The world’s biggest retail market is getting even bigger.
To boost e-commerce consumption in China, leading e-commerce giants are expanding beyond metropolises to pursue China’s less-developed areas.
We take a look at the different strategies Alibaba, JD.com and Pinduoduo are using to win over these customers, and the lessons US retail companies can apply to reach Chinese consumers hungry for products Made in the USA.
Alibaba invests $1.4 billion in group-buying subsidies
Juhuasuan is Alibaba’s group-buying e-commerce platform; it is a separate app but also has entry points on Alibaba’s Taobao and Tmall platforms.
Starting in 2019, Alibaba began to involve Juhuasuan in China’s lower-tier cities. The e-commerce platform is an increasingly important part of Alibaba’s strategy to fend off Pinduoduo, an e-commerce platform that encourages group buying.
In December 2019, Juhuasuan launched a $1.4 billion US subsidy plan to fund group-buying promotions, similar to that of Pinduoduo.
The way it works is simple – customers are entitled to steep discounts if they can get a friend to purchase the same product, in essence using one customer as an evangelist for the product.
From the merchant’s point of view, the money goes towards subsidizing product discounts rather than spending on ads to gain traffic.
As of Jan. 19, the $1.4 billion subsidy program has drawn over 200 million user visits.
The difference between Juhuasuan and Pinduoduo is that Alibaba’s Juhuasuan can upsell the same users on products throughout its ecosystem, including products on Taobao and Tmall.
This makes sense. Users in lower-tier markets are relatively price-sensitive in the short run. However, after they get used to purchasing through e-commerce and as their purchasing power increases, they have higher expectations for product quality, logistics services and the credibility of the platform.
Subsidies are a good way to hook first-time users for that crucial first phase of customer acquisition. It is likely that heavy subsidies will continue for the time being to increase market penetration, as many users in China’s lower-tier cities are still relatively new to e-commerce.
JD.com uses omnichannel, dual-brand strategies to capture customers in lower-tier cities
JD.com re-launched its group-buying app Jingxi in September to combat group-buying competitors Pinduoduo and Alibaba's Juhuasuan in China’s lower-tier cities.
Like its competitors, Jingxi subsidizes products for customers to engage their friends in group-buying deals. This reward is important for attracting more price-sensitive users in China’s lower-tier cities. During Singles Day 2019, approximately 75% of Jingxi's new users came from lower-tier cities.
And like Alibaba’s Juhuasuan, Jingxi fits well into JD.com’s dual-brand strategy. Jingxi acts as a lower-end platform to pull in lower-income users and first-time e-commerce users, while JD.com plays an important role as the more premium platform.
But Jingxi has a slight advantage in that it has a WeChat mini-program. WeChat is the most popular social media platform in China, used by more than 1 billion people. Jingxi also has a special access point on one of WeChat’s main pages. As Tencent’s arch-rival, Alibaba cannot launch a mini-program on WeChat’s messaging platform, depriving it of a major source of traffic.
JD.com is also investing heavily in its omnichannel retail capabilities, having launched a 50,000 square meter superstore in Chongqing for Singles Day 2019. More than 30,000 customers attended the opening, purchasing over $1.4 million worth of products that day.
The massive complex displays more than 1,500 brands and 200,000 items across electronics, furniture, home appliances and smaller categories such as health & wellness, beauty, books and daily necessities.
In-store experience centers display products in scenario-specific formats, giving customers a better sense of what they look like at home. Customers can scan QR codes and make purchases on WeChat, with the products shipped to their home within 24 hours.
This is a crucial part of JD.com's Boundaryless Retail strategy, which leverages advanced logistics, technology, and services to provide additional value for its customers.
How Pinduoduo emerges from the competitive market
Pinduoduo rode the group-buying wave in China’s lower-tier cities to become China’s third-largest e-commerce company.
But now the competition is increasing and Pinduoduo faces the challenge of maintaining its momentum.
On one hand, it’s looking to reach users in Tier 1 cities to raise the average value of transactions on its platform.
It launched a cross-border import business in early 2019 and also partnered with retail giant Amazon China to launch a pop-up import store for Black Friday 2019. Such a high-profile strategic partnership boosts Pinduoduo's image and gives it instant credibility because of Amazon’s global reputation.
But back in China’s lower-tier cities, Pinduoduo also launched a “ten-billion-yuan subsidy” program to compete with Juhuasuan’s discount program. With these subsidies, it promises to provide the lowest prices for goods that are sold on other platforms.
1. Alibaba’s group-buying platform Juhuasuan launched a ten-billion-yuan ($1.4 billion) subsidy program to pull in users in lower-tier cities. Over time, Alibaba can upsell these users on products sold by Taobao and Tmall, taking advantage of Alibaba’s robust ecosystem.
2. JD.com is leveraging both omnichannel and dual-brand strategies to cater to consumers in China’s lower-tier cities. Face-to-face customer interaction is important in these areas, where people may be relatively new to e-commerce. The new E-Space store in Chongqing acts as a model test case for how this strategy can be carried out effectively.
3. Pinduoduo, facing increased competition, also launched a 10 billion RMB ($1.4 billion) subsidy program. It is also adding more cross-border imported products to appeal to a more premium user base and lift the average value of its transactions.
Franklin Chu is managing director the US for Azoya International, a provider of turnkey cross-border e-commerce solutions to assist retailers looking to expand into China through a cost-effective and lower-risk method. To date, over 35 retailers in 11 countries are partnering with Azoya to expand into China with ease.