When the comparison became a sword hanging over his head, Zhang Yu felt a bit uncomfortable.
In the past, JD has also compared prices internally, usually once a week, and it is just an inconspicuous requirement in hundreds of company emails every day, which is not related to employee performance.
But this year, price comparison has become the norm, and procurement and sales employees like Zhang Yu have to face price comparison performance rankings every day. And this ranking is a reverse ranking, mainly based on the proportion coefficient of the responsible category in the department and the price situation. "If you are on the list, it means that your price does not have an advantage."
The price comparison work is initially completed manually, with dedicated personnel manually flipping through the prices of various platforms every day for comparison, and then organizing a densely packed price list with a cycle of months. Afterwards, price comparison tools replaced manual labor, forming a more accurate assessment system.
This change stems from JD's resurgence of low price strategy.
At the end of 2022, JD founder Liu Qiangdong listed "low price" as JD Retail's most important strategy for the next three years at an internal conference. There have also been multiple changes within the retail department, and the burden of implementing these changes has fallen on the newly appointed CEO Xu Ran.
Compared to the previous CEO Xu Lei, Xu Ran has only been with JD.com for just over 6 years. Previously, she was the CFO of the group. Since taking over this large e-commerce platform in May last year, the outside world has been paying attention to what kind of "low price reform" answer sheet she will submit.
From the performance of the first quarter, the performance was quite good, with a year-on-year increase of 17.2% in net profit during revenue growth, exceeding market expectations. Xu Ran, who comes from a financial background, has indeed demonstrated strong cost control and financial management abilities, allowing JD.com to achieve profit growth despite multiple subsidies and large-scale investments.
The ongoing 618 has become another testing ground for "low price reform". This year, JD 618 started on May 31st, mainly focusing on product, price, and service upgrades. According to JD.com, its investment is the largest in the industry.
Employees can personally feel JD's emphasis on this 618 event. The headquarters building of the company is filled with slogans that say "fight, only be the first". Some shuttle buses have been delayed until 3am, and some meeting rooms have prepared marching beds, blankets, and toiletries, filling up the combat situation.
But the other side of the coin is the rebound of some suppliers. In early May this year, 56 publishing houses issued a statement to jointly boycott the JD 618 promotion. A publisher told Interface News that she felt incredulous when she saw the conditions listed in the plan, such as "full variety" and "30% off price protection".
"JD has proposed the most stringent conditions this time, and the target is also pointing towards it," said the person mentioned above.
In response to this, Wei Chao, a sales employee of JD.com, publicly responded on social media, "I just want to sell cheaper books to better benefit consumers; I just want to expand sales through small profits and high sales to create profits for our partners; I just want to do my best to promote consumption and create value for society."
Some merchants also expressed understanding of JD's low price strategy. Xiao Liu, the head of a jewelry company, told Interface News that the platform's price recommendations are mostly reasonable. If merchants find that the price suggestions are unreasonable, they can choose not to follow.
Low price is a necessary move for JD.com to respond to market and economic challenges. It and Taobao were once undisputed leaders in the domestic e-commerce market, and both bet on consumer upgrades. But after the rise of the dark horse Pinduoduo and live streaming e-commerce, the low prices that were overlooked by JD.com and Taobao once again dominated the market. JD.com has to weave a big web with low prices to avoid losing or falling in the e-commerce competition.
This "net" is not easy to weave. Externally, it is necessary to balance the relationship with suppliers of all sizes and respond to fierce attacks from peers; Internally, while transmitting pressure downwards, efforts should also be made to stimulate employee morale.
Zhang Yu and others are not sure when the price comparison will end, at least until a conclusion is seen, the "threat" has been present.
Low price vortex
JD's sense of crisis has not always been as strong.
Zhuang Shuai, founder of Bailian Consulting, recalled to Interface News that in 2017, when he communicated with the relevant leaders of both Alibaba and JD companies, their reactions were similar. One of the people's words could very well represent their mentality at the time, "Even if I give up on this (sinking) market, how much will the loss be?"
The two giants have formed a tacit consensus with each other: there is a demand for consumer upgrading in the sinking market, and Pinduoduo's product supply structure is difficult to meet. In the end, consumers will still come back. They felt a slight threat, but it was far from the moment of life or death.
JD's confidence comes from its expectations for future development and confidence in the e-commerce landscape. In the first half of the fierce competition in Chinese e-commerce, Pinduoduo's name did not even exist on the table, while Taobao and JD.com quickly stood out through the differentiation models of C2C and B2C, respectively.
Starting from a four square meter Zhongguancun stall, to the establishment of an online self operated procurement and sales system, JD.com has taken the highly standardized 3C category as a breakthrough point, and with the support of self operated logistics, it has gradually stabilized its position as a leading e-commerce platform.
