Xin Lijun, CEO of e-commerce giant JD.com‘s retail arm, on March 7 explained some of the details regarding the expected strategic direction of the sector in 2023. In terms of the recent discounts across the platform that started March 6, the move is a 10 billion yuan ($1.4 billion) campaign to tap new users, which Xin explained is only the beginning of re-creating the platform’s low-price reputation.
Amid rising competition with peers including Alibaba and PDD Holdings, JD.com began preparing for the 10 billion yuan subsidy campaign as early as February. The company has described it as “its largest sales promotion event in history”, covering a wide selection of items, such as smartphones, home appliances, as well as groceries and office items such as paper.
For certain products, JD.com is even offering double compensation to consumers if they can find the same products at a lower price on competitor sites such as Pinduoduo, the budget shopping platform owned by PDD, and Alibaba’s e-commerce platform Tmall.
Judging from the rules of subsidies, JD.com is trying to improve its return on investment of marketing as much as possible. The rules governing the subsidies stipulate that there will be a limit on the number of purchases due to limited inventories of some hot-selling goods. In addition, if the amount of goods purchased by users is less than 100,000 yuan, they must be paid within 10 minutes after placing the order, and if the amount is more than 100 million yuan, the period can be extended to 2 hours.
JD.com founder Richard Liu in December criticised his lieutenants for forgetting about basics such as price competitiveness and other strategic missteps. However, Zheshang Securities has previously pointed out that the subsidy may affect JD.com‘s own pricing system and its original self-operated ecology. JD.com‘s core brand features are “fast” and “good”, while the users brought by subsidies are mostly on a low budget.
Subsidies will inevitably affect the company’s profit performance. Zheshang Securities mentioned that JD.com has high costs in terms of logistics and staffing. If it reaches the same subsidy level as Pinduoduo in the short term, it will still need to expend more capital. If it maintains the same subsidy level as Pinduoduo in the long term, its profitability will be eroded.
However, Xin showed his determination saying that in the future, JD Retail will focus on the goal of “low price” in every link, continuously improving its own capacity, supply chain efficiency and technology.