Douyin e-commerce, anxious to get out of the "low price dilemma"

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2024-08-04 14:42Published in Guangdong

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01 Douyin e-commerce has recently adjusted the priority of its business goals, no longer putting "price power" in the first place, and will focus on pursuing GMV growth in the second half of the year.

02 However, after the implementation of the low-price strategy, the growth rate of Douyin e-commerce has slowed down, and it is facing the dilemma of merchants, with sales but no profits.

03To this end, Douyin e-commerce began to guide merchants to provide different sets from other platforms, or provide gifts in the product portfolio to avoid falling into price competition.

04On the other hand, Douyin e-commerce launched a comprehensive independent e-commerce platform, Douyin Mall App, to cope with the challenge of live broadcast e-commerce gradually approaching the ceiling.

05However, Douyin e-commerce still needs to face a more complex internal and external competition situation and seek a breakthrough in the field of shelf e-commerce.

The above content is generated by Tencent's hybrid model and is for reference only

Douyin e-commerce, anxious to get out of the "low price dilemma"

Text/Xu Wenwen

Editor/Zhang Xiao

After Taotian Group weakened its absolute low price strategy at the beginning of the year, Douyin e-commerce has also followed up on this action recently.

According to a report by LatePost, recently, Douyin e-commerce has adjusted its business target priorities, no longer putting "price power" in the first place, and will focus on pursuing GMV (transaction value) growth in the second half of the year.

At the beginning of this year, GMV was still at the bottom of Douyin's e-commerce goals, with the first task being to achieve low prices, followed by the "perfect order rate" to measure the consumer experience and the number of monthly customers that reflect the scale of e-commerce users.

Earlier, Taotian Group had made it clear that since last year, its search weight allocation system according to "five-star price power" has been weakened and changed back to GMV. In terms of business indicators, the focus of Taobao's assessment this year has changed to GMV and AAC (average consumption amount), rather than pursuing high DAC (order volume) brought by low prices.

Taotian Group proposed a "five-star price power" evaluation system in March last year, and at Double 11 last year, it promoted low prices to the most important assessment index for all departments.

Taotian and Douyin e-commerce have successively adjusted their low-price strategies, which does not mean that they have completely abandoned low prices, but have optimized the existing goal of "absolute low price", hoping to achieve a more balanced low price and user experience.

Behind this, after experiencing the low-price trial in the past year, they found that Pinduoduo's high-speed growth method is not suitable for all e-commerce players, and in the rapidly changing e-commerce market, every platform needs to find the most suitable way to play.

Half a year after the low-price strategy, Douyin encountered growth pressure

The core reason for the weakening of low-price competition in Douyin e-commerce is that the growth rate is not as expected.

A person familiar with the matter once told LatePost that Douyin knew internally that low prices would have a certain impact on GMV, but the rapid decline in GMV growth in the first half of the year still exceeded expectations.

Douyin e-commerce's GMV target for 2024 is 4 trillion, an increase of nearly 50% from 2023. In the first two months of this year, the cumulative year-on-year growth rate of Douyin e-commerce was as high as 60%, but after the implementation of the low-price strategy, the year-on-year growth rate fell to below 40% in March, and after the second quarter, the growth rate fell further to less than 30%.

From this point of view, although Douyin e-commerce and Taotian Group have successively chosen to weaken low-price competition, they are facing different situations.

Unlike Douyin's slowdown in e-commerce transaction volume, in the first quarter of this year, Taotian's GMV returned to double-digit growth after a two-year hiatus, mainly due to the increase in the number of buyers and the frequency of purchases - in other words, based on the low-price strategy, Taotian Group has better achieved "price for volume".

It is more difficult for Douyin e-commerce to do low prices and rely on low-price strategies to leverage growth, which is largely determined by the platform's trading mechanism.

The GMV of Douyin e-commerce comes from two aspects, "content field" and "shelf field", the content field mainly comes from the live broadcast room and short videos, and the shelf field mainly comes from Douyin malls and stores, among them, the content field has contributed a higher GMV to Douyin e-commerce so far, and the contribution ratio in 2023 is still close to 70%.

However, in the past, the GMV growth of Douyin live e-commerce was more driven by brand merchants. At the beginning of 2020, Douyin e-commerce proposed the "Dou 2000" plan internally, that is, to strive for the top 2,000 brands in Taobao and Tmall sales to settle in Douyin, and the current "Dou 2000" brand merchants in Douyin have a settlement rate of more than 99%.

Later, with the continuous expansion of Douyin e-commerce, these brand merchants not only contributed more GMV to Douyin e-commerce, but also contributed more revenue to Douyin. According to Caixin, Douyin e-commerce will require brands to achieve a certain annual GMV, and brands will also set a budget for advertising according to the annual frame to buy traffic for products and live broadcast rooms.

