E-commerce operations: product stratification and operation strategies!

With the development of the online retail environment, if e-commerce platforms want to achieve growth in the future, they will need to carry out refined operations in terms of people, goods and places, so as to accurately match supply and demand flows and drive business growth. In the previous article, the author shared the matching of people, goods and places in e-commerce search. In this article, the author continues to discuss the stratification and grading of goods on e-commerce platforms and its practice. Let’s take a look.

In this article, I focus on the analysis from the perspective of goods. The article is divided into three aspects: why we need to stratify and grade goods, the dimensions of stratification and grading, and the industry's business practices in stratification and grading of goods.

1. Why do we need to classify products?

Judging from the total volume and growth rate of online retail, the total growth rate has now slowed down.

According to the National Bureau of Statistics’ disclosure at a meeting on the operation of the national economy on January 18, 2021: The total retail sales of consumer goods in 2020 was 39,198.1 billion yuan, a year-on-year decrease of 3.9%. The national online retail sales for the whole year was 11,760.1 billion yuan, an increase of 10.9% over the previous year, accounting for 30% of the total retail sales of consumer goods. From the development of e-commerce in the 1990s to today, the proportion of online retail has increased from 0% to 30%, achieving a turnaround against the wind. However, the era of high growth online has passed the ceiling. Let's look at the growth rate of online retail from 2014 to 2020:

• In 2014, online retail sales nationwide grew by 49.7%;
• In 2015, it increased by 33.3%;
• In 2016, it increased by 26.2%;
• In 2017, it grew by 32.2% (indicating that non-physical sales achieved a breakthrough, growing by 48%, driving overall growth);
• In 2018, it increased by 23.9%;
• 16.5% growth in 2019;
• Growth of 10.9% in 2020.

From this we can see that although the online share continues to increase, the overall slowdown has occurred.

Growth from the user perspective: According to the financial reports of Alibaba and Pinduoduo, as of 2020: Alibaba's e-commerce users have reached 779 million, and Pinduoduo's number of active buyers has reached 788.4 million.

The China Internet Network Information Center (CNNIC) released the 47th "Statistical Report on the Development of China's Internet" in Beijing, showing that as of December 2020, the scale of Internet users in my country reached 989 million, and Pinduoduo's e-commerce users accounted for 80% of Internet users. Excluding young children and elderly people who cannot have payment accounts, the e-commerce user penetration rate of nearly 80% has reached its ceiling.

From the perspective of product categories: Whether it is standard home appliances, 3C products, books and medicines, semi-standard cosmetics, maternal and infant formula, or non-standard clothing and department stores, and virtual air tickets, hotels and restaurants, online penetration is already very deep, with some accounting for more than 50%. Currently, online giants are rushing to seize the fresh food category, which is the most difficult to internetize. Community group buying and vegetable selling businesses are in full swing. From the perspective of category penetration, they have also reached the ceiling.

Where will the future growth come from? The cost of acquiring customers is high. Even PDD, which has the strongest and cheapest customer acquisition capabilities, has a customer acquisition cost of nearly 200 yuan in 2020, while Alibaba and JD.com are even higher, reaching 405 and 298 respectively.

Future growth requires refined operations of people, goods and places. The layered and graded operations of goods are the embodiment of refined operations in commodities. By matching different levels of goods with different groups of people and different scenarios, a more accurate match of supply and demand (traffic) can be achieved. The e-commerce industry has been stratified and graded from the dimensions of life cycle, gross profit structure and commodity source, and has achieved good operating performance in business practice.

2. Lifecycle Dimensions Hierarchy and Grading

Product life cycle

The entire process from the time a product enters the market to the time it is eliminated by the market can be divided into four stages: the new product introduction stage, the development and growth stage, the stable maturity stage, and the decline and elimination stage. Products in the early stages of growth and development are considered new products in e-commerce operations. We divide the product life cycle into different stages and develop corresponding business strategies for marketers. We look at the work priorities of each product life cycle from the perspective of e-commerce platforms (channel operators) and brand owners.

New product introduction stage

The product has just entered the market, consumers don’t know much about it, have many doubts, sales volume is low, and the sales growth rate is slow. How to dispel consumer concerns and enhance product credibility is a key task for brands and e-commerce platforms.

Development and growth stage

The products have been known to a large number of potential consumers and sales have increased. At this stage, the key tasks of brands and e-commerce platforms are to use the unique selling points of new products in the market to obtain excess profits, expand potential customers for new products and generate conversions, and increase market share.

Stable and mature stage

The product has been accepted by the majority of consumers, sales are stable, and have even reached a peak, entering the popular product stage. Similar competing products have also begun to be listed. The value of the product's unique selling point has weakened, and the profit margin has been maintained at a relatively stable level as much as possible. Sales have a downward trend. At this stage, expanding sales volume is the key task of brands and e-commerce platforms.

