E-COMMERCE PRICE WAR CAPTIVATES CHINA
Just as I was publishing this post on the Potential of E-Commerce in China two weeks ago, a vicious and very public price war begun among China’s main appliance e-tailers: 360Buy, Suning, Gome and Dangdang.
The saga began when the CEO of 360Buy announced on his Weibo (China’s most popular microblog) account that their products will be cheaper than competitor Suning’s. In retaliation, other appliance e-tailers banded together and launched a counterstrike that rapidly deteriorated into an online slinging match between each companies CEOs.
As the CEOs egos and refusal to back down (big loss of face) propelled the drama into mainstream media, consumers came out the winners with each company promising to undercut the other.
You can read a detailed account of the Weibo tiff here. Some of the more interesting comments emanating from the whole episode include:
“Tonight, I made the decision to sell home appliances on 360buy at zero gross margins for the next three years… Within these three years, any employee found to sell at marked-up prices will be fired.”
“360Buy is going to recruit 5000 price intelligence agents to spy on Suning and Gome … We welcome retired people to apply.”
“All big home appliances at 360Buy will be the cheapest….there will be no bottom line. If Suning dares to sell at 1 yuan, then 360buy will give items away for FREE.”
“If 360Buy sells at 1 yuan, Gome will sell at 9.5 cents…. No bullshiting.. ..all products at Gome stores will be cheaper than 360Buy.”
“Starting 9 am tomorrow, Suning will initiate the biggest sale in history. We will help [360Buy’s] CEO Liu to achieve his laying-off goals faster.”
While there’s no evidence that any retailers are in fact giving stuff away for free, with such bickering amongst China’s prominent e-commerce CEOs, it didn’t take long for the war to become the hottest news topic across the country.
Debate on the price war covered all Chinese media and surveys conducted on the topic showed that many people believed the entire episode was a publicity stunt concocted by the retailers themselves.
If indeed it was a carefully orchestrated attempt at publicity, then 360Buy, Suning and Gome etc. all got their money’s worth of free press, yet will it be enough to offset the negative impact on their bottom lines and prevent the massive losses these companies are enduring?
As mentioned in my previous post, massive amounts of investment have poured into China’s e-commerce sector, yet few companies can show any proof of profit.
According to the China Daily and the E-Commerce Research Center, despite owning 20 percent of the online appliance market in China, 360Buy suffered a loss of RMB 1.3 billion in 2011. In a similar fashion Dangdang is reported to have lost RMB 99.5 million in the first quarter of this year, due largely to extreme price war competition.
Omni-Channel Price Wars
In the modern age where consumers can instantly compare prices online via mobile devices, this almost perfect price transparency gives customers leverage for bargaining with retailers. However, cross-platform price equality is a big challenge for omni-channel retailers and it was very interesting to see the price battle move from the e-commerce sites offline stores during the week.
360Buy only retails online and so can operate at lower costs that Suning and Gome who also have physical stores and have suffered from wage rises and increased rents over recent years. Yet, this didn’t stop Suning and Gome from matching their online prices in physical stores by offering coupons and discounts to customers who could prove 360Buy’s prices were cheaper.
Implications for fashion and Luxury E-Tailers
While the drama hasn’t yet crossed over to luxury and fashion sector, it is indicative of the hyper-competitive e-commerce market in China that is resulting in a race-to-the-bottom pricing strategy.
There is also plenty of evidence that China’s luxury e-commerce companies are facing tough times. Following previous closures from luxury sites Wuhao.com and NetEase’s Premium site, Technode reports that Jiapin.com and Sina’s luxury portals are rumoured to be closing down soon. This is also amongst staff layoffs at two other high-end e-tailing sites – Shangpin and Xiu.com.
Whether in the appliance or luxury space, right now China’s e-tailers are employing winner-take-all battle tactics. Those companies able to withstand price pressures and eliminate competitors all hope to be the last one standing to one day claim the entire market.
However, China’s consumers are maturing to a point where they are interested in more than simply the bottom line. Customer service and delivery times etc. also have a role to play in luring and retaining customers over the long-term, yet we are yet to encounter a ‘customer service war’ amongst e-tailers in China. That one will have to wait for the next round.