The first e-commerce low-price war: the three major platforms besieged Pinduoduo and involved everyone

Late LatePost

2024-06-24 20:44Posted on the official account of Beijing LatePost

The money saved at a low price has to be paid by someone in the end.

Text丨Shen Fangwei Guan Yiwen

Editor丨Guan Yiwen

The "low price" repeatedly proposed by major e-commerce platforms for many years has become a big battle for the first time this year. Participants all have low prices as their main goal, or even their sole goal.

In exchange for growth, both Alibaba and JD.com have sacrificed some of their profits to a certain extent; In order to maintain the growth rate, Pinduoduo and Douyin have increased investment, optimized system tools to further improve efficiency, and as far as we know, Pinduoduo has increased the budget of the previously shrunken 10 billion subsidy to more than 10 billion yuan.

The market share and parcel volume of the four e-commerce platforms of Taobao, JD.com, Pinduoduo and Douyin are getting closer and closer. This is an unimaginable pattern that was once the top two.

Over the past year or so, the founders of Alibaba and JD.com have re-engaged in some of the company's decision-making and proposed new directions. Liu Qiangdong announced that he would lead JD Retail to fully shift to "low prices"; Ma Yun made it clear that Taobao and Tmall would "return to users", and Ali then launched a series of strategic adjustments, among which the most obvious consumer perception may be low prices, red envelopes, and tens of billions of subsidies.

We understand that Pinduoduo wants to maintain a 30% GMV (turnover value) growth rate of 5.5 trillion yuan in 2024. However, in the first quarter of this year, its GMV growth fell short of expectations. Previously, Zhao Jiazhen, the co-CEO of Pinduoduo's overseas business, and others were also pumping some of their energy back to the domestic main station.

Years of consumption upgrading, cultural construction, and brand competition finally moved towards a "low-price war", with the four major platforms, tens of thousands of brands, and countless white-label merchants passively involved. This may not be the business environment that people once expected, but this is the new environment that will be shaped by the full adoption of e-commerce.

Pinduoduo Shou "low price"

Since the market value surpassed Ali in the fourth quarter of last year, it has become the object that all e-commerce platforms cannot ignore and compete to learn.

During this year's big promotion festival, e-commerce platforms such as Alibaba, JD.com, and Douyin have launched an unprecedented low-price war.

How to do low prices, they do the same: after Alibaba and JD.com, Douyin has also followed by identifying "price power" as the project with the highest strategic priority in 2024; Introduce more industrial belt supply, Taobao has Tao factory, and Jingdong has upgraded Jingxi to specialize in self-operated special products; Increase investment in tens of billions of subsidies and other columns, and give more traffic support to low-priced goods.

Competitors are making frequent moves, and Pinduoduo did not directly respond to the 618 period, but it is also introducing more countermeasures to consolidate its "low price" mentality.

We understand that Pinduoduo originally planned to control the budget of its subsidized channel of 10 billion yuan in 2024, but in the first quarter of this year, the company has adjusted its plan to increase the annual budget to more than 10 billion yuan, hoping to maintain the low price advantage of the whole network in the existing categories, and follow the market trend to expand more categories and brand products.

As one of the most successful products launched by Pinduoduo in the past five years, the 10 billion subsidy has helped Pinduoduo form a user mentality of low-cost genuine products on the consumer side. At present, tens of billions of subsidies account for more than 20% of Pinduoduo's GMV.

Previously, Pinduoduo invested about 9 billion yuan and 7 billion yuan in subsidies of 10 billion yuan in 2022 and 2023. In 2023, Pinduoduo's 10 billion subsidies have reached a mature stage, and the platform has changed from 0 commission in the early stage to subsidize a large number of goods by itself, to more than two-thirds of the products are subsidized by brands or merchants, and the platform only provides traffic support and collects transaction commissions from merchants.

In the past few months, under the impact of competitors, some products of Pinduoduo are no longer the lowest prices. After increasing investment, the platform can expand the scope of investment and sign more annual frames, underwriting and VAM agreements with brand dealers to ensure their overall low price mentality.

Since the beginning of this year, some daily chemical, home appliance and food brands have begun to increase their investment in Pinduoduo due to the shrinking sales of offline supermarket channels. They used to ban resellers from Pinduoduo, but now allow them to sell specific SKUs on Pinduoduo, while no longer setting a minimum price, allowing them to participate in platform bidding on their own terms.

People close to Pinduoduo told us that the platform hopes to take on this trend through strategies such as tens of billions of subsidies and subsidies, and further expand Pinduoduo's low-price advantage.

In late May, Pinduoduo also launched the "automatic price follow-up" system tool, once the merchant opens, it means that the entrusted platform will automatically change the price within the acceptable price range set by the merchant according to the price of the whole network, so as to ensure that its event products get greater exposure and increase sales.

This is one of the system tool upgrades that Pinduoduo plans to launch, and the platform will also launch a number of new tools in the next few months, the logic is still simpler and more efficient, further reducing the threshold of business operation and decision-making costs, and achieving lower commodity prices.

