In 2024, the 15th Double 11 shopping festival across the entire internet, what changes have platforms and merchants undergone?

Judging from the pre-announced schedules of various platforms, this year's Double 11 will be the longest in history. Amid the trend of consumer demand starting to "reverse and rise," this year's Double 11 may also be the one with the biggest discounts ever offered by platforms.

Platforms continue to "create festive celebrations," but merchants experience mixed emotions.

Recently, a leading women's wear brand on a live streaming e-commerce platform announced the cessation of broadcasts and closure of its store. The merchant stated that within the five years of selling women's wear on the platform, traffic costs have nearly multiplied tenfold. Similar issues of rising operating costs and compressed profit margins due to increasing traffic costs have also plagued many top live streamers and brand merchants.

If this is the case for top merchants, the challenges faced by small and medium-sized merchants may be even more pronounced. A factory seller once told the author that on traditional top e-commerce platforms, their promotional expenses account for 60-70% of their profits.

In fact, as the entire e-commerce traffic ecosystem matures, the solidification of the traffic structure has become an "inertia." Due to the lack of incremental opportunities, platforms have to delve deeper into existing stocks, but the burden of traffic costs has become a hurdle that merchants, especially small and medium-sized ones, cannot ignore.

It must be clarified that below top brand merchants, various small and medium-sized business entities, industrial clusters, and factory merchants are actually important foundations of e-commerce supply. They are also one of the foundations for why China is a manufacturing powerhouse. The operational difficulties they face deserve more attention.

At this point, the e-commerce industry needs a way out for traffic diversion.

On the policy front, the State Administration for Market Regulation recently issued the "Opinions on Guiding Online Trading Platforms to Play a Positive Role in Traffic and Support the Development of Small, Medium, and Micro Business Entities." It proposed 18 measures across six aspects, requiring platforms to prioritize agricultural product business entities, innovative and specialty business entities, and newly established business entities.

Currently, it is Double 11 shopping festival season. The question the author wants to explore is: How has e-commerce traffic become solidified? For small and medium-sized merchants and platforms, how can a new traffic structure be achieved?

Why Does Traditional E-commerce Traffic Become 'Solidified'

In 2012, when Three Squirrels was first established, founder Zhang Liaoyuan posted online, writing: "A new era has arrived, and e-commerce has a five-year window of opportunity. Within these five years, an internet e-commerce brand can be built."

The dawn of the mobile internet era brought a wider range of incremental users. Along with the explosion of traffic and the improvement of payment and logistics infrastructure, the e-commerce industry began to grow at a meteoric pace. Following the logic of "the bigger the pond, the bigger the fish," many small businesses that entered the market at that time were able to secure a substantial share of the pie.

One example that stands out in the author's memory is Zhang Dayi, an internet celebrity who gained fame a decade ago. Her online store was the first women's wear shop to surpass 100 million in sales during Double 11.

However, there's a second half to Zhang Liaoyuan's statement: "After five years, it's the beginning of decline." Zhang Dayi's online store also announced an indefinite suspension of new products this year.

During this period, e-commerce platforms have attracted more and more brand merchants and small and medium-sized merchants, with the number of active users increasing year by year. Platforms have established commercialized traffic channels between supply and demand, providing a more practical matching method for traffic and merchants. As platforms develop, these marketing resources continue to increase, from splash screens, banner ads, and search bars to new product festivals and category days.

To more accurately describe the investment in advertising and marketing by platforms and merchants, the concept of "customer acquisition cost" emerged, referring to the traffic cost a platform or store needs to invest to acquire an actual paying customer.

Of course, when incremental opportunities were "like gold everywhere," 100 points of resource investment could yield 120 points of return. However, from the basic laws of economics, every industry and platform must go through its life cycle, from explosive growth to a plateau or even decline. The cost of acquiring a new customer will only continue to rise.

Data shows that in 2018, the average traffic cost in the e-commerce industry had already reached 10%-40%. In 2021, when Rongmei, which specializes in high-end women's wear on Taobao, went public, its prospectus revealed a 147.71% cumulative increase in promotional expenses on Taobao over two years.

