Source – asia.nikkei.com
China’s e-commerce sector is undergoing a significant transformation as platforms transition from prioritizing ultra-low prices to focusing on sustainable sales growth. This strategic shift in China’s E-Commerce Sector is evident across major platforms, including Douyin, Taobao, and JD.com.
Douyin’s Shift to GMV Growth
Douyin, the short-video platform owned by ByteDance, is pivoting towards boosting gross merchandise volume (GMV) after experiencing a slowdown in growth. In the first half of the year, Douyin’s GMV growth slowed to between 30% and 40%, compared to over 50% the previous year. The company realized that its popular live commerce sales model couldn’t sustain the lowest prices for consumers. Jacob Cooke, co-founder and CEO of WPIC Marketing and Technologies, highlighted that Douyin’s primary function as an entertainment platform could conflict with aggressively promoting low prices.
The industry-wide focus on low prices also poses challenges for merchants, who may then shift their inventory and advertising to platforms offering better margins. This shift coincides with the implementation of new anti-unfair competition regulations set to take effect on September 1, which prevent platforms from imposing unreasonable price restrictions on goods.
Impact of Low-Price Strategy
China’s annual online shopping festivals have long emphasized low prices. However, this year’s 618 shopping event saw a 7% drop in total GMV, the first decline in eight years. This downturn reflects broader economic challenges, including weak consumption and a prolonged property market slump, with China’s GDP growing only 4.7% year-on-year in the second quarter.
Cooke pointed out that consumer motivations are more complex than simply seeking low prices, with different demographics prioritizing various factors depending on the product category. This nuanced understanding is driving platforms to reevaluate their strategies.
Alibaba and JD.com Adjust Strategies
Amid pressure from competitors like Pinduoduo and Douyin, Alibaba and JD.com have adapted their approaches. Alibaba has shifted from emphasizing low prices to focusing on a “user first” strategy that includes product quality, pricing, and service. Taobao, Alibaba’s flagship retail platform, introduced a Store Experience Score rating system, which allocates traffic to merchants based on service ratings rather than just pricing.
JD.com, on the other hand, has traditionally focused on low prices but is now also enhancing other aspects of its service to retain users. The senior manager from Taobao acknowledged that ultra-low prices are unsustainable, as they lead to merchant migration to other platforms.
Merchant Perspectives and Market Dynamics
Merchants like Gu Pei, who operates electronic tool shops on Taobao and Pinduoduo, face challenges with the low-price strategy. Pinduoduo’s demands for lower prices resulted in reduced profit margins and ineffective traffic spending. Interestingly, Gu observed that her Taobao store, despite higher prices, attracted more buyers, suggesting that consumers perceive higher-priced products on Taobao as higher quality.
Gu’s experience underscores the complexity of consumer behavior and the limitations of a price-focused strategy. As platforms like Taobao and Douyin pivot towards more sustainable growth models, China’s e-commerce landscape is poised for significant changes, balancing consumer expectations with merchant viability.
