Everyday Economics reporter Cao Shengyuan reporting from Chengdu - The战火of competition among B2C websites continued to escalate in 2012, with a fascinating mutual attack taking place not long after the Dragon Year Spring Festival.
In this competition without gunpowder, the focus of the debate was the issue of price that netizens were very concerned about. The trigger was the "2011 Q4 Full Web B2C Merchant Product Price Index" recently released by Tao1.com, which showed that JD.com led the increase in B2C product prices, with an increase of 5%~15%. In response, JD.com published an article countering, emphasizing that "a price increase of 15% would be pure suicide." Li Guoqing of Dangdang (Weibo) also pointed out on Weibo that JD.com's prices were higher than Dangdang's. Subsequently, Tao1.com responded to JD.com, stating that the data statistics came from system scraping and were not manipulated by humans.
Is JD.com really "leading the price increase"? The reporter from Everyday Economics conducted a "price comparison" of several major B2C websites involved. In fact, this war of words reflects the current bottleneck in the development of e-commerce websites: after rapid expansion through low prices, should they continue to solely pursue sales growth or return to rational pricing to improve profit margins?
The Origin of the "Leading Price Increase" Data
The root cause of this verbal battle between JD and Tao1 was the data released by Tao1.com, which stated that after entering the fourth quarter of 2011, the average price of goods in China's B2C market showed a significant upward trend, with the price increase of online retail products slightly higher than the CPI increase during the same period. Especially around the "National Day Golden Week," it reached its peak. At the same time, JD.com's price increase in the fourth quarter of 2011 led among domestic B2C websites. From September 20, 2011, to January 2012, JD's prices continued to rise, with the average price increase index basically maintained at 5%~15%, and the price increase curve showing an unusual "M" shape. There were two obvious price increase peaks in early October and early December last year, both exceeding 15%, far higher than other B2C merchants' 0%~5% increase.
In response to this, JD was greatly enraged and recently specially issued a statement to refute it. JD's statement pointed out that the so-called B2C price monitoring recently released by Alibaba Group's Tao1.com, claiming that JD's price increase far exceeded Tmall's with a 15% increase, was a fabricated defamation without any factual basis. "JD neither has nor absolutely will raise prices by 15%, as that would purely be suicidal behavior."
In this brief statement, JD's emotions seemed rather agitated, and they remarked, "As a member of China's e-commerce industry, Ali releasing reports involving competitors inherently lacks fairness! We hope Ali can focus their energy on clearing out large amounts of counterfeit goods on their platform and do what they are supposed to do! Instead of finding ways to attack competitors and elevate themselves!"
Subsequently, when the reporter contacted JD.com regarding this statement, the company did not give a direct interview. Notably, Liu Qiangdong, JD.com's chairman who had been active on Weibo previously, did not immediately express more views on this matter.
JD's Price Advantage Being Eroded
Recently, the reporter randomly compared 20 items across four categories that JD was selling hotly and at discounted prices with Tmall and Dangdang. Among them, some 3C products had price differences among the three platforms; individual JD products were 80 to 200 yuan more expensive than Tmall but slightly cheaper by 3 to 30 yuan compared to Dangdang. Cosmetic and book prices were almost identical. In the clothing category, JD and Tmall had the same brand merchants, with prices being similar, except for a difference of 40 to 50 yuan in some styles.
However, due to the limited scope of the reporter's price comparisons, the above results cannot fully represent the overall price levels of the three B2C websites.
After the verbal battle between JD and Tao1, Li Guoqing of Dangdang also "supported" on Weibo. Li Guoqing first supported JD, saying that "Dangdang and JD have been fighting price wars every day without raising prices." The next day, after paying attention to the price comparison between Dangdang and JD's products, Li Guoqing changed his tone, publicly "provoking" JD through Weibo, stating that part of JD's 3C product prices were generally higher than Dangdang's, questioning whether JD Mall's digital appliances dared to compare prices with Dangdang.
Industry insiders believe that after traditional giants like Gome and Suning entered the e-commerce industry, JD.com, which started with electronic digital products, gradually lost its price advantage, and its logistics advantage was no longer as noticeable as before.
Regarding this price incident, Guo He, senior director of market public relations at Dangdang, believed that "JD's comprehensive price increase was expected, especially in the 3C category. The larger the scale, the less money you can burn; facing capital pressure, price increases are inevitable, understandable."
