Almost at the same time as Pinduoduo's market value first surpassed Alibaba's, Liangpin Shop, which had aspired to be a high-end snack brand, launched its first large-scale price cut in 17 years. Amidst the smoke of battle, a new era of consumption seems to have arrived.
"We're really fired up, no one can stop me." During this year's 'Double 11', in JD.com's procurement live-streaming room, many JD procurement employees wore custom-made red vests, shouting desperately to sell. One sold the same learning machine at a price 1,500 yuan cheaper than Li Jiaqi's live-streaming room; another, shouting with excitement, directly gave away 100 TVs. The goal of the 'red vests' was simple: win the battle with low prices.
This is the first time in 11 years that JD's red vests have reappeared. In 2012, wearing the same red vests, they defeated Suning through rounds of low prices and price comparisons, winning the '815 Home Appliance Price War' and making JD famous overnight, quickly becoming the industry leader. But after winning one victory after another with low prices, JD seemed to gradually immerse itself in the favorable situation of 'consumption upgrading', starting to redefine itself step by step towards 'high-end' and 'quality', and the founding slogan 'more, faster, better, and cheaper' was shouted less often.
It wasn't until the executive training meeting in November last year that the wind changed dramatically. At the meeting, Liu Qiangdong mercilessly criticized some retail executives for only fooling themselves with PPTs, saying, "Many people now live well and ignore the demands of grassroots consumers." Three hours later, the only sentence engraved in JD people's hearts was: Low prices were the most important weapon for JD's past success, and will be the only fundamental weapon in the future. Then, a series of personnel adjustments followed.
Determined to return to low prices, JD directly launched a billion-dollar subsidy in March this year, triggering a new round of price wars, and even internally proposed that prices should benchmark against Pinduoduo. In the live-streaming room, the slogan 'Lower than Li Jiaqi' was often posted in the most prominent place, full of gunpowder. During 'Double 11', JD even set the theme as 'Really Cheap', calling on merchants to advocate 'true low prices'.
JD is not the only one returning to low prices. Also during last year's 'Double 11', Alibaba, which had previously launched Taobao Deal to counter Pinduoduo, began to put more effort into price competitiveness. In March this year, at a communication meeting for business leaders of Taotian Group, Jack Ma returned again. According to media reports, he bluntly emphasized that Alibaba should return to Taobao, "Next is the opportunity for Taobao, not Tmall." In the face of the billion-dollar subsidy, 'Alibaba does not follow', but it took 'price competitiveness' to a higher level, such as using 'source goods' like 1-yuan tissue and plastic bags to counter Pinduoduo's products outside the billion-dollar subsidy. This year's 'Double 11', one of Taobao's KPIs was: 'lowest price on the entire network'.
As for Pinduoduo, the contrarian in the era of 'consumption upgrading' in previous years, it silently reaped the 'low price' dividends left in consumers' minds over the years, continuing to surge in performance.
On the other side of JD, Alibaba, and other platform merchants actively embracing 'consumption upgrading' and re-adopting price reduction strategies, many brands that more actively embraced 'consumption upgrading' and focused on high-end routes also lowered their 'noble' heads.
Yang Yinfen, the new chairman of Liangpin Shop, known as 'Yang Yidao' (One Knife Yang), burned his first fire on his own 'high-end snack' hat. On November 29, Yang Yinfen issued an internal open letter to all employees, announcing that Liangpin Shop would launch the largest price reduction in 17 years, with an average reduction of 22% and a maximum reduction of 45%. For the pork jerky with the highest order rate, they even released the slogan 'Lower than Sam's Club'. Four years ago, Liangpin Shop confidently launched its high-end strategy, and it was thus halted.
Its old rival Three Squirrels, as early as April this year, created a new term: 'high-end cost-performance', and with this as a strategy, improved quality and reduced prices. Whether quality has improved is unknown, but prices have indeed dropped, and quite significantly. For example, a 500g bulk pack of macadamia nuts was about 30 yuan last year, but now sells for only 22.9 yuan.
Similarly, clothing brands that focus on youth, high-end, and fashion have also had to bow their heads. During the years of 'consumption upgrading', many brands wanted to 'upgrade' themselves, and the clothing industry is a typical example. For instance, Bosideng, which has been raising prices in recent years, its down jackets are so expensive that they still attract attention and even doubt today. But now, they have all successively lost ground. According to media reports, a Bosideng down jacket priced at 7,800 yuan had sales data showing only 6 pieces sold on its Tmall official flagship store as of December 8. On December 8, during Vipshop's 15th anniversary celebration, many clothing brands that had been attacking the high-end market also had astonishing price cuts. Bosideng even spread the news of down jackets starting at 2% off, and consumers who had previously purchased products even posted angry comments.
