Source: Wall Street See

For over a year, Alibaba, JD.com and other companies have been engaged in a fierce battle for low prices, while PDD Holdings, which has been labeled with "low prices" since its inception, seems to be the most comfortable. However, feeling threatened by competitors' fierce attacks on low prices, PDD Holdings could no longer sit still.

According to Wall Street News, on May 28th, when JD.com held a high-profile 618 startup meeting, PDD Holdings quietly launched a "low-price weapon" - an automatic price-following system.

If merchants choose to use this "weapon" and the competitor's price is lower than theirs within the authorized range, the system will automatically lower their price to be lower than the competitor's. At the same time, PDD Holdings will link whether merchants open this feature with free traffic on resource slots.

Previously, TikTok e-commerce also announced a small-scale internal test of similar "automatic price adjustment" functions.

For merchants, this is a decision that needs to be carefully weighed: if they choose to open automatic price-tracking, they may get more support from the platform in terms of traffic, but it will inevitably compress profit margins; otherwise, they may lose volume and orders.

In order to balance the relationships between buyers and sellers, PDD Holdings has also begun to adjust and optimize this new feature. After all, low-price competition cannot fall into an infinite vicious circle. Perhaps the "low-price war" that has lasted more than a year in the industry will also usher in a turning point.

New weapon.

After years of encirclement marketing, PDD Holdings are not as high-profile as JD.com and Taobao in terms of their low-price strategy. The newly launched automatic price-following system has not yet been officially announced by PDD Holdings.

On May 28th, many merchants reported on social media platforms that they received a system popup window with the title "Open resource automatic price following and ensure that the resources are not disconnected." The maximum daily price reduction of a single product cannot exceed 10 yuan or 15%. The range of effective products includes all resource slot goods, and the feature cannot be turned off before the end of June 21st's big promotion.

Resource slots usually refer to promotion channels on PDD Holdings' homepage, such as "100 billion subsidies," "limited time flash sale," and "9.9 special sale." Obviously, PDD Holdings hopes to compete with other platforms with more competitive products in this 618 big promotion.

Many merchants told Wall Street News that when they signed up for the promotion, the "automatic price-tracking" of the goods was also checked by default, and they accidentally turned it on. Merchants can adjust the maximum price reduction, but the minimum value is the default setting of 10 yuan or 15% by the system.

A merchant revealed that if they want to be on the resource slot of PDD Holdings, they must accept a comparison in price. The platform system will periodically send pop-ups warning them that their price is too high and there's a risk of losing orders. If they don't adjust the price within the time limit, they will fall out of the resource slots. This automatic price-following system is an enhanced version of the previous comparison mechanism.

There are still many immature places in this feature since it was launched, and PDD Holdings have been adjusting it. They subsequently canceled the clause of "the feature cannot be turned off before the end of June 21st's big promotion," etc.

A merchant showed a screenshot of the PDD Holdings' price-following popup window to Wall Street News on June 5th. PDD Holdings further explained that there would be no infinite price reduction by price-following, and the price would only be lowered once a day, which would be set according to the lowest requirements of the activity. Users can adjust the settings at any time, and the platform will notify them of the price-drop.

"The launch of PDD Holdings' automatic price-following system is a choice made by the e-commerce market amid increasingly fierce competition for existing users," said a professor from the Digital Economy Department of Shanghai University of Finance and Economics. Merchants must have the right to know and set their minimum acceptable prices or make a commitment to ensuring a certain profit margin within a certain period of time.

Low prices are an important means for e-commerce platforms to compete for users. For years, PDD Holdings has established strong low-price awareness, surpassing Alibaba and JD.com in the new trend of consumption, becoming the "new king" of the e-commerce market.

However, the e-commerce industry is changing rapidly, and PDD Holdings can never relax. Both Alibaba and JD.com have lowered their stances and learned from PDD Holdings over the past year, targeting more lower-tier cities and executing "low-price strategies" resolutely.

