Source | Bohu Finance (bohuFN)

Pinduoduo's robust growth has sparked a wave of imitation in the e-commerce industry: low prices, only refunds, and a focus on learning from competitors when unable to compete directly.

However, the tide is recently shifting.

Recently, Taobao has intensively adjusted its merchant rules, with a crucial change being the loosening of the "only refund" policy for high-experience-rated stores.

As a key function of the low-price strategy, loosening the "only refund" policy suggests that Taobao is starting to waver on its low-price approach.

Alibaba is not alone in this. In July of this year, Douyin first weakened its focus on the low-price strategy. According to reports, Douyin adjusted its business objectives, no longer prioritizing "price competitiveness" and instead focusing on GMV (Gross Merchandise Volume) growth in the second half of the year. Pinduoduo, the initiator of the low-price strategy, also made moves, shifting its business focus from commercialization and profit enhancement in the second quarter of this year to once again prioritizing GMV growth.

The only exception is JD.com.

From launching the "JD Super 18" promotional day, offering low prices and flash sales products on the 18th of each month, to introducing the new "JD Open Platform Buy Expensive, Double Refund Service Rules," JD.com has expanded its price comparison platform range and lowered the threshold for "same products." JD.com, which seems determined to pursue price competitiveness, now appears committed to sacrificing profits for traffic.

As two of the industry's leading players, why have Taobao and JD.com chosen seemingly opposite paths in the face of competition from Pinduoduo?

01 Alibaba Begins Rectification

Alibaba's second-quarter financial results were unimpressive, with revenue growth hitting a new low over the past year, dragged down by Taobao. According to Alibaba's second-quarter financial report, Taobao's revenue declined by 1% year-on-year, and its core customer management revenue grew by only 1%.

The inability to collect advertising fees and commissions is largely related to the low-price strategy.

Low prices aim to attract transactions by lowering costs. While this strategy stimulates growth in the number of buyers and orders, it typically attracts small and medium-sized sellers who are more responsive due to the strong price control by major brands. However, under the low-price strategy, these sellers are not Taobao's primary payers: while Tmall used to charge sellers advertising fees and commissions, Taobao only collected advertising fees.

Therefore, Taobao announced that starting in September, it will charge a basic software service fee of 0.6% of the confirmed transaction amount per order, eliminating the annual fees of 30,000 and 60,000 yuan previously charged only to Tmall merchants, and refunding the 2024 annual fees already paid.

For Taobao merchants, this is clearly an additional expense, akin to draining a pond to catch fish. However, it must be viewed in conjunction with two other adjustments.

In July, Taobao announced two other adjustments: firstly, weakening the emphasis on price competitiveness and making "experience score" the core basis for traffic allocation; secondly, loosening the "only refund" policy for high-score stores.

The intention to rectify is evident.

The issues with "low prices" and "only refunds" lie in simplifying merchant competition and increasing operating costs. As a comprehensive e-commerce platform, Taobao caters to various customer segments and transaction prices. To maintain business diversity and improve product efficiency, it cannot solely favor consumers but must also consider merchant acceptance, achieving a balance between merchants and consumers.

Abandoning the excessively consumer-biased "only refund" policy and the "one-size-fits-all" management approach, Taobao is shifting to a more comprehensive merchant management system, empowering high-quality merchants to attract consumers, thereby fostering positive cycles in platform scale and profit growth.

In a research report, Huatai Securities noted that Taobao sacrificed profits for direct subsidies in the first and second quarters of 2024, ostensibly stimulating traffic growth and mindset regression, but with the deeper motive of driving merchant retention.

Similarly, for merchants, the most significant cost is traffic acquisition. By adjusting the traffic distribution mechanism with GMV growth as the indicator, Taobao is signaling to merchants that there is money to be made here.

Compared to previous follow-ups, Taobao is now clearer about its ecosystem positioning.

02 JD.com's Commitment to Low Prices

Unlike Alibaba's Let go Taotian (letting go of Taobao), JD.com has chosen to pursue low prices relentlessly.

Starting from August 8, JD.com launched an upgraded "Buy Expensive, Double Refund" service, expanding its price comparison range to include platforms like Douyin and increasing the subsidy effort to over 10 billion yuan, particularly in the beauty segment, with an additional 3 billion yuan investment to ensure consumers enjoy extra savings. Simultaneously, JD.com innovated with the "JD Super 18" event, offering super deals priced at 18 yuan on the 18th of each month to attract consumers.