In the impression of white-collar consumer Xiao Yi, the price war became intense from a 1kg box of durian mille crepe cake. It was one of the most iconic and enduring super products at Sam's Club, priced at 128 yuan. In August this year, Hema targeted it, lowering the price of its comparable product to 99 yuan. Subsequently, the two sides launched a price war centered on durian mille crepe cake, and Hema eventually brought the price down to 79 yuan. Hema called this war's pricing 'Moving Mountain Price', clearly referring to the 'Mountain' in 'Sam's'. Later, Hema promoted the 'Moving Mountain Price' nationwide, launched a 'discount' transformation, with more than 5,000 products directly reduced by 20%, and SKUs reduced from the original 5,000+ to 2,000+. Walking into Hema's offline stores, you can see the blue theme color changed to bright orange, looking more vibrant and desirable, with slogans like 'Everyday low prices, every item a hit' on posters and signs everywhere.
Pinduoduo, Alibaba, and JD are fighting over low prices, Hema and Sam's Club are dueling. If you are a manufacturer or seller, the news you least want to hear this year, but hear the most, might be that competitors have cut prices again. A cup of milk tea, a pair of shoes, a pack of nuts, even a mobile phone, a car—most goods in 2023 are falling in price.
In February this year, Heytea cut prices across the board, controlling over 90% of its drinks under 20 yuan; Naixue's Tea followed suit, significantly reducing the price of its classic products by 10 yuan and launching a 'Relax' series priced from 9 to 19 yuan. Milk tea officially bid farewell to the '30-yuan era'.
As for mobile phones, even Apple couldn't hold on. The iPhone 15 launch marked Apple's 'worst' start in history, with some models priced about 1,000 yuan lower than the official price within less than a month of release. Affected by the price cuts, the prices of second-hand iPhones also fell after the National Day holiday. Many second-hand merchants were trapped in a 'nightmare', with 'How much did you lose?' becoming a common phrase in conversations, and the worst 'lost 100,000 yuan in a single month'. Apart from Apple, the top five domestic mobile phone manufacturers are also having a tough time. Every major manufacturer is trying to attack the high-end market, but each has to face the reality that it's really hard to go high-end in the current environment. Xiaomi, which already has affordable prices, reduced the price of its new Redmi K60 12+512GB model by 300 yuan. Other models also saw significant drops. Many say Xiaomi was 'forced', but Xiaomi Group President Lu Weibing was not embarrassed; instead, he posted on Weibo, saying, 'Welcome more friends to join the cost-performance competition.' Samsung, Huawei, VIVO, and Honor indeed took up the challenge, cutting prices during this year's '618' and 'Double 11' to 'sincerely give back to consumers'.
The price war in the auto industry is even more brutal than in mobile phones. First, in March, at the beginning of spring, multiple models under Dongfeng Automobile suddenly saw cliff-like price cuts, with the highest cut for Dongfeng Citroen almost halving the price. Netizens, enjoying the spectacle, joked about forming groups to 'grab cars in Hubei'. Then in July and August, brands like Tesla, SAIC Volkswagen, Chery, and Zeekr all made price adjustments, and the camp expanded, continuing to this day. Whether independent brands, joint ventures, new energy, or traditional fuel, all are engaged in price wars. December is almost the 'price decisive battle' for car companies. On December 1 alone, no fewer than five car companies launched new price incentives: Jiyue's first model, Jiyue 01, saw a direct price cut of 30,000 yuan across the board; Leapmotor offered cash discounts of 5,000 to 17,000 yuan on models like C11, C11 Super Extended Range, C01, C01 Super Extended Range, and T03; FAW Toyota provided a 5,000 yuan subsidy; Changan Shenlan offered a deposit of 1,999 yuan to offset 8,000 yuan across the range. Even BYD, the sales champion, was not spared. The Qin and Han models had maximum discounts of 20,000 yuan. Previously, BYD's Tang had a maximum reduction of 15,000 yuan; Song reduced by 10,000 yuan; Yuan had a maximum reduction of 6,000 yuan. This is not the end. At BYD's 2023 interim results meeting, Chairman and President Wang Chuanfu had already predicted, 'In the next 3 to 5 years, the overall car market or different segments will continue to engage in price wars.'
"It's not a question of living with difficulty, but of whether we can survive." Liangpin Shop Chairman Yang Yinfen honestly explained the reason for the price cuts. From 2020 to 2022, Liangpin Shop's revenue growth rates were 2.32%, 18.11%, and 1.24%, respectively, a stark contrast to the 20% or even over 30% growth rates in previous years. In 2023, Liangpin Shop's report card was even worse. In the first three quarters, it contributed its worst quarterly report since listing—both revenue and net profit declined, making it one of only two companies among the ten listed leisure snack companies to see both decline.
