By Ning Chengque

Source|Bowang Finance

The Double 11 shopping carnival is in full swing, but merchants have mixed feelings. While the surge in orders is gratifying, the high cost of traffic has left many merchants with meager profits after a lot of effort, or even losing money.

Competition in the e-commerce industry has intensified this year, and many brands have even collapsed on the eve of Double 11. The first-generation internet celebrity Zhang Dayi announced the closure of her online store that had been open for ten years, Zhou Yangqing also announced a complete liquidation of her store, and the women's wear brand "Laura Code" directly stopped broadcasting and closed. According to statistics, since 2024 alone, no fewer than 40 online stores have announced their closure or cessation of new products.

What is the reason behind this? The founder of "Laura Code" has bluntly stated that "traffic costs have increased tenfold in recent years." Some Taobao merchants admitted that their traffic promotion fees on the platform accounted for an astonishing proportion of their cost structure, some as high as 50% or even 70%.

Looking back at the development history of the e-commerce industry, it is not difficult to find that in the early days, due to strong consumer demand and relatively scarce commodity supply, brands could make money as long as they invested. But as time went on, more and more brands emerged, while user demand gradually weakened. Consumers' attention became limited, while traffic costs continued to rise.

Although e-commerce platforms have introduced various support policies to reduce costs such as store opening fees and technical service fees, the gap in operating costs has been leveled out under fierce competition.

Ultimately, the key to determining whether merchants can make money lies in traffic costs.

In the era where traffic is king, whoever controls the traffic controls the discourse power. But for most merchants, high traffic costs are like a roadblock. Not investing in traffic means it is difficult to increase GMV, while investing in traffic may reduce them to working for the platform.

How to find a balance between the two and effectively reduce traffic costs has become a critical issue that merchants need to solve urgently.

01

Traffic Costs - A New Consideration for Merchants Choosing E-commerce Platforms

This year marks the 16th Double 11 for China's e-commerce industry and the longest one ever. Just after the National Day holiday, e-commerce platforms such as Taobao and JD.com began their high-profile campaigns.

In this war without smoke, e-commerce platforms are all rushing ahead, and the core reason is that the competition for front-end traffic is fiercer than ever before.

Currently, the competition strategy in the e-commerce industry seems to have fallen into a vicious cycle of "low prices + strong payments," leading to rising traffic costs. Some white-label merchants' traffic investment costs have reached up to 100% of their GMV.

Even big-brand merchants find it unbearable. Take Blue Moon as an example. Although this daily chemical giant achieved over 38% year-on-year sales growth in the first half of 2024, its estimated loss will reach approximately 620 million yuan, an increase of nearly 300% year-on-year. The high traffic costs are undoubtedly one of the important reasons behind this.

The rising traffic fees have put unprecedented pressure on merchants, whether they are small and medium-sized merchants or well-known internet celebrity stores like Zhang Dayi.

Facing such a dilemma, merchants' choice of traffic becomes particularly important. Traffic is not only the basis for obtaining orders but also a key factor determining profit margins. Therefore, when choosing an e-commerce platform, merchants must not only consider the platform's user scale and activity level but also deeply analyze the cost and efficiency of traffic acquisition, traffic quality, and conversion rate.

Especially for small and medium-sized merchants, their ability to resist risks is weak, and their initial operating funds are limited. Therefore, the level of operating costs often becomes their primary consideration when choosing a platform.

The main expenses faced by merchants when operating online can be summarized into two major areas: basic operating costs and advertising-like paid traffic. Let's start with basic operating costs.

Among the basic operating costs, platform commissions are a component that cannot be ignored. Each e-commerce platform sets different commission rates based on its business model and positioning.

For example, JD.com's self-operated commission rate is relatively high, reaching 10% to 20%, while the POP model is 8%; Pinduoduo charges a commission of 2% to 3% for its 10 billion subsidy products, and Tmall's commission rate ranges from 2% to 5%.

Secondly, regarding deposits, each platform has different regulations. Pinduoduo requires merchants to deposit a basic store deposit of 1,000 yuan, with special category deposits ranging from 2,000 to 100,000 yuan. JD.com's deposit for various categories ranges from 10,000 to 200,000 yuan, while Tmall charges a store opening deposit of 50,000 to 150,000 yuan based on the store type, with an additional deposit of 10,000 to 300,000 yuan required for special categories.

