Chinese e-commerce giant JD.com will launch a 10 billion yuan ($1.5 billion) subsidy campaign on March 8 to compete against rival Pinduoduo, a budget shopping app by PDD Holdings. JD.com is selecting suitable products for the campaign and testing its price comparison system, local media outlet 36Kr reported.
Similar subsidy campaigns have previously only emerged under a sub-channel of JD.com‘s app during shopping “festivals” such as on June 18 or November 11 (also known as Double 11, an event similar to Black Friday). This time, the subsidy will have a more conspicuous placement on the app and will cover both JD.com‘s self-operated online shops and storefronts set up by third parties on its platform.
According to LatePost’s report, JD.com will feature a price comparison tool for users that displays the prices of similar products from Pinduoduo, Taobao, Kuaishou, and Douyin. It will also arrange for managers to monitor the system. If JD.com‘s price of an item is higher than that of other platforms, a rebate of double the price of the item will be provided for the user. However, this compensation scheme will not cover all goods.
Shanghai-based Pinduoduo first rolled out its multibillion-yuan subsidy program in mid-2019, a move that has helped the latecomer solidify its position in China’s small towns, where consumers tend to be more price-sensitive. According to the official statement, the program covered around 10,000 stock keeping units (SKU), a measure of the number of unique products, and the gross merchandise volume (GMV) that the program generated accounted for about 10% of the total GMV. With this program, Pinduoduo snatched a large number of users from Alibaba-backed Tmall and JD.com.
In 2021, the annual per capita spending of active buyers on JD.com was 5,782 yuan ($841), about 20 yuan ($2.91) more than the previous year. One reason for the increased customer spending may be due to higher prices of goods on JD.com that merchants charge to offset the higher commission rates on JD.com‘s platform compared to competitors such as Tmall. Furthermore, to improve user experience, JD.com will require merchants to adopt JD Logistics, its supply chain provider, which may further increase sellers’ costs of sales.
An insider said, “Many merchants in Pinduoduo do not show their rating, but JD.com requires the customer rating of merchants to be 90% or even above 95%.” This strict requirement also increases sellers’ costs.
In the third quarter of last year, the revenue of JD.com‘s 3C products, a combination of computer, communication, and consumer electronics, increased by meager 8% year-on-year. At the end of last year, company founder Richard Liu criticized the management team for diverging from a low-price strategy and other strategic missteps. Liu believed that JD.com should serve consumers at multiple levels, considering both the more affluent shoppers as well as the working-class customers. “There are still some families in China who have never tasted kiwi. If these families can buy kiwi for a few yuan because of us, it is very meaningful,” Liu remarked.
On the eve of the Double 11 Shopping Festival last year, JD.com urged sellers to offer the lowest prices for goods and promoted them with livestreamers Li Jiaqi and Luo Yonghao. It was not until last week that Xin Lijun, CEO of JD Retail, decided to forgo an upper limit on the budget for the subsidy project. However, the gross merchandise volume target has not been determined.
“Pinduoduo‘s huge subsidies can help it obtain a large number of high-quality customers. However, JD.com‘s subsidies are likely to destroy the pricing system,” said a JD.com employee. During the Double 11 Shopping Festival last year, Wuliangye, a well-known alcohol brand in China, asked to suspend its partnership with JD.com because the prices of its products on JD.com were much lower than those of offline channels. If the upcoming subsidy is realized, similar events may resurface.