Investor Huang Hai also pointed out that for brand merchants, the brand self-broadcast room is often "no traffic if you don't pay", resulting in a high degree of involution, and you need to keep buying volume to maintain sales. He revealed that it is the norm for the traffic fee of the merchant's self-broadcast room to account for the proportion of GMV paid, 50% or even higher.

In this situation, Douyin e-commerce did not have a price advantage before. A person close to Douyin e-commerce previously revealed that the price difference between the same model of Douyin e-commerce and Pinduoduo for many standard products could once reach 50%.

However, when the industry is rolling towards low prices, Douyin e-commerce has also fallen into "price anxiety" and accelerated the layout of the low-price strategy.

In 2023, Douyin e-commerce will propose to be more "aggressive" in the shelf field, and to some extent, it is also doing low prices. Last year, Douyin e-commerce introduced a large number of low-cost and explosive products to Pinduoduo, and at the same time recruited a large number of industrial belt service providers, hoping to leverage more small and medium-sized businesses.

For another example, at the end of February last year, Douyin e-commerce also launched activities such as "0 yuan entry", which lowered the threshold for merchants to enter Douyin; Later, Douyin e-commerce also increased the weight of "order volume" in traffic allocation, which is good for white-label merchants with small profits and quick turnover.

At the beginning of this year, when "price power" was set as the highest priority task in 2024, Douyin e-commerce further extended the low-price strategy to the content field, including but not limited to:

upgrade support policies and accelerate the introduction of businesses in industrial belts with large room for price reduction;

Establishing a radical price comparison system, Douyin divides the products on the platform into three categories: "low price on the whole network", "low price of the same model" and "high price of the same model", which correspondingly increases, maintains and reduces traffic exposure, and at the same time provides merchants with suggestions for price changes.

Internal test "automatic price change" function, Douyin e-commerce launched this function in May, after the merchant sets the low price, the system can reduce the price in real time according to the same goods in the station and the whole network, so as to ensure the price advantage;

However, under all kinds of actions, Douyin e-commerce still has not established a significant advantage in price. According to a report by LatePost, although Douyin e-commerce has completed a number of price power series goals in the first quarter, it has never been able to match the price of Pinduoduo, and the price difference of many goods is still between 10% and 20%.

The bigger challenge is that under the aggressive low-price strategy, the contradiction between the platform and the merchant is growing.

The dilemma of merchants at low prices: there is sales, no profit

On May 30 this year, the Douyin women's clothing store "Laura Code" conducted its last live broadcast and announced the closure of the store.

"Lola Code" is the head player of the women's clothing track on Douyin, has been on Douyin for five years, has more than 5 million fans, has sales of more than one billion a year, and has won awards at Milan International Fashion Week.

The straw that crushed the "Lola Code" included high streaming fees, high return rates, and low-price competition. In an interview with the media, they said, "When we started in 2021, the return rate was still 30%-40%, and now the return rate is 70%-80%, which has doubled, and the traffic cost has increased 10 times." ”

In addition, under the trend of low-price consumption, they are also facing vicious competition. Lola Code said that lower-priced plagiarized products are appearing faster and faster, and plagiarism merchants use inferior fabrics to shoddy, and the same styles are sold at lower prices, making their products more and more difficult to sell.

The founder, Lola, revealed that before closing the store, they had been losing money for more than a year, with a loss of tens of millions a year.

Behind the closure of the Lola password, at present, on the Douyin platform, many merchants are facing a common problem: there is sales, but there is no profit.

Investor Huang Hai mentioned in a recent article that one of his portfolio companies, a leading new consumer brand in the home furnishing category, continues to lose money on Douyin. The founder of the company said that the biggest advantage of Douyin live broadcast is that it can quickly increase the volume - give you volume, give you hope, but not give you profit.

In addition, according to LatePost, Zhang Yang, the founder of Shuisong Consulting, who is a consultant for the merchant's Douyin store, asked nearly 180 customers after the end of the 618 promotion, and found that no more than 20 of them did not lose money during the event.

The core reason for this dilemma of merchants is that the operating costs on Douyin are getting higher and higher, and on this basis, the low-price strategy is promoted, and the operating pressure of merchants is further raised.

Caught in the storm, there are not only head merchants like Lola Password, but also small and medium-sized businesses.

An operator of Doudian told Caixin, "One of the results of low prices is that there are some inferior products that take advantage of the opportunity, and our good products cannot be increased." ”

He also revealed that Douyin e-commerce tightened the customer service satisfaction assessment standards in March, and during the weekly assessment, the number of negative reviews such as "dissatisfied" and "very dissatisfied" given by users in the flying pigeon customer service system divided by the total number of evaluations, and the dissatisfaction rate obtained is higher than a certain percentage, and points will be deducted for two consecutive weeks.

However, a difficulty faced by small and medium-sized businesses is that many consumers have not developed the habit of evaluation on the Douyin platform, and the overall number of evaluations is small.

