E-commerce platforms are eyeing billions of subsidies, are low prices their eternal killer weapon?

JD.com will officially launch the "10 billion subsidy" channel, which seems to indicate that JD.com is about to join the low-price war and blow the horn of bidding. This article analyzes JD.com's move from the aspects of the development model, categories, platform rules, etc. of JD.com's 10 billion subsidy activity, and finds the significance of low prices in the e-commerce industry. It is recommended for friends who pay attention to e-commerce to read.

E-commerce platforms have once again started to use the killer weapon of low prices, but this time it is JD.com that is using this killer weapon.

According to an exclusive report by 36Kr, JD.com will officially launch the "10 billion subsidies" channel in early March and has now entered the sprint stage before the product pool is selected and the bidding system is launched.

In addition, according to reports from the Shenzhen factory, according to an internal PPT, the rhythm of JD.com's 10 billion subsidy launch is: from February 6 to February 15, the rules and product pools are jointly built; from February 16 to February 20, system communication, and the final confirmation of the rules and product pools; on February 24, the bidding system was completed and launched, and on February 28, all-round submissions were opened, and the products that passed the review were launched one after another; in early March, the front-end cut-off volume was 100% officially launched.

An insider revealed that the launch of the 10 billion subsidy channel was not a sudden idea, but had been prepared long ago, with some actions having been taken during last year's Double Eleven period.

It is understood that unlike the previous big promotion activities that only appeared on June 18 or Double 11, this 10 billion subsidy will become a "daily sales" model, covering all categories, not limited to JD's traditional advantageous categories such as 3C, and both self-operated and POP merchants will participate.

POP stands for platform openplan, an open service platform, commonly known as a third-party store. On February 21, JD.com Merchant Center announced the "JD.com Open Platform "Double Compensation for Expensive Purchases" Service Rules", which means that after consumers purchase goods marked with this service logo, if the actual payment amount of the order is higher than the price of the same goods on a specific platform, consumers can apply for compensation for the double difference between the actual payment amount and the order amount with valid vouchers on the day of placing the order.

The service rules show that specific platforms refer to Pinduoduo's 10 billion yuan subsidy and Tmall (including websites, apps, WeChat public accounts, WeChat malls and mini-programs, etc.). The amount of compensation for overpaying is (the actual amount paid by the consumer's order - the actual amount paid by the consumer when purchasing the same product on a specific platform) × 2. This rule will take effect on February 28, 2023 and is applicable to third-party merchants who have opened stores on JD.COM, JD's open platform, excluding JD stores.

While JD.com is pressing forward, Pinduoduo, which is famous for its low prices, is also not idle. Before this, more than one JD.com employee reported on Maimai that they could not find strong categories such as 3C on Pinduoduo, suspecting that Pinduoduo's 10 billion subsidy channel had blocked the IP addresses of some JD.com employees.

This operation seems familiar. As early as 2020, the accounts of Pinduoduo employees were also banned by Taobao, which meant that they could not receive any coupons and could not place orders in categories such as Juhuasuan's 10 billion subsidies. Although the reasons for the blocking are different, they are undoubtedly defensive measures against "friendly competitors" in their low-price actions.

Last year, JD.com repeatedly emphasized its low-price strategy. At the end of last year, Liu Qiangdong wrote in an internal email, "With the success of our 3C home appliance business, many brothers have become arrogant and complacent, thinking that they have the pricing power and no longer pay attention to our low-price advantage. If this continues, they will sooner or later become the second Suning!"

He pointed out that if the customer experience of the retail business is divided into three elements - price, quality and service, low price is "1", quality and service are two "0", and without the low price advantage, all other so-called competitive advantages will be reduced to zero. Therefore, in the future development of JD.com, Liu Qiangdong pointed out that in addition to focusing on cost, efficiency and experience, it will also resume the low-price strategy and return to users.

In addition to the plan to launch 10 billion yuan in subsidies, JD.com opened up to individual sellers on January 1 this year. Natural persons can register for "JD Stores". JD Stores are a pop store model for individual industrial and commercial households and natural person merchants. Only an ID card and mobile phone number are required to settle in, and a store can be successfully opened in as fast as 10 minutes.

1. Low price is the killer feature of e-commerce

Whether the e-commerce industry is in the blue ocean or the red ocean, low prices have always been the norm. In the blue ocean stage, low prices are a common means for Internet platforms to grab users and traffic. In the red ocean, low prices are still an important killer for platforms to stand out. The most typical examples are the rise of Pinduoduo and Douyin.

Pinduoduo, founded in 2015, has emerged from the gap between e-commerce giants such as Taobao and JD.com by relying on its extremely cost-effective price advantage. This year, the overall development of the e-commerce industry has slowed down, and the market expansion is almost saturated. In addition to the gradual difficulty in new traffic and user growth, the customer acquisition costs of related platforms have also risen sharply. Many people believe that it is difficult for another platform company to stand out.

However, under the "social + e-commerce" model, Pinduoduo uses social sharing and social fission to achieve more profits. The social relationship chain has become the soil for traffic fission, greatly reducing Pinduoduo's traffic costs. And through sharing among users in third- and fourth-tier cities, users fission at a high speed, successfully opening up the sinking market that has been ignored by other e-commerce platforms.

At the same time, as e-commerce giants such as Taobao and JD.com launched anti-counterfeiting actions, Pinduoduo, which focuses on the sinking market, took over the spillover of low-end supply chains, which also provided Pinduoduo with further development opportunities. Relying on low prices, Pinduoduo's users and revenue grew rapidly. According to its financial report, Pinduoduo's annual active users in 2021 were 869 million, exceeding JD.com's 569.7 million in the same period, second only to Alibaba.

