By CHENG Lu
This year’s 618 shopping event is over. This year, the iron hands of the platforms have squeezed merchants tighter than ever. The only activity of much note this year has been forced price cuts that vendors can ill afford. The message from the e-commerce platforms is clear: Obey our demands, regardless of the cost, or find another place to sell your stuff.
The end of the kindergarten marketing approach?
The income of the platforms is almost completely unrelated to the profit of the merchants. And in the grand scheme of things, small vendors do not matter much to the oligopoly. Only their own bottom line matters, and that bottom line is as convoluted and concealed as can be.
JD.com fired the first shots in March imposing 10 billion yuan of price cuts on vendors, a strategy developed by Pinduoduo to ship the maximum amount of the products. Taobao, listed "price power" as one of its five strategies this year. Despite all the fuss about the revolutionary nature of e-commerce, it still comes down to little more than a brutish price.
Incomparably brilliant new data sets
Since last year's compulsory shopping on Singles Day, GMV, previously the be-all-and-end-all of e-commerce accounting, has become a rare and unusual metric, all but disappearing from financial reports. It’s fair to assume this has not happened because the figures are too good to be released.
XIN Lijun, CEO of JD Retail, does not want to talk about GMV. He wants to talk about the number of infuriating popups his app delivers. Something he calls “the customer experience.”
The shopping needs of the middle-income population have significantly declined. Headline claims and catchy slogans have lost what trivial appeal they ever had. Platforms had better come up with some new ideas, operations and organizations, because in the long term, artificially created demand (price cuts) is not sustainable.
It's not about price, it’s about happiness
It’s not just about the price, each platform is trying to differentiate itself from the others by whatever means it can. They do this by making people happy.
Douyin focuses on online traffic. Taobao focuses on product variety. JD.com emphasizes efficient delivery. WeChat, the e-commerce newcomer, is exploring private traffic pools. All are focused on shareholder profits. Merchants’ profits are only relevant to the degree they affect shareholders’ profits.
The biggest change at Taobao this year is that the big players are no longer playing with much verve. The entire event focused on small and medium-sized merchants.
Maim, mangle, restructure
Despite all the fanfare about “restructuring,” Alibaba remains nothing but a marketplace at its core.
Alibaba claims a user base of over 900 million, until such times as the “user base” metric is discarded and replaced by something more inscrutable. E-commerce is the most important business for the group, but finding creative ways of counting up to 900 million does not take the big dawg out of the dogfight.
Trudy Dai, CEO of Taobao, is aware of this and has created three departments that sound a bit newish (brand development, small and medium enterprises, and supermarket business). This move is presumably to help vendors increase those same margins that Taobao previously forced them to maim and mangle.
Small and medium-sized merchants with little bargaining power are Alibaba’s prime target. Taobao and Tmall experimented with the "618 Taobao Good Price Festival" this year for small and medium-sized merchants, but it still amounts to Taobao dictating profits and procedures, leaving the businesses powerless to make good money even with stellar sales.
‘Good Price’: good for whom?
Hanfu (traditional Chinese clothing) brand Zhizaosi participated in this year's 618 event on Taobao and Tmall. Hanfu is claimed as an emerging category in clothing. Zhizaosi sold four times more items at this year’s event than last year’s. Zhizaosi feels the platform is valuable, at least in the early stages of brand incubation.
JD.com’s Xin is very keen for everyone to understand the difference between “cheap” and “cost-effective.”
JD.com, Xin gushes, does not engage in low pricing. JD.com is above such tawdry gimmicks. JD.com is about cost-effectiveness. It’s all about quality and service, he said straight-faced, without offering any data to back up the claim.
The low-price strategy is aimed at encouraging users to buy goods purely on the basis of price. But the consumers are no longer the mugs they once were. Impulsive purchases don’t seem like so much fun when your apartment is filled with superfluous packaging from unnecessary deliveries of unwanted goods that you already broke or threw away, and your WeChat account is empty.
We are told that customers have suddenly started making cautious choices, demanding (to universal astonishment) “cost-effectiveness” from every product on a platform. If so, this new customer strategy will be the death knell of Pinduoduo which relies heavily on shipping spontaneous purchases that have been forgotten about by the time they arrive.
A small home goods merchant did not participate in this year’s 618 event, because of the platform's discount policy.
"In order to reach the 300-yuan threshold for discounts, consumers need to buy additional products. Our products, priced at just a few dozen yuan, became the 'extra one' for meeting the threshold. But do users really need 300 yuan worth of products?” the merchant said.
“Customers are not stupid. In fact, they are very clever. We found that many orders were placed just to meet the threshold and then immediately canceled for a refund."
Shift the goalposts, shaft the customer
In the full glare of low-price competition, one question shines out - are prices really lower?
"In recent times, the situation has become severe, and it's becoming increasingly difficult on Douyin," said a merchant on multiple platforms.
Douyin changed the rules. The era of GPM (gross merchandise volume per thousand impressions) is gone, and has been replaced by the era of OPM (order volume per thousand impressions).
The difference is that GPM is about sales during livestreaming. OPM is only about the number of orders. Around nine out of ten people in China have a monthly income below 5,000 yuan, so the Chinese market is still heavily oriented towards the lower end. The thinnest profit margins, brushing orders and low-price competition are encouraged.
Is ‘cheap’ really a dirty word?
That’s all good on the cheap side, but what has been neglected has been that many brands are only tangentially concerned with price. Many brands really do offer high value. They are not trying to ship unlimited amounts of whatever they happen to have in their warehouses. They maintain prices across all channels and are not interested in low-price mud wrestling.
On the other hand, emerging forces that have gained traction in this year's 618 events should not be overlooked. Douyin is intensely focused on turning clicks on short videos into orders, making its business similar to any other e-commerce.
Instead of the highly anticipated GMV reports, other less-indicative “indicators” have taken their place - such a transparent sham that it beggars belief.
Alibaba’s LIU Bo, claims that this year's 618 event has seen overall growth in terms of customers, merchants, and transactions, but refuses to “show us the money.” Already apparently sleeping on the job, XU Rang, the newly appointed CEO of JD.com, emphasized dreams, not numbers.
Trained pigeons pecking at low prices
The low-price strategy in which numbers are everything and quality nothing has run its course, dismaying and disenfranchising as many customers as it encouraged.
Customers are not, and never were, stupid. They are not driven, like trained pigeons, to peck at whatever number on the screen is smaller.
If e-commerce platforms want to make more money, they may need something new to win back the respect of sellers and customers alike. They may need – say it softly – to actually earn their profits.
