Procurement and sales cannot become JD.com’s low-price weapon

JD.com's procurement and sales highlight its self-operated strategy. Facing the challenge of low-price competition, it needs to find a differentiated competitive dimension. Read the article to learn more.

This 618, JD.com has a strong presence in procurement and sales.

First, Liu Qiangdong announced in an internal speech video that the salary of all purchasing and sales staff would be increased, ranging from 20%-100%, and it would take 2 years to increase the annual salary of purchasing and sales staff from 16 salaries to 20 salaries.

Then at JD.com’s 618 launch event, buyers and sellers from seven categories, including digital, tea, automobiles, and mother and baby products, made their debut and had a 40-minute interaction on site, which was said to be "longer than the speeches of the two executives."

Of course, there are also crises. Before the big sale, dozens of publishing houses jointly boycotted JD.com because JD.com’s purchase price was too low (an average of 20% to 30% off) and forced publishing houses to participate in the 618 big sale. Recently, Motian Books also announced that it would "completely stop shipping to JD.com." JD.com's book procurement and sales department quickly responded that "JD.com has the legal right to independently set prices for self-operated books" and "welcome everyone to buy books on JD.com."

Procurement and sales seem to have become the banner for JD.com's 618 and even for low prices for a period of time.

Behind the procurement and sales is JD.com’s self-operation. The improvement of the procurement and sales status can be understood as JD.com’s reliance on self-operation.

This makes JD.com, which announced last year that it would develop a POP ecosystem and still listed building an "open ecosystem" as one of its three major annual strategies at the beginning of this year, seem to be turning right with the left turn signal on.

However, JD.com, which is mainly engaged in purchasing and sales, may not even be able to complete the "right turn". In other words, purchasing and sales cannot become JD.com's weapon for low prices. At most, it can attract more traffic to JD.com's purchasing and sales live broadcast room at the level of public opinion.

Low prices are the current focus of e-commerce competition and are also a core competitiveness that JD.com wants to regain after Liu Qiangdong’s return last year.

At different stages of e-commerce development, the platforms have different ways of achieving low prices.

In the early years, JD.com's differentiated capabilities in e-commerce included high-quality supply and faster and better logistics services, which enabled it to target a group of high-net-worth individuals, achieve high customer orders, and be able to win the price wars in home appliances and books through subsidies, and take a piece of the market from Alibaba.

But with the evolution of e-commerce, achieving low prices requires system capabilities including supply, algorithms, ecological coordination and mind.

This is the case with Pinduoduo. On the surface, Pinduoduo achieves low prices by relying on its extreme traffic acquisition capabilities and price comparison system, but there is another reason. That is, when it has established a user mindset about low prices, it will automatically attract brand tail goods and other supplies that are already lower priced and more likely to be discounted, forming an opportunistic supply that actively moves towards a low-price ecosystem. This low-price ecosystem is similar to the soft discount model that has been prevalent in the retail industry for many years in terms of price power, scale and cost advantages, and is completely different from JD.com's self-operated procurement and sales model.

Since Alibaba's e-commerce organization adjusted its strategy, it has also been committed to building a differentiated low-price ecosystem. It has low prices from the supply level through 1688 and Taobao Factory, and low prices through operations such as 88VIP. It also has top anchors to promote products and hundreds of billions of subsidies. However, it takes time for an elephant to turn around, and it is difficult to reverse it instantly. There are also constraints such as organizational efficiency, the original ecosystem, and the new traffic capacity that needs to be supplemented.

The advantage of Douyin in offering low prices is that it is a traffic pool and has extremely efficient traffic distribution capabilities. Therefore, Douyin will occasionally have low-priced hot products. Moreover, it is the live streaming e-commerce represented by Douyin that has diluted the big promotion mentality of traditional e-commerce platforms and also pushed e-commerce competition into a new stage that tests traffic and traffic distribution capabilities.

Even Kuaishou e-commerce is releasing its content dividends and traffic dividends through low-price strategies such as "big brand supplements" and "sales hosting".

JD.com's advantages are supply chain and logistics, but these advantages have been basically eliminated.

Looking back, during the epidemic, the whole society's special demand for supply and logistics gave JD.com some illusions of leading in e-commerce competition. In fact, since the beginning of the epidemic, the elements of e-commerce competition have actually been changing. When supply is in excess, consumption is tightened, and logistics becomes infrastructure, traffic acquisition and traffic operation capabilities become more scarce capabilities, and therefore become more critical factors.

JD.com has tried several times to lower prices, but none of them worked. Its Jingxi, which targeted the lower-tier markets and launched its own brand, and the POP ecosystem it proposed last year, have all been slow to show results.

JD.com’s low prices through self-operation with the characteristics of procurement and sales are not a problem of cognition, but it has no other cards to play and has to do this.

Moreover, JD.com’s self-operated business model under this model is not suitable for the low-price orientation in the current context.

JD.com's self-operated business, which is mainly based on purchasing and sales, has a heavy model, high costs, and a much smaller scale boundary than e-commerce with a platform model.

If it is enforced, it can only achieve low prices for individual categories through large group purchases through live broadcasts of purchases and sales. As long as the model does not change, conflicts with merchants are inevitable. This conflict broke out in the home appliance field last time, and this time it broke out in the book field, which is more fragile but also once JD.com's traditional advantage.

Judging from the reaction of procurement and sales, JD.com should not change its determination to lower prices through procurement and sales. Instead, it will seize the attention of public opinion and continue to increase the traffic of its live broadcast room.

To put it another way, it is not impossible to sell at a low price by operating a store on your own. Sam's Club is a successful example. However, if you learn from Sam's Club, you will be completely following the idea of ​​running a private brand in the retail channel, giving up a certain scale, focusing on the core group, and achieving absolute low prices and differentiation in categories that cannot be sold at low prices on e-commerce platforms such as Pinduoduo. This is certainly not the end result that JD.com wants, and the attempt with the POP ecosystem is also in two directions.

It is precisely this situation of being caught between two ends that has put JD.com, which only operates its own business with procurement and sales as its core model, in an awkward position where it cannot advance or retreat in the low-price competition.

However, absolute low prices, especially those obtained by making brands lose money, are not the only dimension of e-commerce competition. Taobao emphasizes the value of 1688 and Xianyu and the importance of membership operations. Kuaishou and Xiaohongshu emphasize the influence of community, content, and influencers on consumer minds. They all find differentiated competitive dimensions above absolute low prices. Low prices are one of the means, not the only goal. When prices are leveled, platforms still have to compete on differentiated services and experiences.

Author: Pang Mengyuan

WeChat public account: Narrowcast (ID: exact-interaction)