JD.com has been the most visible in this low-price competition and has also competed with PDD Holdings several times. After calling out Li Jiaqi during last year's Double Eleven, JD.com Purchasing and Sales called out to PDD Holdings in a live broadcast, stating that they would conduct real-time price comparison and benefit sharing. This time, JD.com Purchasing and Sales calling out to PDD Holdings represents the further upgrading of e-commerce platforms' low-price competition, and the 2021 battle will be more intense than last year's.

As expected, on this year's 618, various e-commerce platforms have once again reached new heights. First, Alibaba, JD.com, etc. successively cancelled the pre-sale system, and then each increased their promotional efforts.

For example, Tmall invested unprecedented resources in 618, in addition to the basics of spending 300 to get 50 off and an official 15% discount, an extra 15 billion yuan in red envelopes were also put in. Taobao's 100 billion subsidy launched the "Surprise Flash Sale", which is based on the bottom price of the subsidy of 100 billion yuan, and is discounted by another 50%. Worth mentioning is that Taobao and Tmall have also completely connected the discounts during the super sales promotion for the first time.

JD.com not only has a 100 billion yuan subsidy, cheap/free postage and other activities, but also will launch a "2 yuan postage-free day" where massive low-priced products from production areas such as Baoding, Yiwu, Fujian, Guangdong, etc. are delivered free of charge.

Therefore, PDD Holdings launched the "automatic price tracking system" as a strong counterattack during the intense price war.

Intense competition.

Low-price competition, in essence, trades price for quantity. Many merchants who entered PDD share a consensus that PDD is a platform that positions thin profit margins and high volume of sales. Therefore, there will be certain differences in the categories chosen for listing.

This has provided a decent survival platform for many white-label merchants.

However, in the increasingly competitive price war, some white-label merchants seem to have difficulty maintaining their original profit margins.

During 618, the important window for centralized price demonstrations, major e-commerce platforms engage in face-to-face price comparisons. PDD has marked some of its commodities with labels such as "cheaper than Taobao" and "somewhat cheaper than JD.com".

A brand merchant disclosed that JD.com procurement proposed that some commodity titles should be set as "cheaper than Pinduoduo, certain cats, and certain treasures".

Cui Lili told Wall Street News that similar automatic price tracking systems such as PDD's might compress the industry's gross margin space, causing merchants to not necessarily earn more profits even if they sell more products.

Because they are afraid of further reduced margins, many merchants have chosen to turn off this function. On the flip side, this decision also faces the risk of losing traffic and orders.

A screenshot provided by a merchant shows that after he/she cancelled automatic price tracking, the product lost free traffic from the promotion during the busy period due to high prices. The specific content showed: "Your product has lost free traffic in the promotion resources due to high prices. Please go and change the price immediately to restore free traffic in the promotion resources."

However, a merchant doing business in clothing stated that not choosing to enable this function did not have too much impact on their own business.

Looking at the entire industry, many merchants caught in the price war are suffering, and have come forward recently to publicly resist certain platforms.

Additionally, "rolling prices" can indeed attract more consumers and boost sales in the short term, but when all platforms are "fighting for low prices," differentiation between platforms seems to blur. In the long-term, e-commerce platforms may have to sacrifice product quality and service levels in order to reduce costs, which clearly is not a long-term development plan.

Now, as low-price competition in the industry enters a white-hot stage, regulation is also cracking down with the publication of the "Interim Provisions on Internet Advertising Management," which will be implemented on September 1. Many merchants believe that certain provisions in the regulations could shackle automatic price tracking.

Historical experience has shown that price wars do not last too long in the market. When turning points come, only e-commerce that truly masters technological innovation and user experience improvement schemes will become true winners.

After more than a year of a "price war," major e-commerce platforms need to jump out of the endless loop of ultra-low prices as soon as possible to find a balance between attracting consumers and protecting the rights and interests of merchants. This is the key to the next stage of the e-commerce battle.

The pattern of the e-commerce industry is still being rewritten. Let the bullets fly a little longer; time will give the answers.

Editor/ruby