In-depth | The truth about the 10 billion subsidy: the invisible “unspoken rule” of low prices, are you really making money?

Times Weekly reporter Li Jing from Shanghai

On October 21, at 1 a.m., there was silence outside the window, but Lin Jie (pseudonym) was not sleepy at all.

Li Jiaqi's passionate voice on her phone kept her “addicted”. On the other hand, the iPad page was a big-name beauty section with a $10 billion subsidy from an e-commerce platform. Lin Jiezheng quickly compared and calculated how to buy the most suitable products with the least amount of money.

Workers who work during the day and those who pay at night. At that moment, Lin Jie was suddenly in a bit of a trance. Who was she actually “working part-time” for? What more money was saved?

The battlefield of 10 billion subsidies is spreading without borders, and everything can be subsidized.

Kuaishou and Douyin, which have astonishing daily activity numbers, also joined the battle;agricultural productsFresh food, digital 3C, and fashion beauty shoes are all on the subsidy list; even, diversified categories such as travel, movies, and real estate have begun to appear in the subsidy section.

This means that consumers have more options to choose from, and everything seems to be a great deal. But are consumers really saving money? Are merchants really losing money selling and shouting? Did the platform really subsidize 10 billion yuan? Will the next subsidy be “100 billion”?

Between being scammed and being scammed, the 10 billion dollar subsidy is becoming a Mobius ring. Consumers, merchants, and platforms are each running through the loop, going back and forth, with no end in sight.

Are consumers really making money?

Lin Jie doesn't want the 10 billion dollar subsidy to “end” because it has both a cheap price and a guarantee of authentic products, so she doesn't think anyone will feel “unscented.”

Last year, she bought two iPhones in the $10 billion subsidy section of an e-commerce platform, and since then she has started an even crazier price comparison shopping.

Squatting to grab “big coupons,” being a “don't sleep” girl, and buying things at the best price at the right time was once regarded by Lin Jie as the “new frugality principle.” Li Jiaqi's calculator and the original price removal line on the product page all told herself that everything was “great value.”

“I'm not going to just look at one,” she has a habit of looking at multiple platforms for the same product; only when the price is low can it be competitive.

But maybe there is no purchase without comparison.

In fact, Lin Jie discovered that many of the products she purchased were “planted” during repeated price comparisons. The platform discovered her preferences through “algorithms” and accurately promoted her “favorites.”

It looks like consumers are losing money on platforms and merchants; in fact, in terms of bills that are increasing month by month, consumers are also part of being scammed.

At the same time, no one is going to lose money. Like the butterfly effect, businesses trapped in 10 billion dollars in subsidies are also looking for a way out.

“If merchants find that they make too little money or don't make any money, they will definitely raise the price, because the 10 billion subsidy is a bidding model, and the same product can only be sold at the lowest price. Naturally, they will bid again, and the price will definitely be higher than before.” **** Jia (pseudonym), who has been fighting in the cosmetics industry for more than 10 years and has sold a number of big-name products, revealed “unspoken rules” that Lin Jie did not know.

Looking at it this way, let's put a big question mark on whether consumers are actually making money.

Can merchants still afford to play?

Merchants that can get subsidies from the platform are lucky, but it's hard to say that it's easy.

“Before, not so many businesses wanted to participate in the 10 billion subsidy, but now they need PK.” **** Jia said.

As an agent, **** Jia's focus of operations this year is placing some products in an e-commerce platform's 10 billion subsidized traffic pool. It can be seen that the price of these products is much lower than the sales price of other e-commerce platforms. The price is lower, and sales have naturally increased. **** Jia sells the top three products in the e-commerce platform's stores, all of which have participated in the 10 billion subsidy.

In order for her products to participate in the 10 billion subsidy campaign, **** Jia needs frequent mediation between the platform and the brand.

“It's not easy to participate in this event; the platform is very strict.” **** Jia said that first of all, we need to compare prices. For the same product, the one with the lower price wins, so we have to work hard in the supply chain. Second, it is necessary to obtain authorization and certification from the brand. Authorization alone is not enough; the brand must also issue an official email to prove it, so that dealers can participate in the 10 billion subsidy campaign.

“I have to control the price, and I have to communicate with the brand.” Under round after round of competition, the winners joined the 10 billion subsidized traffic pool. The losers had no choice but to continue preparing and wait until everything is complete before making a comeback.

**** Jia told the Times Weekly reporter that the 10 billion dollar subsidy meant that he could concentrate on inventory.

“There is indeed traffic. It's all about running volume to make money, and sell more with little profit.” **** Jia said bluntly that merchants aren't stupid; they won't lose money to do business.

