Inventory: Three underlying logics of e-commerce growth in 2019

This article reviews the growth of e-commerce in 2019. By reviewing the development trends of e-commerce throughout the year, it summarizes the three underlying logics of e-commerce growth in 2019.

2019 was a year of consumerism carnival. The sinking market was in full swing, video sales were well received and popular, and the national trend (new domestic products movement) conquered the minds of the Chinese people and spread like wildfire.

Everyone involved has felt a different experience from before; the way e-commerce is played has changed. The three underlying logics behind the growth of China's e-commerce deserve in-depth interpretation.

1. The underlying logic of the sinking market

The sinking market is not new. With such a large incremental market, some giants have already entered the market in advance.

After the release of the Central Government’s Document No. 1 in 2014, the e-commerce movement in rural areas was officially launched. Alibaba aims to connect “online goods going to the countryside” and “agricultural products going to the city”, commonly known as Rural Taobao. In 2015, JD.com officially launched its efforts in the field of rural e-commerce and proposed the 3F strategy for rural e-commerce.

However, Alibaba and JD.com both failed in their first battle to enter the lower-tier markets and were unable to overcome this tough challenge. Why? There are three main reasons:

First, there is a lack of user insights. There is a lack of deep insight into the consumption habits and behaviors of residents in the sinking market, no targeted product selection, and no small town brand tailored for them.

Second, there is no operational advantage. Due to high logistics costs and lack of industry experience, the people have not seen real benefits in areas such as agricultural products and fruits.

Third, the cost of education is too high. It is difficult to convert residents in lower-tier markets who have not yet formed the habit of using smartphones into daily active users of Taobao and JD.com in one step.

If you want to do your work well, you must first sharpen your tools. The lack of tools that can truly reach the minds of users in the lower-tier markets is the fundamental reason why the giants have failed to make the first move.

Since 2015, the WeChat ecosystem has exploded. This is the first national-level application APP that has fully penetrated residents in the lower-tier markets, covering 1 billion users and 90% of smartphones.

Image source: TalkingData

Smart people smell the opportunity, avoid the pitfalls of their predecessors, and find another way.

In September 2015, Pinduoduo was founded, marking the beginning of the second e-commerce war in the lower-tier markets.

The underlying logic of the sinking market is:

WeChat has 1 billion users. Assuming that 560 million of them overlap with Taobao, where did the rest of them go?

10-5.6=440 million. Who are these 440 million users?

People all have shopping needs. They have gone online, but they don’t use Taobao to shop. So where do they shop? Or are there simply no online products suitable for them? Is there no online platform that suits their Internet habits?

Pinduoduo has insight into this and has made full use of its acquaintance relationship chain. On the fertile soil of the WeChat ecosystem, it started with regional fruit distribution and fresh agricultural product upstream, and has successively grown into China's largest urban and rural fruit online trading platform and China's largest agricultural product upstream platform.

In 2018, the total order volume of agricultural products and agricultural by-products on Pinduoduo reached 65.3 billion yuan, and the sales volume of fresh agricultural products exceeded the total sales volume of China's offline chain supermarkets.

In September 2016, Douyin was launched. In the early days, 30% of Douyin users did not have Taobao installed. Kuaishou, which was founded in 2012, has an even higher proportion, with 50% of its users not having Taobao installed. This laid the groundwork for Douyin and Kuaishou to sell goods.

2. The underlying logic of video sales

In 2016, live video streaming was extremely popular, and video websites such as Huajiao, Inke, and Yizhibo emerged on the Internet.

However, the first batch of live streaming websites did not become the main force in video sales and did not enjoy the benefits of e-commerce.

The main reasons are:

First, taking the celebrity route, with high opening and high promotion, has high operating costs.

Second, the content is mainly entertainment-oriented, the profit model is mainly based on rewards, and the ability to resist risks is weak.

Third, the time spent by users of online live streaming has entered a downward channel, while the time spent by users of short video has entered an upward channel, with one rising and the other falling.

Since 2017, the growth rate of short video user time in the sinking market has ranked first, which has fundamentally changed the traffic pattern of mobile Internet.

According to the statistical analysis of "average daily usage time of Chinese netizens" by Jiguang Big Data:

• Social communication accounted for 69.4 minutes (5.9% growth);
• Short videos: 50.9 minutes (growth rate 19.6%)
• News and information 33.6 minutes (growth rate 4.9%)

Social communications, short videos and news information ranked the top three, while e-commerce only accounted for 13.7 minutes (growth rate of 5.2%).

The underlying logic of short video sales is:

The public often goes directly to the corresponding e-commerce websites (in shopping scenarios) to buy high-priced, low-frequency, and high-desire consumer goods; for low-priced, high-frequency, and low-desire consumer goods, purchasing decisions are often triggered when consuming content (in non-shopping scenarios) .

In 2018, Kuaishou held an e-commerce festival, and a host named Sanda Ge sold 160 million in one day.