In addition to commissions and deposits, Taobao also charges some other fees, such as annual fees, business consultant fees, and other operating tool fees. According to statistics, Taobao's platform service fees, including commissions, account for more than 20% of its revenue. Moreover, this year, Taobao began charging a basic software service fee, which is 0.6% of the confirmed transaction amount per order.

JD.com mainly adopts a fee mechanism called "gross profit protection," with a rate typically set between 10% and 25%. For merchants, "gross profit protection" is similar to a "marketing fee" paid to JD.com. Under normal operating conditions, this fee is not triggered. Once a merchant's earnings fall below the agreed-upon gross profit level, JD.com will collect the "gross profit protection" fee through account deductions during the current or following month's payment settlement.

It is worth noting that in a highly competitive market environment, if JD.com forcibly promotes sales promotions, the "gross profit protection" agreement may become a mandatory measure for platform self-protection.

Next, let's look at the key element of traffic costs. The essence of e-commerce is the business of selling traffic. As an intermediary between consumers and merchants, the platform's customer acquisition cost directly determines the cost for merchants to acquire traffic.

According to Tianfeng Securities data, there are differences in customer acquisition costs among e-commerce platforms. In 2023, Pinduoduo had the lowest customer acquisition cost at only 506 yuan, followed by Alibaba at 1,397 yuan; JD.com was higher at 3,569 yuan.

02

How Should Merchants Seek New Breakthroughs?

Why are there significant differences in traffic costs among e-commerce platforms? The reasons behind this are not simple, but we can delve into them from three aspects.

First, the platform's positioning and strategy are key factors determining traffic costs. Each e-commerce platform has its unique positioning and market strategy, which directly affects the cost and efficiency of acquiring traffic.

As industry giants, Taobao and JD.com have a huge user base, but with market saturation, daily active traffic growth has slowed, and merchants need to invest more resources to acquire limited traffic. At the same time, content platforms like Douyin and Kuaishou rely on their content ecosystems, which have advantages in brand exposure but relatively imprecise traffic conversion, leading to higher costs.

Secondly, the impact of technological optimization and algorithmic support on traffic costs cannot be ignored. E-commerce platforms use big data, artificial intelligence, and other technological means to achieve precise recommendations and personalized marketing, enhancing user experience while also helping merchants more effectively reach their target customer groups.

In this regard, each e-commerce platform has its strengths. Content platforms like Douyin and Kuaishou focus more on brand exposure, essentially closer to marketing advertisements. Although this interest-driven e-commerce sparked by content is attractive, it also has a relatively high return rate. This is why the women's wear return rate on the Douyin platform remained high last year, as consumers are often attracted by good content and buy out of curiosity rather than genuine need for the product.

Traditional shelf e-commerce, on the other hand, emphasizes conversion, but there are slight differences among platforms. JD.com emphasizes brand effects, Taobao tries to balance brands and prices, Tmall tends to prioritize displaying merchants who have paid for advertising, and Pinduoduo's recommendation mechanism focuses more on price, which is more friendly to small and medium-sized merchants as they no longer need to compete for traffic with big brands or platform-operated products.

This mechanism simplifies the merchants' traffic acquisition path by transparently pricing and improves traffic conversion rates, thereby reducing merchants' traffic costs.

Furthermore, let's look at the platform's merchant services and support, which is a critical factor affecting traffic costs. E-commerce platforms provide training, guidance, and rich marketing tools to help merchants optimize store operations and improve sales efficiency, thereby effectively reducing traffic costs.

Taobao's operating system is complex and data-rich, providing many opportunities for merchants with strong professional capabilities but with a relatively high threshold. Pinduoduo requires merchants to ensure price advantages, and traffic will naturally follow.

In the current economic environment, merchants are increasingly focused on pragmatic operations, no longer blindly pursuing brand benefits and rapid sales growth but rather focusing more on profit realization and operational certainty. Therefore, choosing an e-commerce platform with low traffic costs and high conversion efficiency has become an important way for merchants to seek new breakthroughs. After all, e-commerce is becoming increasingly competitive, and no one wants to lose money; survival is the key.

For e-commerce platforms, how to balance merchant interests with platform development, optimize cost structures, and enhance traffic monetization capabilities has become an urgent issue. This requires platforms to continuously optimize traffic allocation mechanisms, improve the accuracy of recommendation algorithms, strengthen user profiling, and better meet the needs of merchants and consumers.

In the future, competition among e-commerce platforms will intensify, and those who can solve the challenge of merchants' traffic costs will stand out in this rivalry.