Picture source @Visual China
Text | Wang Xinxi
Pinduoduo is putting increasing pressure on JD.com. Earlier, Liu Qiangdong responded to employee comments on the company's intranet, saying that JD.com must change, otherwise there will be no way out.
Why? Why are the products on Pinduoduo so much cheaper than those on JD.com? Liu Qiangdong has not yet found a way to break the situation.
Liu Qiangdong once said bluntly after last year’s Double Eleven that JD.com has given some consumers the impression that it is becoming more and more expensive. JD.com should serve multiple levels of consumers, pointing out: “Low price is the most important weapon for our past success. , it will also be the only basic weapon in the future.”
However, JD.com has been providing tens of billions of subsidies for nearly three quarters, and the effect is not obvious. JD.com’s low-price mentality has never been established, and the capital market has also given a direct response. From the latest market value Let's take a look, the market value gap is as high as 4.5 times (the current market value of JD.com is US$43.1 billion, and Pinduoduo is US$197 billion) -
JD.com's stock price has fallen by more than 50% from the beginning of the year. Although recent rumors of layoffs have been denied, JD.com's crisis Already close at hand.
Why is Pinduoduo so much cheaper than JD.com?
Judging from the feedback from netizens, JD.com’s reputation is actually relatively good.
In a questionnaire survey launched by The Paper, "Do you still choose JD.com when shopping online?" The most popular choice was "Yes, or you still use JD.com habitually." The comment with the most likes is "I will still choose JD.com for digital and electrical appliances."
Many netizens said that JD.com's delivery sales are very good, and they basically arrive on the same day or the next day. If you are in a hurry, Generally, JD.com is chosen.
Judging from netizen comments, JD.com has a good reputation, but the key problem is that JD.com has not yet figured out why Pinduoduo is so much cheaper than JD.com. Judging from the opinions of JD.com employees, JD.com’s current promotion mechanism is too complex and has poor motivation for large promotions, making it unable to offer Pinduoduo’s low-priced products.
The threat to Taobao is actually easy to understand, that is, the users and merchants of Pinduoduo and Taobao overlap too much, and both are C2C models.
However, JD.com is a B2C model and has also been impacted by Pinduoduo. In fact, Pinduoduo is grabbing users and traffic from the entire market. It is not only grabbing Alibaba, but also JD.com. The key to Pinduoduo grabbing users is tens of billions of subsidies. From iPhones to domestic flagship mobile phones and digital products, subsidies range from 500 yuan to 1,000 yuan, targeting JD.com’s 3C digital hinterland, thus attracting a large number of users.
When users and orders are growing rapidly, Pinduoduo can more easily raise funds in the capital market and continue to use the raised money as subsidies. At the beginning, both JD.com and Alibaba believed that this model was unsustainable, but Pinduoduo Duoduo’s growth rate is far beyond imagination.
Both Alibaba and JD.com are pursuing positive profits and putting profits first, but Pinduoduo prioritizes users and orders. When users and orders surge, the platform is adding value and recognizing low prices. In the process of formation, users and merchants are skyrocketing, and making money will come naturally. JD.com and Alibaba are beginning to realize the crisis.
In fact, in summary, we know that have different playing styles. JD.com and Alibaba both pursue positive profits, while Pinduoduo pursues positive cash flow. This is the key. When the market environment is not good, positive Cash flow is more important than positive profits.
Although many netizens currently think that JD.com is good, JD.com gives people the impression that things are expensive. When a person wants to buy genuine and good products, he may choose JD.com. The rest may not consider JD.com.
In the current market environment, price is the first competitiveness. Now many merchants actually operate on multiple platforms including Pinduoduo, Taobao, and JD. But why can they achieve lower prices on Pinduoduo? In fact, one is the issue of operating costs.
One is Pinduoduo’s tens of billions of subsidies. It is an active subsidy by the platform, allowing users to come in and generate transactions. As long as the money coming in is more than the money going out, positive cash flow can be formed. Although JD.com and Taobao’s products have high gross profit margins, Trading volume was affected.
Taobao and JD.com pursue high gross profit margins because they both have heavy asset businesses to support. JD.com has its own logistics and Taobao has access to all directions. Both Taobao and JD.com have high asset and operating costs, so commissions are also high. Relatively high.
From JD.com’s perspective, there is also a high self-operated cost. JD.com’s self-operated stores have to pay tax for every product sold. Taobao and Pinduoduo are mainly self-employed, which gives them some room for price adjustment.
