The growth of Piduoduo has brought unexpected pressure to bear on Taobao and JD.com
Photo from CFP
By LI Biao
In 2023, China's e-commerce giants, JD.com and Taobao, took an unusual turn, becoming "mirror images" of each other. Both companies, led by founders LIU Qiangdong and Jack Ma, held internal meetings early in the year, with JD.com emphasizing the return to a "low-price strategy" and Alibaba calling for a "return to Taobao."
Midway through the year, both companies replaced their CEOs. Towards the year-end, the core retail e-commerce business of both companies announced leadership changes, with group CEOs taking over.
These changes are part of the mainstream narrative in the 2023 e-commerce market, focusing on lowering prices. Both face a common competitor - Pinduoduo.
The sudden replacement of executives at the end of the year was directly due to the previous efforts falling short of expectations. Now, with new management, the intention is to change the status quo, rekindle internal motivation, and implement the highest aspirations of the group for e-commerce business reform.
Over the past year, the "low-desire consumption," where consumers are more cautious and price-sensitive while shopping on e-commerce platforms, has shifted from individual choice to a market trend.
The biggest event in the e-commerce industry in 2023 was Pinduoduo surpassing Alibaba. Throughout the year, Alibaba's stock price hovered around US$80 (571.38 yuan), a third of its peak value at the end of 2020. In contrast, Pinduoduo's stock price saw significant increases after each quarterly financial report, reaching US$144 by the end of the year, surpassing its 2020 peak. JD.com's stock fell by nearly 50 percent in 2023.
At the end of the year, Alibaba's market cap was US$197 billion, Pinduoduo's total market value was US$193 billion, and JD.com was US$45 billion.
Apart from market capitalization, Pinduoduo's growth during a downturn in the entire industry has made competitors feel threatened. In the first half of 2023, JD.com's total revenue was 531 billion yuan, growing at a rate of 4.7 percent. Alibaba's total revenue was 442 billion yuan, growing at a rate of 8 percent. Pinduoduo's total revenue was 89.9 billion yuan, achieving a growth rate of 63 percent.
While the domestic consumption market was slowly recovering during the same period, the year-on-year growth rate of total online retail sales nationwide was 13.1 percent, and the growth rate of online retail sales of physical goods was 10.8 percent.
According to a report by business media outlet LatePost, at the end-of-year retail internal conference in 2022, Liu Qiangdong emphasized sternly that the competition in the e-commerce industry had become a zero-sum game of mutual growth and decline. In his view, the decline today is fundamentally due to the rapid growth of Meituan, Douyin, and Pinduoduo. Liu said that JD.com's reform goal is to "give users no reason to go to Pinduoduo."
Facing Pinduoduo's strong offensive, both JD.com and Taobao chose to promote low prices. Low prices are not only a transformation goal for the platforms themselves but also a market competition goal. The starting point is to "encircle" Pinduoduo on the low-price battlefield, stimulate growth, and stabilize the existing share and scale of the e-commerce market.
A JD.com business operations manager used a metaphor to describe the different positioning of the three platforms: JD.com is a department store, Pinduoduo is a street market, and Taobao is a pedestrian street. Once they have a common goal, the increasing competition in the e-commerce market has, to some extent, smoothed out the differences between platforms: Pinduoduo's "Billion Subsidy" campaign for major brands in the 3C digital products segment is an expansion from street markets to department stores. One of JD.com's low-price reform strategies launched this year, such as "9.9 Bargain Shopping," aims to guide consumers to "buy street market products on JD.com."
In this competitive landscape, the Singles Day shopping festival of 2023 became the annual highlight to test the results of low-price reform.
On November 10, the eve of Singles Day, Bain & Company released a survey questionnaire to 3,000 domestic consumers. The results showed that compared to 2022, over 77 percent of consumers planned to reduce their spending or maintain the same level as last year. While these consumers remained unmoved by the shopping spree, nearly half of them would choose lower-priced goods or e-commerce platforms.
Thus, "the lowest price across the entire network" became the battleground for each platform. However, the final data from the battle did not drive up the market. According to McKinsey, the GMV (Gross Merchandise Volume) for the entire platform increased by a modest 2 percent compared to the previous year. The GMV total for Alibaba, JD.com, and Pinduoduo did not increase, instead decreasing by 1 percent. Even the rapidly rising live streaming e-commerce only saw a 20 percent growth, a far cry from the growth rates of 100 percent or even 200 percent in previous years.
Comparing the financial reports released by each platform after Singles Day, it is evident that the year-long "low-price tripartite battle" did not narrow the gap between e-commerce platforms. JD.com’s revenue grew by 1.7 percent year-on-year, and revenue from its e-commerce retail business grew by 0.1 percent. Alibaba's revenue increased by 8 percent, and its subsidiary Taobao's revenue increased by 4 percent. On November 28, Pinduoduo's financial report revealed its revenue growth rate reaching a new high of 93.9 percent. Two days later, Pinduoduo surpassed Alibaba to become the Chinese e-commerce company with the highest market value.
A JD.com self-owned brand sales manager said that over the past year, JD.com has implemented various new policies internally around the low-price strategy, including brand-side low-price strategy promotion, setting price KPIs internally for business lines, further reducing the supply cost and support policies for brand merchants. "Over the past year, the front-end product prices have indeed been significantly reduced compared to before. But when compared to competitors, we still can't beat Pinduoduo."
Pinduoduo grew in the vacuum between JD.com and Taobao. Starting in 2018, Pinduoduo rose rapidly, attracting new users at an astonishing speed. In 2019 and 2020, Pinduoduo's annual active user numbers surpassed those of JD.com and Taobao, becoming the e-commerce platform with the most users in China.
According to an estimate by a business executive from an e-commerce platform, judging from the user scale and transaction frequency, Pinduoduo's users are mainly low- to middle-income people in third to sixth-tier cities, with a monthly income between 3,000 yuan and 5,000 yuan. These consumers represent the largest group based on the current average income level of the Chinese population and were previously overlooked by the two giants. Now, they have become the common target of platform competition.
Industry analyst LI Chengdong believes that the short-term ineffectiveness of e-commerce platforms' low-price reforms last year is simple: in the rapid growth of Pinduoduo, it has already absorbed a large number of users lost by Taobao and JD.com.
Once these users left, their attention to the original platforms sharply declined. Although each platform has made efforts in terms of product categories, merchant ecosystems, and marketing strategies, the essence behind it is to compete for users.
At the same time, the entire industry is also bidding farewell to the golden age of relying on attracting new users. As of June 2023, the scale of China's online shopping users reached 880 million people, an increase of 38.8 million people compared to December 2022, already accounting for 82 percent of the total number of Internet users.
In 2020, 2021, and 2022, the industry added about 130 million online shopping users in three years, equivalent to the growth in one year in 2019. Pinduoduo CEO ZHAO Jiazhen said that "the market will no longer have the opportunity to attract 100 million new users in the first half of the year."
JD.com and Taobao, while changing the management of their e-commerce business at the end of the year, simultaneously initiated a series of organizational adjustments to coordinate teams, accumulate resources, and prepare for a low-price battle against Pinduoduo in 2024.
Pinduoduo will not give up the market it has won. After noticing that several major competitors followed up with low-price and "refund only" strategies at the end of the year, Pinduoduo will continue to invest more resources to actively respond in the coming year.
It can be foreseen that from the 2024 New Year's Festival to Singles Day, each platform will spare no effort to play more tricks on the "low-price" battlefield.
Low-price reform is a prolonged battle, and the e-commerce market in 2024 will witness a more intense low-price war and see more fireworks.
