JD.com's "10 billion subsidies", merchant strategy exposed

Recently, JD.com is preparing to upgrade its "10 billion subsidy" channel. What will this 10 billion subsidy bring to JD.com? How much cake can be shared among the "10 billion subsidy"? This article analyzes this and takes a look at JD.com's 10 billion subsidy strategy.

At a JD.com business management training session at the end of last year, Liu Qiangdong was rarely angry.

"If you don't reflect on the price and just keep complaining to me about the traffic, then you should reflect on it. No one should mention traffic to me in the future. It's not that the traffic is low, it's that your price is not attractive enough!"

The "low-price strategy" was once JD.com's important weapon to capture cities and defeat Dangdang and Suning. Now that the Internet has entered the "retention" era, Liu Qiangdong has once again emphasized "low price."

90 days after Liu Qiangdong's speech, JD.com announced the upgrade of the "10 billion subsidies" channel, upgrading the 10 billion subsidies from a sub-channel that only appeared during big promotions to a regular channel, triggering a wave of heated discussions among merchants and consumers.

An agent operator confirmed the news to E-Commerce Online and sent a replay of JD.com’s “10 billion subsidies” new traffic gameplay training meeting.

At the meeting, JD.com officially stated that this "10 billion subsidy" will not only cover its own business, but will also involve POP merchants (Platform Open Plan, that is, third-party sellers). Everyone will bid openly on the same platform, and the prices will be benchmarked against platforms such as Pinduoduo and Juhuasuan. JD.com will provide traffic support and official subsidies, and the most core factor for the selection of merchants is whether they can provide "low-priced" products.

In June 2019, the "10 billion subsidies" came out of nowhere. It brought two quarters of rapid user growth to Pinduoduo, which was in a bottleneck period. I subsidized you for all the top products such as iPhone and Moutai. The value of the platform's "coin throwing" was also fully recognized by the market, and Pinduoduo's market value continued to rise. "10 billion subsidies" has gradually become a standard feature of e-commerce platforms. Taobao, Meituan, Fliggy and Ele.me have also successively launched "10 billion subsidies" channels.

Meituan’s former “10 billion subsidies”

JD.com has only now normalized the "10 billion subsidies", and it is late to the party, but it is more like a choice that JD.com has to make: on the one hand, Liu Qiangdong regards low prices as JD.com's "most important and only basic weapon", and JD.com is ready to continue to carry the banner of low prices; on the other hand, JD.com's financial report shows that in the first three quarters of 2022, JD.com's monthly active users were 580.5 million, 580.8 million and 588.3 million, respectively, and user growth has reached a bottleneck.

Under such circumstances, "10 billion subsidies" may be JD.com's best option. However, it is not easy to stand out in the gradually saturated "10 billion subsidies" track. Even if JD.com has advantages in 3C digital categories and logistics, and spends real money on subsidies, whether it can re-establish the platform's low-price mentality or just become a short-term channel for consumers to get free products is still an unknown.

1. JD.com’s 10 billion yuan subsidy aims to be “fast, accurate and ruthless”

This is not the first time that JD.com has provided “10 billion yuan in subsidies”.

After Pinduoduo launched the "10 billion subsidies" in 2019, JD.com had actually launched the "10 billion subsidies", but it appeared more as a sub-channel during major promotions. This time it was upgraded to a regular channel.

Judging from the video provided by the agent operator, JD.com has made a great determination this time.

The "10 billion subsidy" project is moving very fast. During an online communication meeting with merchants on February 20, it was announced that the bidding process would start from February 24 to February 26. Merchants can submit their applications through the backend and adopt open bidding rules. On March 1, JD.com's "10 billion subsidy" will be exposed on the front end and will be officially launched in early March.

The traffic provided by JD.com to merchants is also very considerable. The PPT shows that it will have support for "in-site traffic entrance + global traffic matrix". JD.com's official employees explained that there will be a first-level entrance to the "10 billion subsidies" in the APP, and at the same time, search recommendations within the platform will provide traffic support for the "10 billion subsidies" products.