**** Jia has witnessed the growth of an e-commerce platform's 10 billion subsidy.

three squirrels(300783.SZ) The relevant person in charge told the Times Weekly reporter that the 10 billion subsidy is now the development trend of major e-commerce platforms, and the three squirrels are also closely following the changes on the platform and participating in the cost-effective 10 billion subsidy campaign at Tmall Gathering.

“Participating in the 10 billion subsidy is one part of negotiating the layout of online channels, not all of them.”Qiaqia Foods(002557.SZ) The person in charge of e-commerce told the Times Weekly reporter that the 10 billion subsidy campaign is quite high. From the perspective of the platform side, resources are generally skewed to seize users, so they usually participate in food negotiations.

But **** Jia loved and hated the 10 billion dollar subsidy.

“Some e-commerce platforms do not have a fixed percentage of the subsidy amount for products. Large financial subsidies go to products that can be diverted, such as Apple phones and big names such as Aquamarine Mysteries. And small and medium-sized brands like us can't get that much subsidy amount, or even no subsidy.” **** Jia's tone was full of regret.

According to **** Jia, the initial 10 billion dollar subsidy had to be spent in real money, but for example, a platform's 10 billion subsidy has become a traffic pool to attract merchants. Some product merchants also need to lower prices, so it is unknown whether the platform spent money.

On October 16, a business representative who did not wish to sign provided the Times Weekly reporter with the “'10 billion subsidy' campaign service fee rules” sent to merchants by a platform on October 14.

According to this rule, merchants who want to participate in the 10 billion subsidy campaign are required to pay the event service fee to the platform based on a valid order for the active product (order that has not been returned or refunded).

According to the rules, the event service fee = the actual amount paid by the merchant for the valid order × the activity service fee rate; the actual amount paid by the merchant = the actual payment amount by the consumer plus the amount of the platform coupon. Specifically, the service fee rate for women's clothing category is 2.5%, makeup is 2.0%, snacks are 1.0%, and fresh fruit is 1.0%.

However, the agreement was suspended by the platform. “This agreement has aroused great opposition in the business community; no one is willing to pay for this service. It's a marginal profit in itself; if you pay the service fee, you lose money.” he said.

This is also what **** Jia is worried about. When the 10 billion subsidy becomes the norm on the platform, can merchants still afford to play when traffic resources are skewed?

“I'm afraid the platform will start harvesting consumers in disguise by harvesting merchants because of customer stickiness. Wool comes out of sheep.” **** Jia said.

However, judging from now on, merchants can only move forward with this huge subsidy feast and adapt themselves to the rules.

“If the 10 billion subsidy becomes a normalized activity, it cannot be called an activity; it is standard. Merchants have no right to choose, because consumer awareness has been cultivated, and merchants can only match consumer needs and platform requirements and make adjustments in the supply chain and products.” The merchant mentioned above said.

“I definitely won't give up on the 10 billion subsidy campaign, but I need to find more suitable products for the 10 billion subsidy campaign.” Although the difficulty is increasing, **** Jia will continue to participate in the 10 billion subsidy campaign. After all, driven by traffic, he still made money.

Did e-commerce platforms really spend 10 billion dollars?

“There are too many companies that are claiming 10 billion dollars in subsidies. Many companies have not sold 10 billion dollars since their establishment. Are you going to subsidize the company to consumers?” On October 19, Han Rui, vice president of JD Group, spoke at his press conference.

At that press conference, JD launched the “Double 10 Billion Plan,” which consists of super 10 billion subsidies and 10 billion consumer vouchers.

As can be seen with the naked eye, this year's Double Eleven came a little earlier than previous years, probably because the 10 billion dollar subsidy never left this year. Every day is a shopping festival without further ado on various platforms. How can Double Eleven still be popular and sought after?

However, the 10 billion subsidy throughout the year is clearly a higher threshold. Some companies have been labeled as “copycat versions” of 10 billion dollars in subsidies, while others have actually spent real money on subsidies.

At the end of March this year, Wanli, a cross-border e-commerce platform owned by Qudian (NYSE: QD), used the “10 billion subsidy” gimmick as soon as it entered the market to try to seize the market with low-priced luxury goods.

According to Qudian's financial report for the fourth quarter of 2019, as of December 31, 2019, its cash and cash equivalents on its books were only 2.86 billion yuan. As of the close of trading on October 30, the total market value of Qudian was about 2.274 billion yuan. Obviously, the size of Qudian is far from being 10 billion.