The debate over prices behind this reflects a major dilemma in the industry: should they continue to invest to increase sales growth to drive profits, or start pursuing increased profitability per order?
Rumors of JD's Tightened Funds Resurface
It is evident that JD.com has been striving hard over the past year. By the end of last year, JD set the minimum free shipping threshold to 39 yuan; before the New Year, JD spent 230 million yuan on CCTV advertisements; during the Spring Festival, CCTV and various satellite channels repeatedly aired JD's image advertisements; at the beginning of the Dragon Year, JD consecutively announced its CMO and CTO selections. Industry insiders believe that all these actions by JD were preparations for its IPO—JD needs to use profitability to convince Wall Street investors.
Regarding whether there is pressure from going public or investors, relevant individuals from JD.com stated that there is currently no significant pressure.
Recently, a columnist for Reuters wrote that JD's cash flow is becoming increasingly tight, and it may go public as early as March to raise funds. Currently, consumers have no high loyalty to various e-commerce companies, making price a highly sensitive factor. Even minor fluctuations in price can easily make consumers switch loyalties. For JD.com, this data from Tao1.com clearly has a significant impact on its rapidly developing business.
The relevant person from JD.com emphasized in the interview that factors affecting consumers should be comprehensive, "Persisting in low prices is still JD's consistent attitude towards users. Purely low prices or lowering prices just for the sake of low prices is unnecessary; it is a comprehensive reflection."
In his view, the forms influencing consumers' online shopping are becoming increasingly comprehensive and diversified, "Changes in price itself reflect different paces of each enterprise, not a simple price issue, but a comprehensive reflection."
According to data from third-party internet statistics agency iResearch (Weibo), the transaction scale of China's online shopping market in 2011 reached 773.56 billion yuan, with C2C accounting for 594.45 billion yuan and B2C accounting for 179.11 billion yuan. In the more细分market shares of the two online shopping models, Taobao.com (Weibo) alone occupies 90.4% of the C2C market share, with the remaining two being Tencent Paipai at 9.0% and EachNet at 0.6% (these three vendors completely control China's C2C market); in the B2C sector, Tmall (formerly Taobao Mall) has a market share of 53.3%, JD.com has a market share of 17.2%, and Suning.com (Weibo) ranks third with only 3.3%.
Some media described Alibaba's corporate landscape as follows: Alibaba is China's largest B2B platform, Taobao is the country's largest C2C platform, Alipay (Weibo) is the largest internet third-party payment tool, and the newly split Tmall has the potential to become the largest B2C platform, while Tao1 aims to become a commodity search-based online shopping portal. To compete against Gome and Suning, and to contend with such a massive online shopping giant, JD's pressure is imaginable.
Profit or Sales Volume?
E-commerce has developed to this point, leaving the main impression due to its explosive growth being that e-commerce tycoons rely on continuous financing to burn money and expand their competitive advantages in the industry.
"In recent years, e-commerce was in an explosive period, and most enterprises excessively pursued scale effects," said Li Jincheng, senior operations director of Xiu.com (Weibo), in an interview with Everyday Economics. "But scale effect is not a long-term method because it comes at the cost of sacrificing gross margin and other things." In 2012, the e-commerce industry does not have a very optimistic financing environment, which also promotes the e-commerce market to develop in a more rational direction, with companies placing greater emphasis on profits. However, Li Jincheng admitted that some companies might continue to adopt price war strategies, mainly depending on the financial pressures of different companies.
At the same time, some insiders in the industry expressed that price increases in B2C benefit the e-commerce industry, guiding B2C from burning money to healthy operations. Analyst Chen Shousong from Analysys Mason believed, "Regardless of whether there is a price increase, from an industry perspective, a rational price increase is not a bad thing. Emphasizing the overall operational quality and service quality of enterprises is the key."
However, in the eyes of analyst Li Chengdong from Paideya.com, e-commerce websites have no more super-profit products now, and the profit margin of most goods has already decreased. Therefore, e-commerce websites still need to increase their company's profits through increased sales volume. But he pointed out that this sales volume should not blindly grow but needs to be controlled within a reasonable range.
Actually, in e-commerce websites, not all products need to be profitable. Li Jincheng pointed out, "E-commerce is similar to traditional department stores in that some goods make money, while some goods lose money to attract customers. So we cannot simply look at the fluctuation of the price of one product. At this stage, e-commerce companies must put profits in a more important position, which is a trend."