What Happened: Chinese e-commerce giant JD.com is launching a $1.5 billion (10 billion RMB) subsidy campaign in March to lower the prices of certain products and compete against budget shopping app Pinduoduo, reported news outlet 36Kr.
According to sources, JD.com will set up a comparison tool for users that displays the prices of similar products from Pinduoduo, Taobao, Kuaishou, and Douyin. If the price on JD.com is higher than that on other platforms, users will reportedly be given a rebate of double the price of the item, though this will not cover all goods.
Upon the news, JD.com stock slumped as much as 11 percent in US trading on February 21, with investors concerned about the impending price war and intensifying competition in the tech sector.
The Jing Take: The move comes after JD.com founder Richard Liu stressed that low prices are the core competitiveness of e-commerce. “Low prices were the most important weapons responsible for our past success, and they will be essential in the future,” he wrote in an internal email.
True to its slogan “Together, More Savings, More Fun,” shopping rival Pinduoduo is known for catering to consumers who are more price-sensitive. Not only does it primarily serve shoppers in lower-tier cities, it also runs its own 10 billion RMB subsidy program, which launched back in 2019, to provide discounts on brand-name products. And clearly, this model is working: In November 2022, Pinduoduo reported that total revenues in Q3 increased 65 percent year-on-year to $4.9 billion while operating profit surged 388 percent.
In comparison, JD.com has a stronger foothold in first-tier cities and is the go-to site for consumer electronics and lifestyle products. Additionally, the e-commerce titan offers a wide array of luxury goods, becoming the first platform to sign full partnerships with nine top fashion brands under LVMH, including Louis Vuitton, Dior, and Fendi. With JD Luxury, JD.com’s luxury-dedicated platform, collaborating with over 300 luxury and premium players and creating a “refined, personalized shopping experience” as it describes, this has put the platform in direct competition with Tmall.
By challenging Pinduoduo via a subsidy campaign, JD.com could become more competitive, attract more users (as of 2022, JD.com has 588.3 million annual active user accounts, while Pinduoduo has 881.9 million annual active users), and boost sales of its affordable items. This could be a timely change too, as the world inches towards a recession and the average Chinese consumer demonstrates more rational shopping behavior, prioritizing cost and practicality.
However, JD.com has also worked hard to distinguish itself in quality, authenticity and superior logistics, making it an ideal partner for high-end names. Although JD.com’s subsidies are unlikely to affect luxury items, it could cheapen the site’s overall image, hurt profit margins, and discourage partnerships should the prices offered online become much lower than those offline. Is this a war worth waging?
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.