Beixiazhu Village in Yiwu, which is only 2.2 kilometers away from Yiwu International Trade City, the world's largest small commodity wholesale market, has also become a nationally renowned Kuaishou live broadcast village. For some merchants, live broadcast sales account for as much as 20% of their total sales.

Kuaishou’s live streaming sales have a strong downward trend, Douyin’s user demand for live streaming sales has increased, and Taobao Live’s user demand is relatively the highest.

The second generation of live broadcasters who sell goods through videos, represented by Kuaishou, Douyin, and Taobao Live, all have business experience or shopping guide experience.

Compared with celebrity endorsements, grassroots buyers have practical experience in sales and shopping guides and are more likely to guide user decisions.

This is qualitatively different from the first generation of celebrity video sales.

3. The underlying logic behind the rise of national trends

In April 2016, NetEase Yanxuan was launched as a boutique e-commerce platform focusing on “high quality and low prices”.

Subsequently, Taobao Xinxuan, JD.com, Xiaomi Youpin, etc. all adopted the OEM/ODM model and laid the foundation for the "first round of national tide" by restructuring China's supply chain.

A new generation of content-based e-commerce platforms such as Dianping, Xiaohongshu, and What’s Worth Buying have become the driving force behind the new round of national trends.

Content mainly plays two roles: first, it increases user touchpoints in non-shopping scenarios; second, it increases consumer desire in shopping scenarios.

The rise of the second round of national trends represents both the embarrassment of vertical e-commerce platforms and the counterattack of vertical e-commerce brands.

E-commerce brands such as Taobao's Three Squirrels, Douyin's Zhengshan Beef Brother/Beef Brother Yanxuan, Kuaishou's Huanong Brothers, Jiang Xiaobai, which excels in social communication, and Perfect Diary, known as the pride of domestic products, are the beneficiaries of the second round of national trends.

The underlying logic behind the rise of national trends is:

In addition to selling product value and brand value: What other value is there that consumers are willing to pay for? What other value can be tapped through operations?

Can a 100-square-meter store reach and maintain 100,000 users? The logic of "people, goods, and place" has changed.

Traditional national consumption decisions often revolve around three dimensions: regional characteristics, technological processes, and raw material characteristics.

Domestic products are generally good at traffic operation and user operation, locking in the specific needs of target customers and breaking the three dimensions of traditional user decision-making.

Traditional products are all produced in advance, where the supply chain is organized first and then channels are found for sales. However, domestic products are generally centered on user needs, reversely integrate and reorganize the supply chain, and have obvious advantages in refined and digital operations.

In addition to product functions, domestic trend products generally provide new reasons for content consumption and service consumption, lead the consumption trends of young people, and achieve consumption upgrades and consumption stratification at different levels.

IV. 5 types and 5 major trends of e-commerce in 2019

China's e-commerce has been divided into five categories:

1. Product-based e-commerce (Alibaba, JD.com, Suning, etc.);
2. Service-oriented e-commerce (Meituan, Didi, Alibaba Ele.me, etc.);
3. Buyer-type e-commerce (NetEase Yanxuan, Xiaomi Mall, etc.);
4. Social e-commerce (Pinduoduo, Yunji, WeChat merchants, etc.);
5. Content-based e-commerce (Dianping.com, Xiaohongshu, What’s Worth Buying, etc.).

The head effect of product-based e-commerce and service-based e-commerce is very obvious, and traffic is monopolized.

There are currently only three strong players in buyer-based e-commerce, social e-commerce, and content-based e-commerce (Pinduoduo, NetEase Yanxuan, and Xiaomi Mall). Content-based e-commerce has the greatest opportunities, while social e-commerce has the smallest opportunities.

We also noticed that e-commerce is showing five major development trends:

First, in terms of business strategy , from operating products to operating users, two-way business has been achieved (such as private domain traffic);

Second, in terms of user touchpoints , the market share has shifted from static and lagging to dynamic and leading scenario share (such as global touchpoint marketing);

Third, in terms of sales conversion , we should expand from the sales scene conversion rate to the sales conversion rate of life scenes (such as short video sales);

Fourth, in terms of consumption decisions , people have shifted from high-desire consumption to low-desire consumption guided by content consumption and service consumption (for example, Jiang Xiaobai, an innovative category of party wine for young people in small towns, has jumped out of the three decision-making dimensions of traditional liquor);

Fifth, in terms of business formats , shift from vertical e-commerce platforms to vertical e-commerce brands (such as Three Squirrels, which is essentially a virtual e-commerce sub-platform that appears in the form of an e-commerce brand).

Generally speaking, 2019 was a year of refined and digitalized operations for China's e-commerce. The mobile user traffic dividend is coming to an end, short videos are diverting user attention, Taobao Live is consolidating user relationship chains, and local life services are eroding purchasing agents. These are all huge variables that will affect the future.

For e-commerce giants, the struggle around consumer stratification, scene share, attention competition, and increasing willingness to pay will be a long and arduous one.

The good news is that those small and beautiful domestic brands have emerged like a spring breeze overnight.

Author: Cao Sheng

Source: Grayscale Cognition Society (ID: HDrenzhishe)