What is the end point of the e-commerce war?

In recent years, the e-commerce industry has matured and developed rapidly. Today in 2023, this track is even more exciting. Faced with such a situation, what should the platform do to sweep away thousands of enemies? Let's take a look at the author's point of view, I believe it will be helpful to you.

Low price is a capability, but an important indicator to measure the vitality of an e-commerce platform is whether it can continue to meet user needs.

The e-commerce track is never lonely. Even though it has been developed for more than 20 years, there are always stories. The latest development in 2023 is that e-commerce platforms have once again set off a wave of subsidies, showing off their muscles to demonstrate their price lethality. In addition to local life, e-commerce may be the field where user experience is constantly optimized and even the best. Regardless of new or old players, they must show their most competitive side in the face of user needs.

This is closely related to the development stage of the e-commerce industry.

In 2022, the total online retail sales of physical goods in China reached 11.96 trillion yuan, accounting for 27.21% of the total social retail market. This figure has been growing steadily and slowly.

At the same time, the proportion of residents' retail consumption expenditure to income remains stable, the penetration rate of online shopping users is slowing down, and the number of WeChat payment users has basically reached its ceiling.

Expenses are relatively fixed, and the user scale ceiling is also visible to the naked eye. The problem is that there are a dizzying number of channels available for online retail. From shelf e-commerce to social e-commerce, and then to the live broadcast e-commerce that has been very popular in recent years, when the overall supply tends to be saturated and the industry is in a mature stage of development, the intensity of competition has never been relaxed.

Michael Porter wrote in "Competitive Strategy" that the slowdown in industry growth indicates that companies are competing more fiercely for market share. For companies that cannot continue to maintain their original market share or historical growth rate, the focus of competition turns to the inside of the industry. Therefore, price wars, service wars, and promotion wars are common during the transition period of the industry to the mature stage.

This is almost a true portrayal of e-commerce. As the industry matures, each player is striving for the largest possible market share and maximizing their own advantages.

At Pinduoduo's 2022 annual financial report analyst meeting, Chairman and CEO Chen Lei responded to the issue of low-price competition in the e-commerce industry: "Every company will develop different strategies in the competition. We believe that healthy competition is beneficial to consumers and the entire industry. But sometimes, as competition becomes fierce, different degrees of alienation will occur."

When your opponent swings a punch, do you see an angry and eager movement, or can you look beyond the obstacles in front of you, see the entire arena, clearly know where you are, and then take control of the situation.

1. Low price is a capability

Low price is the most powerful weapon to pry open users' sensitive nerves, and global retail giants are well aware of this.

For example, Costco, which is highly respected, has been asked by both the capital market and business legends to raise the price of its products, but the founder refused. Giving consumers a sense of treasure hunting and offering incredibly low prices has helped Costco achieve huge sales.

The most important thing is that low prices are not necessarily related to the level of user consumption. "Girls carrying LV bags also want to buy cheap fruits." This reality shatters the saying that low prices mean consumption downgrade. "More, faster, better, cheaper" is the eternal king of retail.

However, in the past, people viewed low prices as a means of pleasing users, and holiday promotions are the best proof of this. The fact is that low prices are a capability, and a long-term capability.

After nearly four years of market penetration of the "10 billion subsidy special project", Pinduoduo has been labeled as a "low-price memory", which is a strong user mentality. The core reason is that Pinduoduo has achieved long-term low prices by breaking the time limit of the 618 or Double 11 promotion. The silent influence accumulated over time is the most fatal.

When e-commerce platforms followed suit and tried to repeat the sales miracle of the "10 billion subsidies" and compete for the minds of users, they actually overlooked one point: traffic determines sales, the bargaining power of upstream suppliers is gradually shifting downward, and this abstract bargaining power has now transformed into multi-dimensional competition between platforms such as price, service and fulfillment.

Regarding low prices, Pinduoduo's understanding of user needs is to buy favorite products at a suitable price without having to pay extra costs for low prices.

In the past, Pinduoduo focused on two aspects to keep prices low:

First, the focus has been locked on agricultural products for a long time. Whether it is the Agricultural Goods Festival, the New Year Goods Festival or the Double 11 promotion, agricultural products are the focus of Pinduoduo's subsidies. Agricultural products are the object of Pinduoduo's start and are also the core category. In 2019, Pinduoduo's agricultural and sideline products GMV reached 136.4 billion yuan, and in 2020 it exceeded 270 billion yuan, maintaining triple-digit growth for consecutive years.

For agricultural product transactions under the 10 billion subsidy, the platform waives commissions and reduces technical service fees. "10 billion agricultural research" has made a large direct investment in agriculture, and many people question whether this is beneficial to the company's business.