We understand that Pinduoduo still plans to increase its monetization rate.

A person close to Pinduoduo understands this strategy as the total scale of Pinduoduo's absolute low prices and the mental advantage of consumers by charging higher advertising fees from merchants and spending more budget to subsidize users. At the moment, Pinduoduo's marketing budget is higher than that of several other competitors.

Pinduoduo said that the above data does not match the reality, and the plan to increase the monetization rate is also inconsistent with the reality.

Small and medium-sized businesses are under the most pressure. White-label merchants with monthly sales of hundreds of thousands to millions of yuan told us that under the new price comparison rules this year, their gross profit margin on Pinduoduo sales has remained at 20%-30%, which is 10-15 points lower than that of other platforms.

Under the strong paid site-wide promotion model, the above-mentioned merchants also need to pay 10% - 20% of the sales for placement, and then deduct after-sales costs such as refunds only, and the profit is very limited. After the new rules were announced, some investment managers suggested that merchants force upstream suppliers to reduce costs through sales scale in order to make profits.

Low prices lead to increased GMV, but not necessarily more sales

According to a report by Goldman Sachs, from May 20 to June 18, 2024, Taotian's GMV growth rate will be between 10% and 15%, with a market share of 42%; JD.com grew by single digits, with a market share of 22%; Pinduoduo's growth rate is 15%-20%, and its market share is 18%; Douyin's growth rate exceeded 20%, and its market share was 15%. This is basically in line with the performance of the companies we know.

Because the promotion cycle and the timing of each promotion are not the same, and there are many changes from a year ago, the above data is only suitable for reference.

The megatrends are clear, though. Ali and JD.com, two old e-commerce platforms, have increased investment, compared with the sluggish performance of negative growth or zero growth in the past, this time they have achieved varying degrees of growth; Although the two young platforms Pinduoduo and Douyin are growing faster, their growth has slowed down compared to their own.

An Ali source told us that Taobao and Tmall have not seen a growth rate of more than 10% in the 618 and Double 11 promotions for several years.

According to the analysis of a number of Alibaba employees and industry insiders, the growth of Taobao and Tmall is due to the issuance of more large coupons and category coupons than in previous years, the investment in Douyin's advantageous categories such as beauty and skin care, sports and outdoor, and increased investment in columns such as tens of billions of subsidies.

In addition, during this year's promotion, the return and refund rate of the e-commerce industry is generally higher than in previous years, and new strategies such as "refund only", "refund in seconds before delivery", "intelligent full reduction and then refund", "compulsory freight insurance" and "free shipping for member returns" have jointly increased this rate.

The general value (GMV) in the industry includes both the unpaid part of the order and the order that has been returned and refunded. In other words, every e-commerce platform has a higher GMV this year.

We learned that in this 618 promotion, Taotian's most concerned indicator is still turnover. In particular, it cares about two aspects - the growth of Taotian's own market share, compared with the growth rate of its competitors.

"We need a win so badly." An Ali person sighed.

The same goes for JD.com. Before the 618 promotion was approaching, Liu Qiangdong issued a remote and urgent revision instruction from Dubai, the Middle East, requesting that the positioning of the promotion be changed from "good and cheap" to "cheap and good", clarifying what JD should pursue.

JD.com, which focuses on the self-operated model, can only fight hard if it wants to do low prices, because it must tilt the already small amount of traffic to the platform ecology, and its former logistics advantages have also pushed up its costs. JD.com focuses on supporting its own procurement and sales team to broadcast live, and uses its own team to intervene in industrial belt factories, check products in quality control, price, and service, and sell white-label products with lower prices and better quality on Jingxi's self-operated market.

In March and April this year, the year-on-year sales growth rate of Douyin e-commerce fell below 40% for two consecutive months, and less than 30% in May. In contrast, in 2023, the monthly sales growth rate of Douyin e-commerce will basically exceed 50%.

Since the launch of the low-price strategy at the beginning of the year, Douyin has taken the price as one of the first-level indicators, adjusted the traffic distribution strategy, and tilted the traffic of "low-price products on the whole network" and "low-priced products of the same model".

A Douyin e-commerce source said that although they achieved a number of price power series goals in the first quarter, they have never been able to achieve low prices comparable to Pinduoduo, and the actual prices of many products are still 10%-20% higher.

A merchant who ranked first in the category told us that during the 618 period this year, the price comparison and low price competition on various platforms were more fierce and similar, and the merchant was tired of coping, and he had to spend a lot of time every day to follow up and deal with things related to price, such as following up and processing the wrong low-price orders found in the price comparison system of the platform, feedback and appeal, and prevent restricted traffic. "Sales in June are not as good as those in April and May."

When all platforms are chasing growth at low prices, few brands can fight such a trend. When profit margins are compressible, companies will look for other ways out, whether it is reducing the number of employees and their salaries, reducing R&D expenses, eliminating distributors, or lowering upstream costs and adjusting procurement standards. The money saved at a low price has to be paid by someone in the end.

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