When JD.com went public in 2014, its growth potential was great. Firstly, the development of both self operated and open platforms has been successfully validated by Amazon; Secondly, expanding from 3C to multiple categories such as home appliances, books, and clothing, also possessing imagination.
JD's Financial Performance Chart for the Past Three Years: Interface News He Miao
Until the entry of "exotic" Pinduoduo, the inherent pattern of domestic e-commerce began to loosen. With the help of familiar people's team building and strong organizational capabilities in agricultural and factory products, Pinduoduo has firmly captured hundreds of millions of consumers in the sinking market in just five years, approaching JD's market value and becoming the third pole of Chinese e-commerce.
Low unit price agricultural products are the main market of Pinduoduo. In the past practice of Taobao and JD.com, this category was deemed "difficult to produce, high cost investment, and difficult to make profits", and was rightfully considered insufficient to be afraid of. Unexpectedly, the moment that truly made the two giants feel "dangerous" came soon.
In the first half of 2019, Pinduoduo launched the "billion yuan subsidy" as its trump card, entering first and second tier cities and delving deep into the hinterland of JD.com and Tmall. This move instantly changed the previous perception of Alibaba and JD.com that "Pinduoduo is helping them cultivate the market".
In the same year, Huang Zheng, the founder of Pinduoduo, stated in an internal speech that Pinduoduo's actual trading GMV (transaction volume) exceeded that of JD.com. Furthermore, third-party organizations have compared the performance and human efficiency of the three major e-commerce giants in recent years, making the gunpowder smell of this war even stronger.
Based on data from various platforms, from 2018 to 2023, the total number of employees on JD.com increased sharply from 178000 to 517000, which is twice that of Alibaba, five times that of Tencent, and 30 times that of Pinduoduo. However, the average annual income per employee has been decreasing year by year, from 2.5955 million yuan to 2.098 million yuan.
In contrast, since the launch of Temu in September 2022, Pinduoduo has not seen much increase in employees, but its revenue growth has been faster. In 2023, the number of employees in the company increased to 17000, generating a revenue of 247.6 billion yuan, and a single employee can support at least 14.5 million yuan in income per year.
Due to differences in the business models of various platforms, the total number of people on JD.com includes a large number of frontline delivery personnel such as logistics delivery, which is not a fair comparison of personnel efficiency. But this also prompts JD.com to re-examine its relationship with brands, merchants, and users, and rethink the significance of sinking into the market.
Liu Qiangdong quickly began to take the lead in making up for missed classes. At the beginning of 2019, he proposed the "Three Core Campaigns", with the low-end market at the forefront. He even personally led the team to start an internal business, launching the benchmark Pinduoduo's consolidation business "Jingxi" and entering the first level entrance of WeChat. But at that time, JD.com had not yet fully invested the company's efforts.
The consumption downgrade caused by the epidemic not only causes structural changes in demand, but also further promotes JD's move towards "low prices".
Famous economist Xiang Shuai defines this change as the arrival of a "micro profit society", where slowing economic growth leads to a decrease in the average return on investment and a shift in average social profits from "windfall profits" to "meager profits".
2023 is clearly an important watershed for a "micro profit society". According to Xiangshuai's observation, many companies have lowered their stance and started to roll up projects, small markets, and small product categories that were previously too lazy to do, after all, "mosquito meat is also meat.".
When times undergo drastic changes, historical expectations become a burden, and it becomes increasingly difficult for elephants to turn around. Previously, JD.com, which emphasized quality consumption, bet on upgrading consumption as the future. In the past year, it has had to fully engage in the wave of price wars.
Lightning fast transformation
For JD employees, low prices are not a matter of whether or not to do it, but rather how to do it.
In the memory of former JD employee Zhang Yu, JD's move to lower prices was a lightning bolt transformation from top to bottom, with a clear horn sounded at an internal conference held over the weekend in early January 2023.
This meeting is specifically held for the frontline business team of JD Retail. In addition to the group management, the main attendees were self operated procurement and sales, POP (third-party merchants) merchant operations, and marketing salespeople. The sub venues across the country also participated synchronously through online conference connections. Zhang Yu, as a self operated procurement and sales representative under the 3C Digital Home Appliance Business Unit, attended the conference.
Liu Qiangdong, who rarely appears at grassroots employee meetings, connected with Xu Lei and other executives, who were then the CEO of JD.com Retail, through remote video access. Zhang Yu clearly felt that the atmosphere on site was not relaxed, and most of the people present had seen Liu Qiangdong's speech at the executive training meeting previously exposed by the media.