According to a 2023 review by TMTPost, the average customer acquisition cost for the four mainstream e-commerce platforms has reached 800 yuan. According to Tianfeng Securities data, Alibaba's customer acquisition cost was 1,397 yuan in 2023, while JD.com's was 3,569 yuan.

The difficulty in acquiring customers is becoming a major challenge in the e-commerce industry, especially for small and medium-sized merchants.

It is not hard to understand that when KA merchants and brand merchants with more substantial marketing budgets come to platforms, they invest more heavily in buying traffic and promotions. Platforms are also happy to see continuous investment from top merchants, thereby forming a "Matthew Effect" among merchants, putting immense pressure on small and medium-sized merchants, not to mention whether new merchants still have opportunities.

Traditional shelf e-commerce has thus formed an "open secret," where major brand merchants have the highest marketing budgets and provide the most revenue for platforms.

Even in the emerging live streaming e-commerce model, the problem of "difficulty in acquiring customers" remains prevalent.

Even though live streaming is the new channel that most stimulates impulse buying and offers relatively more incremental opportunities, by the time live streaming took off, traffic costs had already become very "precious." Moreover, platforms have transformed traditional "e-commerce advertising fees" into a more direct business term: traffic investment.

An investor in the e-commerce consumer industry pointed out that for brand merchants, brand live streaming rooms often face the situation of "no traffic without payment," requiring continuous traffic purchases to maintain sales. The proportion of traffic costs in the gross merchandise volume (GMV) of merchant live streaming rooms is 50% or even higher, which is normal.

From shelf e-commerce to live streaming e-commerce, as the business logic of traffic monetization remains unchanged, and both the e-commerce landscape and traffic competition have reached a new stage of stability, even though business models differ, the reality of high traffic costs has not fundamentally changed. This is not good news for the massive number of online and offline small and medium-sized merchants.

The question arises: Are there any new channels or models that can better assist small and medium-sized merchants in alleviating traffic issues?

Changes for Platforms and Small and Medium-sized Merchants

In Dongfeng Village, Shaji Town, Xuzhou, an area once hailed as an "excellent model" for rural e-commerce, many villagers operate e-commerce stores. Some furniture merchants have stated that their current focus is on Pinduoduo, with over half of their sales coming from the platform.

The reason behind this is that with the emergence of new e-commerce platforms, previously stable consumer habits on traditional e-commerce platforms have begun to shift, and cross-platform shopping has become the new norm. Consumers who have grown up in the smartphone era are also more willing to use new platforms, naturally promoting the transfer of merchants.

Of course, in an environment where the traffic structure is solidified, how can new platforms achieve changes in traffic?

In the past, when consumers came to shelf e-commerce platforms, it was like going to a supermarket. Whether products were placed at the front of the shelves was highly correlated with the merchants' investment in marketing budgets. Consumers often came to the supermarket with specific needs, so the search bar was a crucial traffic entry point for shelf e-commerce.

Now, platforms like Pinduoduo are more like marketplaces where consumers come with the intention of "browsing." After considering factors such as product quality, pricing, and after-sales service, consumers will finalize their transactions. Marketplaces often categorize based on consumer interests; for example, if you are interested in silver jewelry, the marketplace will recommend more jewelry merchants for you to choose from.

It is understood that some small and medium-sized merchants have told the media that 70%-80% of their traffic on Pinduoduo comes from recommendations rather than active user searches.

From search traffic to recommended traffic, this has actually reduced traffic costs for small and medium-sized merchants to a considerable extent. Because behind search lies the logic of traffic commercialization, while behind recommendations lies technical support and a decentralized traffic model created by the platform to pursue a more open and fair traffic ecosystem.

Due to the decentralization of traffic, the recommendation mechanism tends to allocate traffic to merchants that can provide cost-effective products, using product quality as an important criterion, which also ensures a better consumer experience.

Pinduoduo's system enables consumers to quickly match suitable products, which is more suitable for industrial cluster merchants with production and price advantages, allowing them to better leverage their product strengths. For small and medium-sized merchants, Pinduoduo's traffic matching mechanism is clearly more friendly.

Around 2017, in Dingji Town, Lu'an City, Anhui Province, a large number of traditional wedding dress craftsmen returned from Suzhou to their hometown of Dingji, driving the latter to form a small industrial cluster for wedding dresses. One merchant named Cha Lanru initially operated a traditional e-commerce store but closed it in 2018 due to poor traffic. She later tried various businesses, including wholesale.

