Source | Bohu Finance (bohuFN)

According to LatePost, Douyin e-commerce has recently adjusted its business objectives' priorities, no longer prioritizing "price competitiveness" and instead focusing on GMV (Gross Merchandise Volume) growth in the second half of the year.

The reason for the adjustment may be that the low-price strategy failed to steer development in a positive direction, instead leading to a decline in growth rates.

In the first two months of this year, Douyin e-commerce achieved nearly RMB 500 billion in GMV, with a cumulative year-on-year growth rate exceeding 60%. However, the growth rate in March dropped below 40%. After the second quarter, the growth rate further declined to within 30%.

In 2023, Douyin e-commerce maintained an overall monthly growth rate of over 50%.

Meanwhile, according to Star Chart data, during the 618 shopping festival in 2024, the cumulative sales of comprehensive e-commerce platforms and live streaming platforms reached RMB 742.8 billion, with a cumulative decrease of 7%. Low prices did not lead to significant promotional effects.

Douyin e-commerce promptly took action against low prices again, but this time by calling a halt to the strategy.

01 Overturning the low-price approach, Douyin took only six months

In February of this year, according to LatePost, Douyin e-commerce set "price competitiveness" as its top priority for 2024. By this point, leading e-commerce platforms including Pinduoduo, JD.com, Taobao, and Douyin had all elevated "low prices" to their core strategies.

Subsequently, Douyin established an aggressive price comparison system, categorizing products within the platform into three types: "lowest price on the entire network," "lowest price for the same product," and "higher price for the same product," and correspondingly increasing, maintaining, or reducing traffic exposure while providing pricing suggestions to merchants.

It is understood that in terms of price comparison, Douyin is sometimes even more aggressive than Taobao or Pinduoduo. On the pending order page, Douyin displays lower-priced products of the same kind, attracting users to switch over.

In May, Douyin e-commerce tested the "automatic price adjustment" function. After merchants set low prices, the system can automatically adjust prices in real-time based on similar products within the platform and across the entire network to ensure price competitiveness.

However, despite these measures, Douyin has not been able to establish a leading price advantage.

According to LatePost, although Douyin e-commerce achieved multiple price competitiveness goals in the first quarter, it was unable to match Pinduoduo's prices, with many products still having price differences of 10%-20%.

As the low-price strategy developed, Douyin e-commerce's traffic dilemma became increasingly prominent.

An insider revealed that Douyin's internal team was aware that pursuing low prices would have some impact on GMV, but the rapid decline in GMV growth in the first half of the year exceeded expectations. Currently, Douyin Group executives are participating more frequently in e-commerce business meetings and inquiring about business conditions. Having determined that the live streaming e-commerce format cannot achieve extreme low prices, the company decided to prioritize GMV once again.

As the platform shifts its focus back to GMV, the related aggressive pricing strategy may be further mitigated. Industry insiders believe that after a comprehensive shift towards GMV orientation, Douyin e-commerce's growth rate in the second half of the year should increase.

02 Challenges faced by Douyin e-commerce

Low prices inherently bring significant adverse effects to both platforms and merchants.

As industry observers have noted, the "impossible triangle" of low prices, quality, and service can cause irreversible damage to platforms. "Because the compression of merchant profits caused by low prices may lead to a decline in product quality → an increase in return rates → the loss of high-quality users → a vicious cycle of high-quality merchants switching to other platforms."

During this year's 618 shopping festival, the topic of women's clothing return rates as high as 80% once dominated trending topics. While merchants complained bitterly, many consumers also generally shared the view that poor product quality led to increased return rates.

The issue of high return rates is even more evident on Douyin.

According to the "2020 China Live Streaming E-commerce Industry Research Report," the average return rate for live streaming e-commerce is between 30%-50%, far higher than the 10%-15% of traditional e-commerce. In July 2023, the return rate for jewelry merchants on Douyin was reported to be as high as 90%, while in the women's clothing sector, where returns are particularly prevalent, e-commerce platforms generally have return rates of around 50%, with Douyin reaching 70%-80%.

In fact, the development of Douyin e-commerce is not optimistic, which may be a significant reason why it chose the low-price strategy at the beginning of the year. However, six months later, low prices have obviously not resolved Douyin's dilemma.

We can see that Douyin's traffic dilemma is contributing to merchants' pessimistic business outlook.

The operating costs of Douyin are increasingly high. Investors have stated that for Douyin brand live streams, "if you don't pay, there's no traffic," and continuous buying of traffic is required to maintain sales.

According to the aforementioned investors, the proportion of traffic costs to GMV for merchant live streams is typically 50% or even higher.

As such, while the advantage of live streaming on Douyin is the ability to quickly generate traffic, it also poses a problem—there is traffic but no profit.

On May 30th of this year, the Douyin women's clothing store "Lola Code" announced its closure after its final live stream. Lola Code is a leading player in the Douyin women's clothing sector, with annual sales reaching up to several billion yuan. In an interview, Lola Code stated, "When we started in 2021, our return rate was 30%-40%. Now, the return rate is 70%-80%, doubled, and traffic costs have increased tenfold."

High traffic acquisition costs, high return rates, low-price competition, and other factors ultimately overwhelmed Lola Code.

Another issue hovering over Douyin is how to avoid becoming a propaganda base for other platforms.

In the industry's view, the exquisite visuals and enticing rhetoric of short videos and live streaming information flows can cultivate purchasing desire, facilitate transactions, and bring more users to merchants. Malls and stores can effectively meet merchants' private domain operation needs and provide a smooth ordering process.

Douyin previously focused mainly on live streaming e-commerce, leading to the situation where traffic generated in live streams often benefits other platforms.

At the end of 2020, the old domestic brand Yaya feather down jackets regained popularity on Douyin. By Douyin's 618 shopping festival in 2021, Yaya's total GMV exceeded RMB 100 million, ranking first on the women's clothing list.

During the same year's Singles' Day shopping festival, Yaya's Tmall flagship store sold over RMB 200 million within the first hour of the event. According to media reports, during pre-Singles' Day marketing activities, Yaya directed most of its traffic to its Tmall flagship store.

Many merchants hope to succeed on Douyin because, "If Douyin is successful, search volume on Taobao and JD.com will also increase, and under the commission-based revenue model, Taobao and JD.com can also share in the benefits."

Based on this, deploying shelf e-commerce has become an essential measure for Douyin to improve its e-commerce matrix.

In April of this year, Douyin launched the comprehensive independent e-commerce platform Douyin Mall App. Within this application, users can complete the entire e-commerce shopping experience, including searching for products, comparing prices, placing orders, checking logistics, and receiving after-sales service.

Recently, 36Kr reported that Douyin plans to reduce the proportion of influencer live streams to expand shelf e-commerce. Douyin denied this information.

Currently, the e-commerce market size is gradually approaching its ceiling, and for the first time during this year's 618 shopping festival, there was a year-on-year decline in online sales across the entire network. Following this trend, although the growth rate of live streaming e-commerce is higher than that of comprehensive e-commerce platforms, the growth space available is also not optimistic.

For Douyin e-commerce, shelf e-commerce is clearly becoming increasingly important. However, how much growth shelf e-commerce can bring to Douyin e-commerce is not a simple question.

Reference materials:

1. Tiding TI: Douyin e-commerce in a hurry to get out of the "low-price dilemma"

2. Xinshang: "Low prices and only refunds" recede, and e-commerce giants regain their "sense of boundaries"

3. China Logistics & Purchasing Magazine: Why Taobao and Douyin adjusted their low-price strategies?

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