At that training session, he criticized the low execution efficiency of the executive team, stating that "those who deceive themselves with PPTs and fake empty words are scammers" among the executives, and talked about the importance of price in JD's e-commerce model, harshly pointing out that "JD has already given some consumers the impression of being increasingly expensive.".
Now, Liu Qiangdong not only hopes that executives pay attention to low prices, but also calls on frontline retail business employees to make JD lower prices and "regain the weapon of low prices.". Since the mid-2010s, JD.com has been continuously reducing costs and improving efficiency through various means, emphasizing the importance of "low price" strategies, but rarely explicitly and systematically promoting low price strategies at the strategic level.
The low-priced reform proposed by Liu Qiangdong was quickly implemented throughout the entire group. Zhang Yu remembers that "the conference was held on Saturday, and next Monday, the executives and bosses of various retail product lines held a department meeting to discuss how to implement low prices." A week later, various product departments such as home appliance 3C and clothing had a set of "action plans" for a series of basic promotional policies targeting suppliers.
A series of strategies brewing for low price reform in the entire e-commerce business have gradually emerged.
In January, the "Spring Dawn Plan" was launched to vigorously support small and medium-sized businesses to settle on the JD platform; In March, the "Billion Subsidies" channel was launched; In April, at an internal business management meeting on JD.com, Liu Qiangdong personally presided over and established the latest organizational structure reform framework. The core goal of the reform is to comprehensively integrate the self operated and POP merchant systems, managed by a unified category leader, with unified inventory and flow rights internally, and achieve equal treatment for self operated and third-party businesses.
JD Platform Merchant System Mapping: Interface News He Miao
In POP mode, JD.com plays the role of a "retail platform". POP merchants use JD.com to achieve the circulation and sales of goods, from which JD.com draws a commission. The specific operation work of the POP store is completed by the merchant's own operation team. According to JD's logic, in order to achieve low prices, it is necessary to rely on third-party merchants, that is, to attract more small and medium-sized businesses to settle in JD.
The jewelry company where Xiaoliu works is a type of small and medium-sized business that JD.com hopes to expand. This company is located in Panyu Jewelry Town. Previously, it was a production-oriented manufacturer targeting the enterprise side. In June last year, it officially launched its e-commerce journey through JD's "Spring Dawn Plan" investment promotion, mainly selling gold and silver jewelry, including gold rings, necklaces, bracelets, etc. According to her, after four months of joining, the company achieved self-sufficiency in profit and loss, and its size was gradually increasing.
When it comes to the current price wars among major platforms, Xiaoliu believes that malicious low price competition is a self seeking dead end, and low price competition requires a virtuous cycle. "The significance of our low prices is to benefit consumers while ensuring the profits of merchants. We cannot lose money on every order," she emphasized to Interface News.
This is also the low price that JD wants to achieve for mutual benefit. Even for small and medium-sized white label merchants, JD.com has a price control mechanism, including a one month price protection period, which prevents merchants from adjusting prices arbitrarily. But the traffic push on the platform is related to the price, and low-priced products may gain more exposure and traffic.
Xiaoliu stated that the platform will provide price guidance to merchants through a massive database, helping to improve the transaction rate of buyers. The merchant adjusted the product prices based on the price guidance provided by the backend, and after practice, it was found that sales have indeed increased. "This is a positive feedback for us," he said
She also mentioned that if the cost of a certain product increases, such as the price of gold, but the platform's pricing power is still low, one can choose not to participate in low-priced activities. For silver jewelry with profit margins, a low price strategy will continue to be implemented.
Since the implementation of JD's low price strategy for over a year, Xiaoliu believes it is relatively reasonable. She believes that the platform's "billion yuan subsidy" policy is a win-win situation for both merchants and consumers, as merchants can gain more traffic and conversion through it.
Multi-party game
Despite JD's strong willingness to support small and medium-sized businesses, the largest contributor to revenue and profit is still self operated businesses, accounting for 70%, while POP is 30%. To support the reform of low prices, self operated business is equally important. JD's flagship self operated model focuses on brand cooperation and quality control, playing the role of a retailer in the circulation of goods.
Zhang Yu's sales team has always been regarded as a "combat force" within JD.com. The procurement and sales positions were initially established based on JD's self operated model. Integrate procurement and sales into one function, with one responsible for purchasing goods from suppliers and the other responsible for selling goods on the platform. This team has experienced the e-commerce war between JD.com, Dangdang, and Suning, and is also the actual executor of the low-priced reform this time. In order to boost morale, Liu Qiangdong recently announced a 20% -100% salary increase for all procurement and sales personnel, following last year's salary increase.
In Zhang Yu's view, in order to promote the reform of low prices, JD.com has mainly done three things: promoting low price strategies to suppliers, setting price performance indicators for business lines, compressing supplier supply costs, and formulating support policies.
