is economy, but Douyin does not seem to have any core outstanding advantages.

Therefore, it is hard to say whether Douyin can use shelf e-commerce to reduce merchants' costs and thus enhance its own price advantage in the future. There are also variables in how the pricing strategies of merchants on various platforms will evolve.

Note: Zhimin, Chengcheng, Lanlan and Lizhe in the article are pseudonyms.

Author: Wang Shuran, Editor: Wan Tiannan

Source: Financial Stories Collection (ID: cjgshui)