By CHENG Lu
Alibaba is to open a new channel on its flagship online-shopping platform Taobao. The Chinese e-commerce giant is jumping aboard the bargain bandwagon with the confirmation that it too, plans to launch a cheap shopping channel.
The move comes just a month after rival JD.com launched a 10-billion-yuan discount campaign.
‘Post-COVID economic recovery led by consumption’
E-commerce in China has turned into a scramble to send out as many products to the maximum number of consumers as quickly as possible. And if China is not big enough to absorb the rising tide of plastic objects, companies like PDD's Temu plan to send it overseas.
The platforms themselves are calling it a “post-COVID economic recovery led by consumption.”
The trouble can be traced back to 2015, when the two major players, JD.com and Taobao-Tmall dominated e-commerce in China. The two generated a combined gross merchandise value of US$433 billion that year. When Pinduoduo launched itself into the smallest gap between the Big Two, no one paid much attention.
Five years later, Pinduoduo defied all expectations and was worth US$90 billion with 600 million users and GMV over US$144 billion. In 2020, Pinduoduo became China’s second-largest e-commerce platform on an active user basis, just behind Alibaba. Pinduoduo tried to mimic the offline shopping experience by building communities and driving engagement through interactive games and rewards. But behind a community façade, the power of Pinduoduo came down to one simple metric – price.
Three years further on, Pinduoduo has become a major disruptor and thorn in the side of the former Big Two. The pain has intensified recently, not least because of Pinduoduo offspring Temu’s success in the US.
Alibaba already has Taobao Special Value, a platform that appears to be almost exactly the same as the new cheap channel. Rather than launching anything new, Alibaba appears to be investing in some new graphics, coming up with some tougher penalties to impose on lazy, troublemaking merchants, and sounding a very big fanfare about it all.
JD.com worked hard to distinguish itself in terms of authenticity, quality and logistics, painting itself as the natural online partner of high-end brands. The look and feel of JD.com’s new channel and the range of products it offers look an awful lot like Pingduoduo. The homepage of the channel features both discounted booze (Maotai) and knocked-down electronics (Apple). It will be no surprise when the “new” Taobao platform is also all but indistinguishable from Pinduoduo.
According to dealers, the channel – named 99 Temai (99 special sale) – will have three rules. Customers will be offered (obliged to buy) a three-item bundle at a price of 3.9 yuan or 9.9 yuan. A price cap will be imposed on some of the products, and they will participate in “sales events” at designated times.
Most important weapons
Taobao claims that since all shops on the cheap channel will get their products directly from factories, the cost of logistics will be friendly enough for dealers to still make money at such low prices.
This M2C model (manufacturer to customer) model was previously used by TaoGongchang, an internal budget shopping platform available to a few special users. Channel 99 Temai has been going through internal testing for a while and is set to open for business this month.
Until now, as JD.com and Pinduoduo wrestled with each other for traffic and customers, Alibaba has previously stood above the melee and aloof, claiming disinterest.
XIN Lijun, CEO of JD.com has said that price cuts are just the beginning. JD.com founder Richard Liu recently said that price was the core battlefield of e-commerce.
“Low prices were the most important weapons responsible for our past success, and they will be essential in the future,” Liu wrote in an internal email.
JD.com plans to operate its new discount channel on a long-term basis, flooding the market with all the cheap items it can source. JD.com claims to be ready to pay out to ensure sellers don’t make lose out. The company says it will offset any losses brought by the heavy discount prices.
On the other hand, Daniel Zhang, CEO of Alibaba, told the world in a conference call after the company released its Q1 report that discounts were nothing new and a standard part of almost every business model.
“No one has ever changed the landscape of a business by offering discounts,” he said. “The innovation of business models and technology is the right path to take.”
