THE E-COMMERCE CHALLENGE: CHINA’S NEW 2023 LANDSCAPE
China is the largest e-commerce market in the world. The data are clear and suggest it will reach 3.3 trillion dollars by 2025. In 2022 group-buying platform Pinduoduo launched its overseas platform Temu to explore markets beyond China, and it quickly topped the app store charts with extraordinary results. Meanwhile ByteDance also opened its e-commerce section with the launch of Douyin Mall.
How will the various e-commerce platforms play the game in such a crowded arena this year?
Taobao and Pinduoduo
Alibaba-owned Taobao and Tmall still reign supreme in Chinese e-commerce, with a total gross merchandise value (GMV) of $1.38 trillion in 2021. For reference, the GMV of Taobao and Tmall’s main competitor, JD.com, was $244 billion. JD’s strengths are fast delivery and high-quality products, as its target audience is slightly wealthier. Taobao is very popular, while Tmall is the main destination for luxury goods, with more than 200 high-end brands on its platform. Pinduoduo is the social e-commerce platform that uses referrals and group buying to boost sales. It has become particularly popular among price-sensitive consumers in third- and fourth-tier cities. It has a reputation for products of lower quality than those sold on other e-commerce sites, but that has not stopped it from growing exponentially. In 2021 the platform’s GMV rose 46% to 383 billion dollars, putting it ahead of long-time runner-up JD.com. Douyin, a relatively new player in e-commerce, has not yet reported its GMV. Analysts estimate it at around 118 billion dollars.
Pinduoduo & Alibaba go global
China’s e-commerce market is huge but is starting to become saturated, and customer acquisition costs are rising as a result. According to analysts, Alibaba’s customer acquisition cost in 2021 was $70 (477 RMB), Pinduoduo’s was $85 (578 RMB) and JD.com’s was $56 (384 RMB). This is why the platforms have decided to look abroad too. Alibaba has always had a global attitude and can boast of having conquered much of Southeast Asia. On the global B2C side there is AliExpress, founded in 2010, which reaches around 390 million visitors a month. With Pinduoduo’s launch of Temu, AliExpress found a strong competitor that soon began to hamper its growth. Temu and AliExpress are structured like Amazon: they are active in a wide range of product categories, and their core competence is connecting Chinese sellers with overseas audiences. Temu’s strategies are very similar to those Pinduoduo uses in China, including big discounts or “credits” for users who share referrals with friends and family. Even so, both AliExpress and Temu products are seen as low quality overseas, a challenge the companies continue to work hard on.
Content-commerce platforms: Douyin and Little Red Book
Platforms such as Douyin and Little Red Book are considered “content e-commerce” or “social commerce” because they put content at the centre and treat the e-commerce function as a side element. The main goal of these platforms remains to engage and entertain users; more recently a second goal has been added, giving them the opportunity to buy the products they see. Purchases on these platforms are driven mainly by impulse, whereas this kind of purchase does not happen on Alibaba, because people who visit the site really intend to buy a particular product, which is what gives the e-commerce platform higher sales conversion than content e-commerce. It is also true that, in the long run, the ads and promotions that had started appearing in Douyin and Little Red Book feeds would have caused a mass exodus of users: they use the apps mainly to watch and share content, and if this were drowned out by too many ads the apps would certainly not have kept their success. With Douyin Mall, however, users can search directly for products to buy without being interrupted while watching content. This move put the platform in direct competition with Taobao.
Taobao and Tmall are likely to keep dominating traditional e-commerce for a while, but they must start reckoning with Douyin and Pinduoduo, which are gaining ever more ground in the e-commerce landscape. For the two giants the challenge will be to carefully blend traditional commerce models and content without harming the user experience.
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