The bidding adopts a new open bidding model, with one merchant for one product. The merchant with the lower price will be selected for the "10 billion subsidy". The bidding pool is adjusted basically every week. The bidding time for each category is different, and the results are usually released in 1-2 days. At the same time, the lowest price on the entire network is required.

JD.com staff also said that the price will be benchmarked against "Pinduoduo, Juhuasuan and other platforms". After the platform launches the bidding system, it will give a standard value for the product price, set the highest starting price and inventory, and the merchant's bidding price must be lower than the starting price, and the product inventory must be higher than the specified inventory. Self-operated stores and POP stores have also been pulled into the same competitive position. In addition to store star ratings, praise rate and other standards, the most important thing is "low price".

During the meeting, a merchant asked whether the official would have a preference if the bids of self-operated and POP stores were the same. A JD staff member also said: "In this case, it may depend on the inventory. The one with larger inventory will be given priority, but the most important factor in our selection of merchants is still 'low price'."

In addition to low prices, JD.com has also set a rule of double compensation for overpriced purchases. The "free shipping for orders over 99 yuan" policy that was frequently complained about before has also changed. All products in the "10 billion yuan subsidy" will need to be shipped free of charge (except for remote areas), and this part of the postage will also be borne by the merchants.

The agent business told E-commerce Online that JD.com also showed its sincerity. As long as the "10 billion subsidy" label is attached, the official deduction rate (JD.com's commission on the business) will be automatically reduced. Some products can also get official subsidies: "The deduction rate of POP businesses selected for the '10 billion subsidy' will be automatically reduced to 0.6%. Some products will also have official subsidies from JD.com. The price received by the business is the bid price plus the official subsidy."

JD.com's quick launch and its "10 billion subsidies" against the "low prices" of Pinduoduo and Juhuasuan can be described as "fast, accurate and ruthless", and also reflects JD.com's urgent need for traffic: Alibaba has more than 1 billion annual active consumers in China, Pinduoduo also has 880 million annual active consumers, while JD.com's annual active consumers are still around 570 million, and its user growth in the past three quarters of 2022 has also stagnated.

While major e-commerce platforms have reached their traffic ceilings, JD.com, which has a slightly lower number of users, actually still has room for traffic growth. When JD.com, like Pinduoduo four years ago, enters a bottleneck period of user growth, breaking through the bottleneck through the "10 billion subsidies" that have been proven to bring in traffic may be the best option.

2. “10 billion subsidies”, how much cake is left?

The "10 billion subsidy" that emerged four years ago has developed into a mature IP with its own traffic with the participation of multiple platforms and has been given more value.

iPhones and magic water are common in the "10 billion subsidies"

First, it attracts more traffic to the platform and cultivates user stickiness. When high-end products such as iPhone, Dyson hair dryer and SK2 magic water, which have the aura of "consumption upgrade", are combined with low prices, they can attract both high-end consumers and young people in small towns outside the Fifth Ring Road. Different 10 billion subsidy products can also have a strong appeal to users of different levels;

Second, improve user value and create a higher customer unit price. The goods in the "10 billion subsidies" are mostly top-notch goods and brands, and consumers who are willing to pay will also create a higher customer unit price. Pinduoduo achieved rapid growth in per capita annual consumption in the year when the "10 billion subsidies" appeared. Per capita annual consumption increased from 1,257 yuan to 1,467 yuan, a net increase of 210 yuan, a year-on-year increase of 92.4%.

Third, provide traffic entrances for brands and merchants. From the initial simple platform subsidies, the "10 billion subsidies" have developed into a new way of playing. Through the "10 billion subsidies", the platform provides consumers with an entrance to genuine and low-priced goods, and at the same time provides merchants with a marketing traffic entrance. The platform may also charge a certain entry fee, and then feed the fee back to the consumer subsidy, forming a positive cycle.