Decline phase

As a product enters the end of its life cycle, sales decline and profits decrease until the product is eliminated and exits the market. At this stage, the focus of brand owners and e-commerce platforms is to promote clearance sales, clear inventory, and recover funds.

E-commerce platforms adopt different strategies for products at different stages, which will be introduced in detail below.

1. New product stratification and classification and e-commerce platform’s strategy for new product marketing

In the new product stage, the main task is to build user awareness and dispel consumers' doubts about the functions and value of new products. E-commerce platforms provide a certain amount of new product traffic and build new product awareness at the system interaction level. The main measures are:

1) New product label

The picture below uses the "new product" label to clearly identify the new product, and introduces the special features of the new product through live broadcast, promoting the conversion of new product transactions through old-for-new exchanges.

2) New product screening

Set up a new product filter on the search results page, as shown above, to prompt users that they can use it to find all new products in the category, making it easier for consumers who need new products to find new products.

3) New product list

The list is a new form of promoting products in the last 2-3 years. It solves the problem of trust in consumer decision-making. E-commerce platforms plan various lists, including popularity list (sales priority), trend list (fast popularity growth), grass-planting list (medium and high-priced products or high-gross-profit products) and new product list.

The new product list solves the problems of new product value dissemination, credibility endorsement and consumer decision support, and is an innovation in new product marketing in recent years.

4) New product launch

2. Traffic Position

1) New product ICON entrance

2) New product promotion page

３）New product channel page

Tmall has Tmall Little Black Box, and JD has JD Little Magic Cube.

In addition, new products are advertised extensively on and off the site to increase consumer exposure. Advertising formats include search CPC advertising, screen dominance advertising, and linked board advertising.

Because there are too many new products on the platform and the platform traffic costs are high today, it is impossible for the platform to allocate enough free traffic to many new products and test the popularity of new products among users through large traffic. So how does the e-commerce platform identify whether a product is popular with users in a short time?

For ordinary new products, the first stage of operation is to promote them through marketing tools such as advertising, flash sales, and social channels. The biggest feature of this stage is to give concessions and highlight value selling points.

After a period of promotion, a certain amount of exposure has been accumulated, and the platform calculates the exposure click-through rate. The click-through rate standards for each category in each channel (off-site advertising, flash sales, and social channels) are different. Through these marketing tools, new products that users are more receptive to can be preliminarily screened out. New products that have passed screening enter the window pool, and the products in the window pool can be empowered.

During this stage, the new product will be given priority exposure in the private domain recommendation scenarios (such as "Guess You Like") or store recommendations on the product details page; in the search scenario, cold start support will be provided, and cold start monitoring will include the advertising effect, the store's private domain fan traffic, and the overall sales of the entire site.

After the empowerment stage, we can test the degree of acceptance of the new product by the more accurate traffic within the site, and then provide tiered support based on the traffic efficiency of the new product (the number of clicks and orders brought by the new product). In other words, the higher the traffic utilization efficiency of the new product, the greater the support, and the lower the traffic utilization efficiency, the smaller the support, until the support is cancelled and the product is removed from the showcase and search support pool.

The above new products are applicable to the new product competition and promotion mechanism of all categories. For popular products of some well-known brands, the platform generally operates them as super new products. As for which items can be positioned as super new products, this is determined by in-depth docking between the platform's procurement and sales and brand owners, and is mainly predicted by brand influence and consumer popularity.

Generally speaking, the quantity of such goods is strictly limited, and the goods are scarce. Consumers have been looking forward to them for a long time. Before the goods are released, the brand will carry out extensive and in-depth publicity. For example, Apple’s new product series, mobile phones, pads, smart watches, etc., or Huawei’s new mobile phones, Xiaomi’s new mobile phones, etc.

Super New Products adopts a scenario-based empowerment strategy in traffic distribution. The empowerment scenarios are:

• Search result positions include privileged and fixed positions;
• Recommended scenarios include privilege escalation and fixed position;
• The locations of promotional points and the degree of empowerment are determined by the influence and scarcity of new products and the investment of the brand.

Priority is given to user awareness and scarcity of goods. If the awareness is high and the goods are few, the platform will also raise the empowerment level to the top of the search from the perspective of customer acquisition, so that users can see these products at the first time. If there are many products, they can be promoted to recommended scenarios to increase their authority or fix their positions.

The power increase is relatively easy to understand. It means that on the basis of the original recommendation ranking results, a certain weight is given to new products, so that they can compete for a higher position. The fixed pits are mainly the "Guess what you like" scenes on the homepage and the "Guess what you like" scenes on the product details page. The traffic of these two scenes is relatively large.