If we go back to the essence of the problem, agricultural and sideline products are the most basic consumer units for the vast majority of users. Even when consumption is weak, they are still very resilient. But if we want to achieve high quality and low prices, we must start from the supply chain, eliminate the middle links, ship directly from the place of production, and connect production and consumption. This is beneficial to both end users and farmers in the place of production.

In the short term, subsidies for agriculture can standardize processes such as picking, sorting and packaging, and realize "semi-customized batch processing" and "small-scale customized services" for agricultural products of different qualities, types and quantities. Pinduoduo's influence on the upstream and circulation fields is growing; in the long term, it can reversely promote the level of agricultural modernization through user behavior data analysis.

In addition to its continued investment in agriculture, another manifestation of Pinduoduo's low-price capability is that while consolidating the memory of low prices, it also allows users to recognize the platform as a "brand" and "high quality." Low prices do not mean low quality, which is the pursuit of all e-commerce platforms.

Since 2018, Pinduoduo has been strategically expanding its brand products: on the one hand, mid-frequency, big-name, and high-priced consumer goods are the focus of the 10 billion yuan subsidy; at the same time, it focuses on new brand plans and supports factory brands in industrial belts.

During the 618 event in 2022, Pinduoduo launched a brand-only event. As the second main venue of the 618 event, an average of one leading brand will be launched every day, featuring big-name products. During the 618 event, two rounds of registration were opened, and the first batch of participating brand flagship stores exceeded 500.

The platform's advantageous categories (agricultural and sideline products) and the promotion of branding are the core factors for Pinduoduo's data growth throughout the 2022 fiscal quarter. Pinduoduo's revenue for the full year of 2022 was 130.5576 billion yuan, an increase of 39% compared to 93.9499 billion yuan in 2021.

Second, the key is to match user needs

Low prices are a direct manifestation of e-commerce capabilities, but an important indicator of the vitality of a platform is whether it can continue to meet user needs. In other words, accurately matching massive products with user needs is also the ultimate proposition of e-commerce competition.

The group buying model is essentially about gathering massive demands from users, collecting a stable number of orders at a stable time, and then matching them with massive products from upstream suppliers. This is a factor that generates price dividends and is also a relatively efficient way to match goods with demand.

The Pinduoduo team knew very early on that its business logic was to "help consumers find the right products." While e-commerce platforms use promotions as a stimulus for user purchasing behavior, Pinduoduo understands promotions as "an opportunity to focus on meeting specific consumer needs."

You see, everything still comes back to user needs.

In all the earnings conference calls since Pinduoduo went public, the most frequently asked question to management is about industry competition. This is a must-answer question almost every quarter. In the answers given by Pinduoduo management, the most frequently mentioned keywords are: user-centric, consumer-oriented, and creating value for consumers.

Even at different stages of a company’s development, the understanding of user needs has different meanings, tasks, and goals.

In 2015, when Pinduoduo was in its early stages of development, the company's management realized that mobile Internet would make user behavior more real-time and interactive. In other words, they sensitively captured the rapid changes and trends in consumer behavior and pioneered the group-buying model, which concentrated demand and matched products in a semi-planned economy.

When Pinduoduo entered the fast lane of growth and a large number of new users continued to pour into the platform, they began to think about how to understand the needs of new users, improve their service capabilities, and help new users get familiar with the platform while not neglecting the needs of old users. Therefore, Pinduoduo must work hard to expand product types and categories to meet the needs of users at different levels.

When the 10 billion subsidy project was first launched, they also started from the user's perspective: collective sports-style promotional festivals are indispensable in China in the short term, but what consumers need is to enjoy the benefits and fun of shopping in a long-term process.

In mid-2021, the number of active buyers on Pinduoduo reached a historic high of 850 million, which is almost the highest number on the entire online platform. The management realized that the growth rate will slow down in the future, and the focus of operations should be on user consumption concepts, building trust relationships with consumers, and making them sticky.

They also have a sense of crisis. As e-commerce models continue to change, Pinduoduo must also remain vigilant to see whether the existing model is still innovative and suitable for user needs.

Pinduoduo almost never dares to drop the line, and requires internal adjustments to be made at the fastest speed to meet the new needs of users. "Putting users at the center is the principle we have always adhered to. This is the first factor we consider every time we make a difficult decision."

At the same time, Pinduoduo also needs to help merchants and provide better tools for them to better reach consumers. In this way, users can benefit from it. In their view, monetization is a natural result.

In recent years, Pinduoduo has become increasingly aware that standing by consumers is not just a slogan, but a reliable methodology for dealing with changes and competitive pressures. "At any time, as long as we consider issues from the perspective of consumers, many problems may no longer be problems."

Author: Zhai Wenting

Source: New-Daybreak (ID: new-daybreak)