Today, we are going to examine another e-Commerce giant in China, JD.com.
Best way to describe JD.com, to non-China market readers, is they are the online large priced items (eg TVs, fridges, etc) trying to break into the grocery market. JD.com has historically achieved rapid growth in sales through large ticket item household durable items.
JD.com realizes they have a loyal following of users and have a robust business model but need to increase the frequency of their shoppers buying on their site as well as leverage their scale if they are to be remain a strong long term competitor to Alibaba. JD.com needs to leverage their excellent infrastructure to increase their sales volume by adding a broader range of categories. The obvious choice for them is to muscle into the supermarket business as the ‘railway tracks’ are laid for them to service a large portion of the population who have disposable income to spend. All JD.com needs is more goods to put on ‘the railway train’.
Like Alibaba, JD.com has very aggressive expansion plans to move beyond the Tier 1 and 2 cities and penetrate, not only into lower Tier cities but also, towns and rural China. This is in line with the Chinese government strategy of improving the lives of Chinese town and rural consumers and unlocking potential consumer spending to accelerate consumption and GDP.
As with almost every country in the world, having business strategies aligned to Government planning and policies helps facilitate accelerated growth and support. JD.com is clear that they want to be part of the expansion into lower tier Chinese cities, Towns and rural regions and are in a head on race with Alibaba.
JD.com is also developing their own marketing and data mining capability. JD.com is more nascent and the database is not as large as Alibaba but as they aggressively pursue more shoppers and upgrade their collaboration with manufacturers there will be a step change to closing the gap with Alibaba in terms of online ecommerce management services scale. The growth of JD.com demonstrates that in future shoppers will likely have multiple e-tailers to purchase their online shopping.
The danger for the industry is if e-tailers try to address this competition mainly on price there are potential risks to the online shopping experience. To protect their own profit margins e-tailers may squeeze the manufacturers’ margins which may result in product quality degradation or service levels degradation. The balance of expansion versus price needs to be carefully managed or the migration to e-Commerce may not move as quickly as e-tailers anticipate or advocate. While JD.com is also trying to build a ‘TMall’ platform they are more focused on their supermarket platform. JD.com realizes the opportunity they have to enhance the shopper experience on-line and is aggressively pursuing strategies that keep shopper engagement high and satisfied within their internal organisation capability.
JD.com has the capability to be open to working with manufacturers to target consumers and provide the products and after sales service that could help them avoid direct price wars and go for the best overall value proposition. However, currently JD.com is very price and discount focused which is a watch-out for FMCG companies as this will definitely impact the profitability (and therefore the attractiveness) of the e-Commerce business but it may also create price instability in the B&M world. Manufacturers working with JD.com will have to ensure their Price, packaging and promotion strategy and architecture is clearly defined before rushing into a partnership.
One other consideration for any company considering doing business with JD.com is that Tencent (WeChat) has a large minority stake in JD.com. The combination of these two companies working together could be a very symbiotic relationship and one that opens many opportunities to manufacturers of iconic brands. As a company considers their strategy for engaging with JD.com, they should also look for opportunities to work with Tencent in social media and media services to maximize synergies and minimize the reference on price discounting.
Detailed in Table below is a comparison of the current platforms by e-tailer at the time of publishing. The critical point for a manufacturer to consider is which platform is right for them considering:
1. Their product portfolio (domestic, import and combination);
2. Amount of trade spending available;
3. Amount of Advertising or consumer spending available;
4. Logistics and payment capability of a company within China.
By referring to this guide and circling the respective area of capability required by the e-tailer to support your business.
Chinese B&M retailers operating online
In China the B&M retailers do not have the online presence or position that a WM.com, a Tesco.com, a Coles.com and other B&M retailer sites have in their home countries but they do have a presence. Generally speaking the retailers with an online presence are normally run by local retailers. To date, in China and a number of Asian countries B&M online presence are very much disadvantaged versus their ecommerce service provider competition. Despite the best efforts of B&M retailers in Asia the e-tailer model that Alibaba and JD.com have created are emerging as the dominant player in the e-Commerce world.