And does Pinduoduo's “10 billion subsidy” really worth 10 billion?

According to the third-party data research team's “Supersymmetric Technology” report, in the fourth quarter of 2019 alone, Pinduoduo invested about 5 billion yuan in subsidies of 10 billion yuan, with an average subsidy rate of about 15% for each product.

Furthermore, according to Pinduoduo's financial data for the second quarter of 2020, 9.114 billion yuan was spent on subsidies and promotion expenses, an increase of 49% over the previous year.

According to this estimate, Pinduoduo's 10 billion subsidy will only be more or less, and probably not less than 10 billion yuan.

Fighting in the era of internet subsidies

Internet subsidies were first known in the field of online car-hailing.

In 2014, there was a fierce subsidy war between Didi Taxi and Express Taxi, which can be called “inviting people from all over the country to take taxis.” On Valentine's Day 2015, the two ride-hailing software giants that once beat you to death announced a merger.

Following the merger, the “subsidy war”, which had been dormant for a year, was rekindled in 2016, and Didi and Uber in China launched vigorous promotions one after another.

Online car-hailing companies burn popularity and traffic by burning money.

“The battle of DiDi Kuai quickly spread to the O2O industry, and all industries were subsidized.” Cheng Wei, founder of Didi Chuxing, mentioned during Luo Ji Siwei's New Year's Eve speech “Friends of Time” in 2015 that the Internet's abundant capital and fierce competition have moved the Internet from a free economy to a subsidized economy.

It is difficult to expand without subsidies. Whether it is a startup or an established giant, subsidies have become a signature move. It looks like the platform is willing to be “scavenged”; in reality, it's a battle of life and death. It can't survive; it can only fall.

“The leading platform, Pinduoduo, pioneered strategies such as '10 billion subsidy' and 'receiving cash every day' last year, which quickly raised the customer acquisition costs of e-commerce in the shopping category. In addition to JD,Suning Tesco“In this situation of fierce competition, small and medium-sized social e-commerce businesses are naturally unsustainable, and the 'law of the jungle' has led to survival of the fittest.” Cao Lei, director of the Internet Economic and Social E-Commerce Research Center, said.

On December 9, 2019, Amoy Collection, which is regarded by the industry as the next “Pinduoduo”, announced that due to the failure of this round of mergers, acquisitions and restructuring, it will go bankrupt, liquidation or bankruptcy restructuring. Today, Amoy Collection has disappeared.

This social e-commerce dark horse, which was launched in August 2018, attracted users through subsidies, low prices, etc., and came aggressively, but the collapse was only instantaneous, and unanticipated.

Wu **** pointed out in his 2020 New Year's Eve speech that with the end of the traffic era, traffic became more and more expensive: “In 2015, Taobao spent 166 yuan and JD 142 yuan to get a new user. Today, Taobao costs 536 yuan, and JD 757 yuan. Facing the sinking market in 2016, Pinduoduo spent 10 yuan to get a user. By the fourth quarter of 2018, Pinduoduo would have to spend 143 yuan to get a single user.”

In the end, the cost of traffic is spread across everyone.

Zhongtai SecuritiesWe believe that in the long run, high marketing investment is difficult to sustain, and supply chain optimization measures such as category expansion and increasing the share of brands and C2M products are key factors in enhancing the platform's core competitiveness.

Wang Xin (pseudonym) is a self-employed person in the world's largest cloth textile distribution center and Guangzhou's Zhongda textile industry business district. He mainly does fabric lace business and is an upstream supply chain merchant in the garment and textile industry. However, the storm of low subsidy prices on the platform still affected her livelihood. “No matter how low the price of clothing is sold on e-commerce platforms, my wholesale price will be lowered even lower.” As early as last year, Wang Xin said this to the Times Weekly reporter.

Now, this year, Wang Xin is feeling that it is even more difficult.

According to some opinions, the sustainability of the 10 billion subsidy is questionable.

“If the 10 billion subsidy continues, on the one hand, consumers may feel exhausted from consumption, and they may also develop a 'price-only theory' consumption habit, similar to live streaming.” Cui Lili, executive director of the E-Commerce Research Institute at Shanghai University of Finance and Economics, told the Times Weekly reporter that there will definitely be a certain mutual relationship between platform marketing strategies and consumers' consumption behavior, but they should complement each other in a healthy way and be compatible with each other.

There is no doubt that the internet subsidy war is only getting worse. And consumers may just want to ask, when will the 100 billion subsidy be introduced?