Secondly, JD.com’s logistics costs are too high, and JD.com’s logistics advantages have ushered in another opponent, Meituan. Local offline retailers connected to Meituan Instant Retail are listed as being able to arrive in 30 minutes at the fastest. Meituan e-commerce caters to urgent needs, while in Meituan Quality Department Store, mobile digital products and household appliances are placed in the first column.
Meituan instant delivery orders increased to 6.2 billion in the third quarter. may take away part of the market pie that is more focused on fast delivery.
Jingdong’s tens of billions of subsidies still failed to gain an advantage in price, and the effect was not good. Because from the perspective of ’s business model, JD.com’s assets are too heavy. It is self-operated, has self-built logistics, and has third-party sellers. ’s operating costs cannot be reduced.
When faced with Pinduoduo, a business that does not have heavy assets, With the "factory direct sales" model of , 's platform that strives for low prices, and encounters the current market environment, JD.com will become more and more troubled.
In addition, self-operation and third parties are in a competitive relationship. In terms of traffic distribution, it is difficult to implement the price-first traffic guidance rule. However, as long as the price is low enough, Pinduoduo will have display and traffic, which will lead to more merchants. They are more willing to set low prices on Pinduoduo and guide more users to shop on Pinduoduo in disguise.
The service fee of Pinduoduo platform is only 6%, which is very low compared with other e-commerce platforms that often charge 3% or 6%.
While Pinduoduo offers low-price traffic guidance and a low-commission model, is a carrot and a stick. If merchants have product quality problems and do not deliver goods within the time limit, they will be fined. In addition, Pinduoduo only provides refunds. This makes merchants very afraid of the rules, so they are forced to continuously improve service levels and logistics delivery speeds.
Therefore, this determines that merchants will pursue two sets of price systems on Pinduoduo and other platforms.
What JD.com is afraid of is not competing with Vipshop for the third spot, but becoming the next Gome and Suning.
In fact, among the e-commerce giants, JD.com has solved the most employment problems. Data shows that there are about 1,000 blue-collar workers in China. There are 400 million people. Among JD.com’s more than 500,000 employees, probably more than 80% are blue-collar workers (delivery, warehousing, customer service).
On the one hand, the asset-heavy model brings a better experience to JD.com, but on the other hand, it also becomes a burden for JD.com. Many years ago, Jack Ma once said: "JD.com's model is that in ten years, China will have 300 million packages every day, and you will have to hire 1 million people."
Today's JD.com is actually just as Jack Ma said many years ago , the heavy asset model poses increasing cost challenges to JD.com.
Due to the loss of price advantage, JD.com’s 3C home appliance moat is also facing impact. When many people compare prices when buying 3C home appliances, they will find that JD.com is not the cheapest. Not to mention, for some products with more dispersed channels, such as daily necessities, clothing, etc., sellers such as Meituan, Douyin, and Pinduoduo have more pricing power, and JD.com has no price advantage.
Jingdong itself does not have product richness and category advantages in clothing and daily necessities, and it is unable to grab the market from other players in the category. Now that the digital hinterland of 3C home appliances is being impacted, it can be said that it is becoming more and more dangerous.
Pinduoduo has provided tens of billions of subsidies for many years, mainly for 3C mobile phone and digital products. One move is to lower prices, even if it is Taobao, it will also hurt JD.com, and the latter's heavy model has been difficult to change, and now logistics speed is no longer the core. It has become more competitive, and now Cainiao has begun to deliver packages to your door. Everyone’s service level is improving, and consumers are not willing to pay higher prices for logistics.
Because according to the current development momentum, JD.com is not afraid of competing with Vipshop for the third place, but becoming the next Gome and Suning, because JD.com is essentially similar to Suning and Gome, but the sales channel is online and offline. Suning Gome was dragged down by the rent at its stores across the country.
The problem for JD.com today is that the high cost makes JD.com unable to compete on price with the factory direct sales model of Pinduoduo, where manufacturers have direct contact with consumers.
In fact, how to deal with Pinduoduo’s competition in the future, JD.com may have to change its business model. From the pursuit of positive profits to the pursuit of positive cash flow, the priority of profits will shift to the priority of users and orders . The crisis is already around the corner. How to Break the situation and test Liu Qiangdong’s wisdom. (this article was first published on Titanium Media APP)
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