IDC: China e-commerce giant breaks new ground with “6.18” promotion – while price wars and brand loyalty continue
Jun 23, 2016
23 Jun 2016
June 23, 2016 —— JD.com, mainland China's second-largest business-to-consumer e-commerce platform operator (after Alibaba’s TMALL.COM), could well be on the fast track to profitability on the back of a steady increase in mobile users and transactions. JD.com's strong performance was anchored by its successful June 18 (also known as "6.18") anniversary promotion, celebrating the founding of the Beijing-based company in 1998 by billionaire entrepreneur Richard Liu Qiangdong.
According to data released by JD.com, the number of orders placed on the whole day of June 18, 2016 increased by more than 60% year-on-year, in comparison to over 100% increase the same day in 2015. There was a slowdown in consumption growth resulting from online promotions. However, mobile orders increased to 85% of total orders on Jun 18 in 2016 from 60% in 2015 and 25% in 2014. JD.com was helped by mobile campaigns with Tencent's widely popular social platforms Mobile QQ and Weixin (also known as WeChat). Through its event, JD.com also helped show how rapidly mobile e-commerce has progressed. According to China Internet Network Information Centre, there were almost 340 million mainland mobile online shoppers at the end of 2015. IDC analysis provides some insight into the recent trends:
Will price tactics be the only formula for e-commerce promotions?
There has never been lack of controversy around the JD.com 6.18 promotion or TMALL.com 11.11 promotion. While price promotion is played up, actual discounts are questionable. The notion that “prices are raised first, only to be lowered again” spreads widely on the Internet. Various e-commerce platforms have fought dazzling and confusing price wars. But after June 18, there is wide suspicion that price discounts and resulting sales results are exaggerated.
Will consumers be attracted by such marketing attempts? In terms of price-based sales promotion, due to discount computation variations between platforms, JD.com’s promotional prices displayed on various price comparison websites are indeed the lowest ones in the near term. Consumers may have grown tired of the eye-catching offers, nevertheless the lowest price strategy continues. JD.com started with 3C products (computers, telecommunications and consumer electronics), while Alibaba’s TMALL.com grew up from garments. Today, both companies call themselves all-product brands while consumer behavior indicates buying patterns based on their initial product division. Of course, as other e-commerce platforms continue to surface and play the low price card, it is not known whether consumers are brand loyal or simply buying based on these lowest price promotions.
Will Big Data analytics lead to brand loyalty?
IDC forecasts that in the next 5 years online sales will continue to grow, but with a slowdown. In Tiers 1 & 2 cities, online shopping is almost saturated. To break this bottleneck and build a complete ecosystem, it will be necessary to connect online with offline and penetrate Tiers 3 & 4 cities. On the other hand, putting aside frequent promotional stimulus in a year, e-commerce platforms such as JD.com and TMALL.com have realized that data and innovation are the future business value. For this reason they have been leveraging big data analytics to improve consumers’ online shopping experience on their platforms. They are placing their bet that individual differentiation and high-quality consumer experience will build up future brand loyalty and adhesion.
Will the E-Commerce Platform War continue as a duopoly?
With JD.com and Alibaba’s TMALL.com as the 2 leading e-commerce platforms in China, sellers have had to place their bets on one of these two platforms to set up their online stores. However, the rapid development of e-commerce has forced merchants to firmly hold onto this formula. Will vendors still be subject to the constraint of online channels? After all, consumers are more receptive to product brands rather than purchase channels. The model of good cooperation between vendors and e-commerce channels depends on whether the two are indispensable to each other. For vendors, fleeing goods between online and offline channels for the purpose to boost online sales volume will eventually affect the survival of physical stores, lower and even lose the market’s trust of brands. The sustainable practice is to optimize channel management and fight a good battle of channel defense.
Overall, e-commerce has attained a reasonable size in China, largely due to the support of the government and the penetration of mobile devices. E-commerce will continue to thrive and grow in the future. According to Linghua Zhang, Senior Analyst at IDC China , “While promotions like the June 18 and November 11 events are effective to maintain consumer adhesion, it will be up to retailers to use value-based data to understand and stimulate the potential of consumer spending.”
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