3. Classification based on gross profit structure

It is particularly important to classify products into high-profit and ordinary-profit products based on the gross profit structure on e-commerce platforms that are mainly self-operated. Increasing the proportion of high-gross-profit sales is an important means for the platform to improve its gross profit structure. The flow of high-gross-profit products should be adjusted according to the company's business needs, and combined with comprehensive operational means to increase sales of high-gross-profit products and improve the overall gross profit structure of the platform.

In the 618 home appliance trading strategy this year (2021), pushing up prices and selling at high prices is the basic strategy adopted by major e-commerce platforms.

The reason why e-commerce platforms have adopted the strategy of pushing up prices and selling at high prices this year is that the price increases of bulk commodities have been deeply rooted in people's minds, and the price increases of raw materials for home appliances have also led to price increases for terminal home appliances. This year, e-commerce platforms no longer pursue volume, but instead begin to consider operating quality under a multi-product structure, increasing the proportion of new and high-quality products, and thereby improving the platform's gross profit structure.

4. Hierarchical classification based on comprehensive scores of products

The basic rules for platform traffic distribution are based on the comprehensive scores of products, especially the recall sorting rules we introduced earlier. The general principle is that the more popular it is with users. Product scores come from:

1. Brand score;
2. Popularity score;
3. Product master data score;
4. Service score;
5. The score of the store where the product is located.

Goods are divided into best-selling products, ordinary products and slow-moving products based on their scores. Scale is achieved by allocating traffic to best-selling products, competition is promoted by improving ordinary products, and traffic distribution efficiency is improved by eliminating slow-moving products. Corresponding to the product life cycle, best-selling products are the direction in which products strive to evolve as they enter the late growth and mature stages.

5. Product stratification and classification based on product source

An e-commerce platform has multiple sources of goods, the main sources are:

• O2O products: offline products sold online, such as Taobao local shopping;
• Main site products: For example, products recruited by JD.com’s main site are mainly sold in urban markets;
• Group-buying products: For example, the products that Jingdong Jingxi recruited are mainly sold in the lower-tier markets;
• Overseas products: cross-border products that meet the needs of people who pursue quality from overseas brands.

O2O Products

The main purpose is to divert online traffic to offline traffic, locate the service scope of O2O through the user's delivery address, and within the service scope, provide traffic exposure through the platform.

Currently, O2O products are mainly exposed through fixed ICON positions on the homepage, fixed positions on the search results page, and by establishing cloud stores on the platform.

Group purchase products

It mainly obtains traffic through WeChat mini-programs and group-buying APPs. All PDD products are group-buying products, JD’s group-buying APP is Jingxi APP, and Alibaba’s group-buying APP is Taote APP, which is the former Taobao special price version APP.

Summarize

This article explains why refined operations based on stratification and grading of merchandise are necessary, as well as the centralized approach to stratification and grading.

Sharing the original intention

The current society has entered the second half of the demographic dividend. Every company is improving its digital capabilities and working to tap into the value realization and value enhancement of existing users (Kuaishou, Douyin, Baidu, and Sina are all engaged in e-commerce, and offline companies are busy transforming). Matching supply and demand transactions between goods/services and consumers is the main way to commercialize and realize profits, and search recommendations are the main mechanism for achieving supply and demand matching.

At present, only a few leading Internet companies in China have a mature and complete talent team. Other companies either have scattered professional talents and insufficient knowledge structure, or have no such talents at all. The contradiction between the huge talent demand in society and the serious shortage of high-quality talent in society has restricted the improvement of many companies' business in this area, and also restricted the improvement of young people's professional income and career space.

Given the professional nature of search recommendations, there is relatively little publicly available systematic information, and the difficulty of the information varies, making it difficult to meet the urgent needs of businesses and professionals.

I have focused on e-commerce for the past 10 years. I have been deeply involved in and led the construction of the search recommendation traffic distribution and product management systems of two major e-commerce platforms. I am familiar with the strategies, products, operations, data and R&D aspects of e-commerce platforms. I have summarized and refined them into building a practical e-commerce search system, building a practical e-commerce recommendation system, building a practical e-commerce product management system, and a series of articles on observations on new e-commerce retail. The above content has now been compiled into a book.

Given that the original chapters are being published very slowly, if you have any opinions on e-commerce products, technologies, operations, data and the e-commerce industry, including new retail, or want to know more about them, please leave a message in the comment section. I will give priority to sharing my thoughts in the form of articles and interact with you all.

Author: Product Expert Mao Xinnian

Source: Product expert Mao Xinnian