Liu Qiangdong once explicitly mentioned that JD's low price is not simply the rough lowest price on the entire network, but a "high-quality low price" that pursues a win-win situation among the platform, consumers, and merchants. At the implementation level, it is necessary to face the redistribution of interests with merchants.
Zhang Yu gave an example. Originally, when a merchant offered goods for 50 yuan, the platform sold them for 60 yuan, and the platform could earn a profit of 10 yuan; Now the platform needs to sell for 50 yuan and maintain a constant gross profit, so merchants need to supply for 40 yuan.
Platforms usually sign "gross margin" agreements with self operated merchants to ensure their profits. Due to JD's self built logistics and warehousing, after converting this part of the cost and adding other expenses to calculate the total cost, regardless of the final price of a product, the platform must ensure a fixed proportion of gross profit.
Based on this rule setting, there is a long-term game between the platform and merchants: at the beginning, due to the group's emphasis on the effectiveness of low price reform, various departments were eager to implement the low price reform plan at the beginning of project approval. When purchasing and selling to promote the low price strategy to merchants, they would tell the other party to purchase according to the original supply price, and the part of the low price loss would be borne by the platform breaking Mao Bao. But after a period of time, if the platform finds that the profit is too low, it needs to renegotiate with the merchant to reduce the supply price.
JD.com started as a self operated company and screened merchants with high entry barriers to ensure quality control, thus attracting major brands from various industries such as Apple, Lenovo, L'Oreal, and so on. Behind these big brands, there is a complete channel sales network, and the brand needs to manage the purchase prices of various channel merchants under their umbrella. Compared with the small and medium-sized white brand merchants on Pinduoduo and Tiktok platforms, brand merchants are less dependent on the platform, and have a certain voice when cooperating with the platform to make low prices. Brand merchants with more heads have a stronger voice when negotiating with the platform.
A domestic mobile phone distributor told Interface News that due to JD's consistent and transparent pricing system in the industry, the brands he serves use "JD price" as the standard for price control.
Now JD.com is changing this pricing system, and negotiations between the platform and brand merchants have become a game of discourse power. The key bargaining chip is "who needs who more".
Relatively unknown small and medium-sized brand merchants will face more challenges. A self operated merchant who has just joined the JD platform found that in addition to a fixed gross profit margin, another necessary condition for participating in the promotion is that the merchant must bear the cost of cooperating with the platform's promotional price reduction and corresponding discount coupons. In the end, the losses incurred by the store after participating in the event will still be borne by the merchant themselves.
The daily price comparison that Zhang Yu faces further escalates the price reduction game between the platform and merchants. The procurement and sales department, as well as the category department they belong to, will compile a price comparison ranking list for internal disclosure every day. The final price comparison results are directly linked to the performance indicators of the department and individuals. These are new policies introduced after the low price reform.
Not only do we need to compare prices internally, but we also need to compete with our competitors for the lowest price on the entire network. Last April, JD.com launched the five-star price competitiveness index for the first time. Based on the price competitiveness of similar products (calculated by historical prices, latest prices, and prices outside the platform), merchants with five-star price power will receive the maximum platform traffic exposure, and the price competitiveness star will be updated in real-time every two hours.
The pressure of price comparison is still spreading. Two merchants on the JD platform told the news on the interface that in order to compete with Pinduoduo, Taobao and Tiktok, the purchase and marketing fair directly required merchants to provide the lowest price of the whole network, especially in the promotion activities such as Double 11 and 618.
Opening up new battlefields
If low price is Liu Qiang's most important weapon for past success and the only fundamental weapon in the future, live streaming is the "new battlefield" that this company has vigorously opened up to implement its low price strategy.
The significance of live streaming for JD.com is largely due to the increase in traffic entry points. "The fundamental problem of JD is still the problem of growth, which is mainly due to the difficulty in obtaining traffic." Li Chengdong, the founder of Dolphin Club who follows JD, told the interface news that Tiktok attracts traffic by virtue of short videos, while Pinduoduo grabs traffic at low prices, and even erodes the user stock of JD and Alibaba, which forced them to carry out a series of "bone breaking" reforms.
After JD announced the low price reform, a long-term task assigned to procurement and sales is to explore new traffic. In recent years, most of the new users in the e-commerce market have been split up by Tiktok live broadcast e-commerce.
JD.com launched its live streaming function as early as 2016 to promote and sell products, but it has always been detached from the core business of the e-commerce system internally. Even after the rise of live broadcast e-commerce represented by Taobao Live, Tiktok and Kwai, and their continuous triple digit growth rate as new forces in the e-commerce market, JD still attached importance to live broadcast e-commerce at that time