Of course, Douyin is also accelerating the improvement of the platform's governance mechanism. In April this year, Douyin e-commerce adjusted the rules, if the platform found that a merchant was suspected of selling counterfeit and pirated goods, it had the right to take measures such as permanently removing the goods, banning the goods, freezing store loans, restricting the withdrawal of funds, closing the store and terminating cooperation, and then clearly stated that there was "zero tolerance" for the sale of counterfeit and pirated goods.

But this also makes many businesses feel uncomfortable. According to media reports, in the eyes of many merchants, many products that have been characterized as infringing have already gained traffic in the early stage, and merchants have been fined by the platform for increasing production and stocking based on this, which is unreasonable and belongs to "fattening and slaughtering".

Live e-commerce is approaching the ceiling, and Douyin e-commerce needs to accelerate the breakthrough

Combined with what we mentioned above, Douyin e-commerce has fallen into a low-price dilemma to some extent:

On the one hand, in order to adapt to the changes in the e-commerce market, consumption situation, and consumers' willingness to consume, low prices are a battle that must be followed; But on the other hand, under the format dominated by live broadcast e-commerce, it is difficult for Douyin to have a significant advantage in price, and too aggressive actions will further exacerbate the contradictions with merchants.

In fact, Douyin's weakening of the low-price strategy is also based on this. According to media reports, one of the backgrounds of Douyin's strategic adjustment is that after judging that the live broadcast e-commerce form cannot achieve extremely low prices, the company decided to put GMV back to the first priority.

Douyin's merchant operation department has two groups, A and B, the former is mainly responsible for the operation of brand merchants, and the latter mainly serves white-label merchants.

However, Douyin has not completely given up on making low prices.

For example, now the standard products on Douyin still have to compare prices, but non-standard products have begun to weaken the price comparison. In addition, Douyin e-commerce has begun to guide merchants to offer different sets from other platforms, or to offer giveaways in product portfolios, hoping to allow merchants to avoid falling into price competition by differentiating products or product combinations.

Since the second half of this year, mainstream e-commerce platforms have begun to slow down, re-examine and formulate growth strategies.

For example, in addition to Taotian Group and Douyin e-commerce, Pinduoduo also adjusted its business focus in the second quarter of this year, shifting from pursuing commercialization and improving profits to putting GMV back to the first goal.

Prior to this, Pinduoduo proposed as early as 2022 to gradually shift from the pursuit of GMV and user scale to commercialization and increase the monetization rate.

When the re-pursuit of GMV growth has become the consensus of e-commerce platforms, how to return to the high-speed growth channel in the "post-low-price competition" stage has become a challenge that Douyin e-commerce must face.

However, Douyin e-commerce has to face a slowdown in the growth of live broadcast e-commerce.

According to the report released by Goldman Sachs, during this year's 618 promotion period (May 20-June 18), the GMV growth rate of the Tao system was between 10% and 15%, and the market share was 42%; JD.com grew by single digits, with a market share of 22%; Pinduoduo's growth rate is between 15% and 20%, and its market share is 18%; Douyin's growth rate is higher than 20%, and its market share is 15%.

Photo/Caitong Securities

It is not difficult to see that the growth rate of live broadcast e-commerce represented by Douyin is still faster than that of comprehensive e-commerce platforms, but the gap between the two sides is narrowing.

According to a report by LatePost, the Douyin team has calculated that the ceiling of GMV of live broadcast e-commerce is 2 trillion yuan to 3 trillion yuan, of which from January to October last year, the GMV of Douyin e-commerce from the content field has exceeded 1.3 trillion.

This means that there is still room for Douyin's GMV growth in the live e-commerce scenario, but it is approaching the ceiling.

Judging from the layout of the past few years, Douyin has obviously pinned its hopes on the "shelf field". Wei Wenwen, president of Douyin e-commerce, once said that she hopes that the GMV of shelf e-commerce will account for at least 50% in the future.

To this end, in April this year, Douyin also launched a comprehensive independent e-commerce platform, Douyin Mall App, in which users can complete the complete e-commerce platform shopping experience such as searching for goods, comparing prices, placing orders, viewing logistics, and after-sales service.

Some time ago, 36Kr also reported that Douyin will plan to reduce the proportion of live broadcasts to expand shelf e-commerce. Although Douyin denied this news, it is certain that in the context of live broadcast e-commerce gradually approaching the ceiling, the importance of shelf fields to Douyin e-commerce is getting higher and higher.

It's just that around shelf e-commerce, the external competition faced by Douyin will only become more intense.

"Taotian sticks to clothing and beauty, JD sticks to self-operated 3C and home appliances, Pinduoduo sticks to agricultural products and white-label products, Douyin strengthens the linkage between live broadcast e-commerce and shelves, and the category advantage is not obvious for the time being, which is a problem for Douyin e-commerce." Zhuang Shuai, founder of Bailian Consulting, said.

In this way, for Douyin e-commerce, it may not be enough to weaken the low-price strategy, and there are still many problems it needs to solve in the face of a more complex internal and external competition situation.

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