In 2019, with a trial mindset, Cha Lanru opened her first store on Pinduoduo. After some time, she did the math: Including traffic investment and annual fees, a ceremonial dress often sold for over 300 yuan on traditional platforms. However, Pinduoduo has no annual fees and relies entirely on natural traffic, so the selling price is only over 100 yuan.

In fact, Cha Lanru's story is happening to merchants in industrial clusters across the country. When these manufacturers with production capabilities can continuously reduce their operational expenses such as traffic costs on the e-commerce side, they can also invest more resources on the product side to create more cost-effective products that better meet consumer demands. This also aligns with Pinduoduo's overall direction of supporting industrial clusters and optimizing the business environment.

Of course, the new path explored by Pinduoduo is also becoming an industry consensus, with various platforms hoping to break the traffic dilemma.

Platforms' 'Toolboxes' for Breaking the Traffic Dilemma

Not only are merchants aware of the traffic dilemma, but platforms also personally feel the problems caused by the solidification of the traffic structure. According to Alibaba's fourth-quarter fiscal 2024 financial report, while Tmall's GMV returned to double-digit growth that quarter, customer management revenue (CMR) only increased by 5% year-on-year.

Therefore, various platforms have come up with operational "toolboxes," utilizing various tools and seeking more policy and ecological solutions to alleviate merchants' difficulties in acquiring customers by finding incremental and tapping into existing stocks.

First, according to the author's observations, some traditional e-commerce platforms have begun to encourage merchants to "build private domains" and have mobilized group-level resources, such as helping merchants import platform users into more social chat groups by establishing enterprise customer groups, facilitating merchants to maintain key consumers.

The method of creating groups can effectively reduce merchants' operating costs, especially under conditions where it is increasingly difficult to convert public domain traffic. Operating private domain traffic can also become one of the breakthroughs for merchants.

Secondly, from a broader traffic ecosystem perspective, the interconnection and cooperation between giants to "tear down walls" means creating different traffic pools for merchants. For example, Taobao's integration with WeChat Pay and Alipay's entry into JD.com can bring users with different consumption habits based on the original platforms.

Of course, most importantly, to reduce the burden on merchants' operations and resolve the dilemma of traffic growth and customer acquisition, platforms provide more profit-sharing policies in support, allowing merchants to truly feel a reduction in operating costs and a more relaxed operating environment.

In the second quarter of this year, Pinduoduo stated that it would adopt a dual strategy of "support and governance," investing 10 billion yuan to vigorously support new-quality merchants and industrial clusters with product and technological innovation capabilities, significantly reducing transaction fees for high-quality merchants. It is expected to waive 10 billion yuan in fees over the next year.

Pinduoduo's approach is to create a more merchant-friendly e-commerce operating environment from the perspective of the platform ecosystem, allowing new merchants to feel that the platform is equally open to new entrants and still offers new opportunities. Data shows that after the Double 11 promotion began, some merchants saw their new product sales increase 12 times compared to the previous month, demonstrating the effectiveness of the "waiver + support" approach.

At the same time, Pinduoduo also makes old merchants feel that the platform's business environment is improving, making merchants more willing to operate and invest on the platform. Taking Pinduoduo's policy of "refunding promotion software service fees for fully refunded orders before shipment" as an example, Zhang Yu, a merchant selling chicken products on Pinduoduo, said that previously, the store's daily promotion fees ranged from 15,000 to 20,000 yuan, with a return on investment (ROI) of 1:5.8. The refund of advertising fees increased the ROI to 1:6.5, an increase of 0.7%.

A long slope with thick snow.

In 2012, Jack Ma once said: "Traffic entrances should be like grasslands, not forests." However, today, the traffic landscape of the e-commerce and even the entire internet industry may have reached the most segmented and differentiated stage. The high cost of acquiring customers also puts considerable operational pressure on small and medium-sized merchants. Both platforms and merchants have reached a stage of "seeking answers internally."

Delving deeper into existing stocks and even reshaping the platform's traffic ecosystem to smooth the operating path for high-quality merchants should be one of the important trends in the current e-commerce industry.