This "positive cycle" can be seen from Pinduoduo's financial report. In the third quarter of 2019, when Pinduoduo just launched the "10 billion subsidies", marketing expenses reached 6.9 billion yuan and a net loss of 2.3 billion yuan. By 2022, Pinduoduo's marketing expenses in the first and second quarters were showing a downward trend. The strength of the platform's "10 billion subsidies" is getting smaller, but the "10 billion subsidies" are still booming on Pinduoduo.

Taobao Juhuasuan's "10 billion subsidies" offline electronic coupons and live broadcast rooms

At the same time, Pinduoduo and Taobao Juhuasuan have begun a more refined competition. Pinduoduo has vigorously developed the agricultural products sector, while Taobao has used the e-commerce ecosystem to introduce electronic coupons from offline brands, Fliggy's hotel and travel products, local life services, etc., and the "10 Billion Subsidy" official live broadcast room has entered the live streaming sales market.

In comparison, the "10 billion subsidies" has always been a missing piece for JD.com. By normalizing the "10 billion subsidies", JD.com has actually made up for its shortcomings and once again stood on the same track with Pinduoduo and Taobao.

But it is not easy to get a piece of the pie in the mature "10 billion subsidies". The ideal state of the platform is that users can shop in one stop, and all consumption of any category can be completed within the platform, but the reality is that merchants operate in multiple areas and users can also consume in multiple areas.

Under the training video, many merchants are concerned about platform subsidies

The first is the merchant side. For merchants operating on multiple platforms, low prices are acceptable, but they also need to run volume. An agent merchant told E-commerce Online that after the launch of the "10 billion" subsidy, many merchants are concerned about the deduction and logistics issues. "JD said that the deduction will be reduced, but if you still require the use of JD Logistics, the cost will actually be higher than other platforms. And the meeting also said that only some products can get platform subsidies." In addition to spending money on subsidies, JD did not charge pit fees, and more used traffic as a condition to guide merchants to join the "10 billion subsidies."

At the same time, the "10 billion subsidies" have actually passed the traffic bonus period. JD.com must come up with differentiated or attractive products, more advantageous prices and better follow-up fulfillment services. JD.com's most outstanding features may be its advantages in 3C digital and home appliance categories, as well as its own logistics and after-sales service, but after the "low price", it is hard to say whether JD.com can continue to maintain this advantage.

This can be seen from the #JD Apple 10 billion subsidy# campaign launched by JD.com at the beginning of this year. Although it has received 79.926 million discussions on social platforms, many consumers said that they bought Apple products with JD.com's 10 billion subsidy in February, but were told that they were pre-ordered products and needed to be purchased. They would not be shipped until March 5 or even March 12. For JD.com, which has always regarded the speed of fulfillment as an advantage, such "pre-sales" have brought about a decline in reputation.

In the topic of #JD.com Apple's 10 billion subsidies#, slow delivery has become the main problem

Among the three major e-commerce platforms, JD.com, which was the last to normalize the "10 billion subsidies", has lost its advantage in capturing the minds of consumers. Even though it has advantages in the 3C digital category, when users mention the "10 billion subsidies", it is difficult for them to think of going to JD.com. If it enters the market at this time, it will also need to face counterattacks from other mature players in the field of "10 billion subsidies".

For JD.com, which uses the "low price" label, the "10 billion subsidies" will be the fastest and best entry point to attract traffic. However, how much imagination the entry point can provide to JD.com and how much traffic it can attract depends on how much real money JD.com can come up with and the subsequent fulfillment operations.

Author: Wang Zhan; Editor: Si Wen

WeChat official account: E-Commerce Online (ID: dianshangmj), see sharpness and insights, and focus on innovative media on the Internet and new business.

This article is authorized by @E-commerce Online to be published on Operation Party. Any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.