As early as 2019, Pinduoduo, which had only been established for four years, had exceeded one trillion yuan in transaction volume, becoming the third "trillion-level" e-commerce giant after Alibaba and JD.com. Its annual GMV reached RMB 1,006.6 billion. It took Alibaba 10 years and JD.com 13 years to go from 0 to one trillion yuan in GMV.

On the other hand, Douyin, based on the trading platform of video content and the later shelf-style sales, fully utilized the advantages of traffic and recommendations to reduce the operating costs of small and medium-sized businesses.

An insider of Douyin e-commerce once revealed to the media that on Douyin e-commerce, merchants match suitable products with user interests and content creation as the core. There is no need to pay for keyword search rankings, event resource positions, etc. Marketing costs are reduced and product pricing is reduced accordingly.

With this advantage, Douyin e-commerce broke Pinduoduo's record of breaking the trillion-yuan GMV mark in four years. According to a report by Late Finance in January 2023, Douyin e-commerce GMV is very close to one of the established goals of 1.5 trillion yuan, and is at the same level as Pinduoduo's GMV in 2020 (1.66 trillion yuan). It took only two years for Douyin e-commerce to break the trillion-yuan GMV mark from the establishment of the e-commerce department.

Low prices are not only a weapon for platforms to break through the siege, but also the most attractive label for users. On multiple shopping platforms, price comparison has gradually become a routine action for users before shopping.

Especially during the Double Eleven shopping festival, anchors on the platforms have been using the "lowest price on the entire network" as their exclusive signboard to attract users. On social platforms, discussions about "which platform is the cheapest to buy things on" have been going on. On WeChat and Douban, groups such as "online shopping promotions", "online shopping coupons", and "online shopping flash sales" are very popular.

On the Douyin shopping page, "9.9 special price" and "super value flash sale" are always placed in the most eye-catching front row; Pinduoduo's "limited time flash sale" and "10 billion subsidies" have also attracted many consumers.

In order to ensure the low price advantage, 10 billion yuan in subsidies has gradually become one of the common means used by the platform. Since the "6.18 Consumption Festival" in 2019, Pinduoduo launched a 10 billion yuan subsidy activity. On December 11 of the same year, Juhuasuan also announced the launch of the "10 billion yuan subsidy" and stated that the "10 billion yuan subsidy" will become a regular activity in the future.

Before the official announcement of the 10 billion yuan subsidy, JD.com has always regarded the 10 billion yuan subsidy as an important promotional activity during the 6.18 and Double 11 periods. In addition, Suning, Kuaishou and others have also launched the 10 billion yuan subsidy method.

2. How far can the subsidies go?

As multiple platforms added billions of yuan in subsidies, the drawbacks gradually became apparent.

For Pinduoduo, subsidies have indeed brought about user growth, but cost investment is also increasing. According to the financial report, after Pinduoduo launched a 10 billion subsidy in 2019, its sales and marketing expenses in 2020 were 41.1946 billion yuan, a year-on-year increase of 52%; this figure rose to 44.8 billion yuan in 2021, and this figure was nearly 36.6 billion in the first three quarters of 2022. With an investment of more than 10 billion yuan every quarter, the figure in 2022 will definitely not be low.

Some analysts pointed out that the essence of the 10 billion yuan subsidy is to engage in a price war, so the platform will inevitably need to invest sufficient funds in this process, which will increase the platform's operating costs to a certain extent.

Users attracted by price are not necessarily loyal to the platform. Moreover, not all brands are willing to accept the platform subsidies, and improper handling may even lead to a rift between the brand and the platform.

For example, on the Pinduoduo platform, cost-effective brands including Pechoin, Proya, Carslan, Mizuno, etc., all have flagship stores. However, Apple has not officially entered Pinduoduo so far, and brands such as Switch, AMD, ADATA, La Mer, Dyson, etc. have even publicly stated to remind consumers that the products participating in the 10 billion yuan subsidy on Pinduoduo have not been authorized by the brand.

In addition, the low prices brought about by the 10 billion yuan subsidy may also affect the brand's own pricing system. Last year, because the prices on e-commerce platforms were much lower than those of offline channel dealers, Wuliangye suspended its cooperation with the platforms.

In fact, Pinduoduo, which was the first to offer a 10 billion subsidy by burning money, has already influenced the minds of users. In the minds of many users, Pinduoduo is equated with 10 billion subsidies. This is also an important reason why Taobao, which also launched a 10 billion subsidy after Pinduoduo, did not promote the slogan of 10 billion subsidies. If the latecomers want to surpass the former to grab the user's mind and market, they will inevitably have to spend more energy and money than the former.

In addition, some people point out that for the retail industry, low prices and services are the core moats, but the continuous internal price war cannot build a moat. If you want to achieve low prices and satisfactory services, the key lies in how to optimize the supply chain and how to optimize costs.

Just as inspired by Munger's favorite Costco supermarket: in the more than 20 years since its listing, Costco, a retail supermarket, has generated more than 50 times of revenue. The moat behind this is the extreme cost control and unique membership system, which has led many retail supermarkets to imitate Costco's membership system.

Amid fierce competition, subsidies may be an effective means for platforms to acquire users and traffic, but how long can subsidies last? What results can be achieved in the short term? We will continue to pay attention.

Author: Lin Xiaobai

Source: Bianews (ID: bianews8); accurate, fast and in-depth technology media