Why has JD.com chosen to continue with low prices?

The reason lies in JD.com's successful implementation of the "affordable prices" strategy in the first quarter of this year, which boosted its finances. In the second quarter, JD.com's revenue surpassed 291.4 billion yuan, with a modest 1.2% year-on-year growth but a significant 69% surge in net profit to 14.5 billion yuan, marking the first time its net profit margin exceeded 5%.

This suggests that JD.com's low-price strategy is increasingly profitable. Responding to investor concerns about price wars, JD.com's CEO Xu Ran clearly stated on the earnings call, "Our commitment to the low-price strategy remains unwavering."

Behind JD.com's seemingly stubborn pursuit of low prices lies a platform ecosystem battle.

Compared to competitors, JD.com has established a strong user base in categories like home appliances, but it has fewer low-priced and diverse SKUs. This aligns with rational consumption trends. In contrast, a robust ecosystem can unlock JD.com's future growth potential, with low prices remaining a highly competitive draw.

Under the "Spring Dawn Plan," JD.com added 46% more third-party merchants in the second quarter compared to the first quarter. Notably, the increase was particularly prominent in categories beyond home appliances, such as toys and musical instruments, automotive accessories, food and beverages, home improvement materials, and sports and outdoors. This growth translated into sales increases, fostering a virtuous cycle. During JD.com's 618 sale, over 150,000 small and medium-sized merchants achieved sales growth of over 50%.

To further sustain its price competitiveness, JD.com is also eyeing growth in daily necessities like beauty products. Recently, more beauty and fashion brands like Hermès, Saint Laurent, and Massimo Dutti have joined JD.com, enhancing the supply of top beauty brands. By offering low prices and discounts, JD.com aims to attract consumers and reinforce its brand positioning.

In today's fiercely competitive e-commerce landscape, Taobao's exploration may not have yielded definitive answers yet. In contrast, JD.com seems to have not only tasted the benefits of low prices but also found its niche.

03 No Standard Answer for E-commerce

Both Alibaba and JD.com have realized that a consistent strategy can be both a cure and a backstab.

From this perspective, Taobao's adjustment to its low-price strategy is not about neglecting price competitiveness but rather seeking a delicate balance between low prices and merchant ecosystems. Similarly, JD.com has found the sweet spot between low-price market competition and merchant win-win scenarios to achieve further development.

For Alibaba, Taobao's strength lies in its shelves and stores. It needs to retain high-quality users who contribute significantly to the platform, namely 88VIP members, while improving the rating system and operational rules to drive merchants to provide excellent services, thereby attracting transactions with diverse needs.

Of course, Taobao has not completely abandoned low prices. It has optimized its supply strategy for white-label products, with 1688 joining Taobao as an example.

For JD.com, its advocacy of low prices is based on its platform model and long-term supply chain accumulation, giving it a competitive edge. A relatively comprehensive price monitoring system also brings a sense of security, allowing JD.com to adjust prices at any time to achieve the lowest market prices possible.

However, given JD.com's heavy self-operated business, relying solely on third-party merchants to complement its ecosystem is unrealistic, yet self-operation also limits its ability to achieve low prices like competitors.

According to Decode, JD.com's self-operated business includes a gross margin protection clause in its exclusive distribution agreements, commonly known as "gross margin protection" ( Mao Bao ). If JD.com significantly reduces prices, leading to profit losses, it will deduct the loss plus its contractual profit from the brand's payments.

Clearly, JD.com has ammunition, but it's not unlimited.

In fact, Pinduoduo is also adjusting its past path. On August 17, Pinduoduo responded to media inquiries, stating that "only refund" is an embodiment of its "consumer-first" philosophy, but this policy does not blindly favor consumers. If merchants encounter unreasonable "only refund" requests, they can appeal to the platform through normal channels. The platform also supports merchants in safeguarding their rights through legal means against fraudulent refund requests.

Ultimately, there is no standard answer to the low-price strategy, nor is it the end goal for platforms. As competition intensifies, how to combine a platform's development advantages to provide unique value for consumers is a common challenge for e-commerce platforms.

References:

1. Decode: Taobao, JD.com, and Pinduoduo - Who Can Solve the Merchant Traffic Cost Challenge?

2. Dingjiao One: Alibaba Wants to Surge Ahead, JD.com Wants Stability

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