China’s e-commerce sector is undergoing a major strategic shift as platforms switch gears from prioritizing ultra low prices to more sustainable sales growth.
Douyin, the short video platform owned by ByteDance, is focusing on growth in gross merchandise volume (GMV), a measure of total online sales, for the rest of the year after growth slowed to between 30–40% in the first half, compared to over 50% last year, people close to the company told Nikkei Asia.
Chinese online media LatePost first reported that Douyin was making the shift due to the slower than expected GMV growth, adding Douyin had concluded that its popular live commerce sales approach was unable to deliver the lowest prices for shoppers.
“Douyin is fundamentally an entertainment platform. I think Douyin executives have recognized that there is a potential conflict between aggressively promoting low prices and maintaining a positive user experience,” said Jacob Cooke, co-founder and CEO of WPIC Marketing and Technologies, a Beijing-based e-commerce consultancy.
The other problem with the industry wide low-price push is that it squeezes merchants, who might then allocate their inventory or advertising spending to other platforms where they can find the best margins, Cooke added.
The shift comes as a temporary anti-unfair competition regulation for the internet industry is set to take force on September 1. The new rules prevent platforms from “imposing unreasonable restrictions on the prices of goods.”
Low prices have long been the focus of China’s annual online shopping festivals, and most leading players made it their primary selling point this year. However, total GMV for the 618 shopping event this year dropped for the first time in eight years, falling 7% from last year to RMB 742.8 billion (USD 103.8 billion), according to Chinese data company Syntun.
China’s GDP grew 4.7% year-on-year in the second quarter, missing expectations due to weak consumption and a prolonged property market slump. Last month, the total retail sales of consumer goods grew only 2%, the slowest since the beginning of last year.
“I think there’s been this misconception that consumers are primarily motivated by low prices in the current environment, when in fact different demographics of consumers have different priorities, and that those priorities shift depending on the product category,” Cooke said.
Last year, except for PDD Holdings, share prices slumped in other e-commerce platforms including Alibaba Group, JD.com and Kuaishou Technology. Amid pressure from Pinduoduo and Douyin, Alibaba’s flagship retail platform Taobao and JD have ramped up their efforts to retain users, with Alibaba emphasizing its “user first” strategy, which encompasses product quality, pricing and service, while JD mainly focused on low price.
Meanwhile, in the first half of the year, Taobao has played down its “five-star pricing system,” a pricing evaluation framework introduced by former Taobao chief Trudy Dai last year that rates products from one to five stars based on their pricing relative to similar items both on Taobao and other platforms. Under this system, products priced lower tend to attract higher traffic. Now, the company has launched a “Store Experience Score” rating system that gives traffic to merchants with good ratings for service.
“Striving for the absolute lowest prices is not a viable strategy when compared to Pinduoduo, which has spent years building a reputation among users for offering the best deals,” a senior manager from Taobao said, adding that low prices are also not a sustainable approach because users will leave once the deals are gone. “Ultra low prices will also place pressure on sellers and push them to other platforms,” he said.
The senior manager said that Alibaba had been aware of the consequences of sellers moving to alternative platforms a few years ago. Alibaba’s long-running anti-counterfeiting campaign peaked in 2019, and after 2020, some senior executives began to believe that this campaign had prompted sellers to migrate to rival platforms and pose a threat to Alibaba’s business. In response, one of the senior leaders suggested halting the campaign, the senior manager said.
Gu Pei, who runs two electronic tool shops on Taobao and Pinduoduo, respectively, told Nikkei that Pinduoduo would consistently ask her to lower her prices, otherwise she would receive little store traffic. Gu set her profit margin to around 20–30% and said if she followed Pinduoduo’s request, it would be below 10%. Gu said she cannot afford that as she is not a manufacturer, who might be able to cut costs through different means.
However, even after paying for increased traffic on Pinduoduo, the number of orders did not increase, Gu said. “When the economy was not so bad, orders would increase after I paid for traffic, but now buyers are just looking and not buying, and I have to pay for every click,” she said, adding that she has stopped paying for traffic as it is not cost effective.
And from late June, Gu said, she noticed something unusual: She was getting more buyers on Taobao than on Pinduoduo for the same products, even though the prices she sets on Taobao are higher—and she didn’t pay for traffic on Taobao. “People always come to Pinduoduo for its lower prices, so they would assume the quality there is lower, too, even though I use the same photos on both platforms,” Gu said.