Looking at other industries that have cut prices, the situation is also tense. At the beginning of this year, JD's Hong Kong stock opened well, hitting a high of 256 HKD. But unexpectedly, that number remains the peak to this day. Subsequently, JD's stock price fell all the way. Compared with the highest price of 415 HKD per share in 2021, it has fallen 70% in three years. Alibaba is also not doing well. On November 29, US local time, its market value was overtaken by Pinduoduo for the first time. When the news came out, Jack Ma made a rare statement on the internal network, saying 'Very good' and congratulating Pinduoduo on its 'decisions', 'execution', and 'efforts' over the past few years. But the implication was that he was also dissatisfied with Alibaba itself, especially Taobao, which had watched its price advantage be handed over to Pinduoduo. But what worries them even more may be that the entire e-commerce landscape is being rewritten. Douyin, Kuaishou, and Xiaohongshu are quickly 'taking seats at the table', especially Douyin, which already has the momentum to rival them.
For Bosideng, besides prices being unsustainable, the worse problem is probably that it's hard to sell. From the recent third-quarter report, although its performance is still growing, both growth rate and gross margin are slowing down. Inventory turnover is an important indicator of operational efficiency in the clothing retail industry and a key indicator of whether products sell well. But in the first half of 2023, Bosideng's inventory turnover days increased from 111 days in 2018 to 181 days.
Mobile phone brands are also facing inventory pressure. Chaodian Think Tank predicts that in 2022, the mobile phone market already had 30 million smartphones in inventory, with finished goods inventory exceeding 20 million units. In the first quarter of 2023, China's smartphone sales fell 5% year-on-year, the lowest first quarter since 2014. This means more unsold inventory will accumulate.
In the auto industry, just to meet unfulfilled sales targets, they have to fight the price war to the end. Currently, industry leader BYD's cumulative sales from January to November 2023 were 2.672 million units, only 328,000 units short of the annual sales target of 3 million set at the beginning of the year. With sales exceeding 300,000 units in both October and November, if it can maintain the current growth rate in December, it may be possible to achieve the target. Many brands are also under pressure, including SAIC Group, Great Wall Motor, Dongfeng Group, Leapmotor, Xpeng Motors, and NIO.
What's more troublesome is that even with price cuts, the effect seems less effective. One data point is direct: the consumer confidence index, which reflects the subjective feelings of consumer psychology. Since April 2022, China's consumer confidence index has declined, from 113.2 to 86.7. Although it briefly rebounded to 94.9 in February this year, it then fell again and has remained below 90 in recent months. The consumer price index directly confirms the price cuts and the level of consumer spending. This year, the index has remained between 99 and 100, still a certain gap from the high of 105.2 in 2019.
Consumer spending power is declining, which also seems to be significantly proven by per capita tourism spending. During this year's May Day, Dragon Boat Festival, and National Day holidays, the number of domestic trips increased compared with the same period in 2019. But the recovery of per capita tourism spending did not keep up. Taking the National Day holiday as an example, domestic trips reached 826 million, an increase of 4.1%; but domestic tourism revenue was 753.43 billion yuan, an increase of only 1.5%. 'Purse strings' are being tightened.
Almost all numbers are speaking: today's consumers are more price-sensitive than ever. The arrival of the era of price cuts has its own historical imprint. As early as the end of last year, Economic Daily published an article summarizing that abroad, the global economy was sluggish and inflation was high; domestically, there were triple pressures, and economic development faced unexpected changes. In 2023, China still faces pressure and challenges, with high pressure on economic operations. Under pressure, it also has to face the oversupply caused by the rush to expand investment and increase production capacity in various industries during the hot economy of previous years. A typical example is the pig industry. From 2018 to 2022, the pig slaughter volume of the top 18 pig farming enterprises increased by 176%. As of March this year, the number of fertile sows remained at 43.05 million, a historical high. Another example is the dairy industry. Li Shengli, chief scientist of the National Dairy Industry Technology System, predicted in July that this year's surplus fresh milk would exceed 1.1 million tons. Starting from 2022, the previously large-scale expanded automobile and mobile phone industries have also entered a high saturation period. Including milk tea shops, coffee shops, etc., as long as it's a slightly good business, China now almost always sees rapid clustering and then involution in the existing market.
With overcapacity and oversupply, but insufficient demand, if you don't cut prices and others do, your products become inventory. If inventory increases, your company won't survive. So Liangpin Shop said that cutting prices is to survive.
Behind insufficient demand is often insufficient income and purchasing power, leading to a major change in consumer psychology and behavior. The typical feature is no longer pursuing vanity consumption but seeking affordable prices. This also forces manufacturers to take price cuts more seriously.
Japanese author Miura Atsushi, in his book 'The Fourth Consumption Era', divided Japan's consumption history. In the third consumption society, material and desire were the goals; but in the fourth consumption society, people are unwilling to pay 'premiums' and begin to pursue rationality, simplicity, and cost-performance. This is similar to China. Many believe we are currently transitioning from the third to the fourth consumption society. In previous years, we pursued 'consumption upgrading', but now it's more about 'sharing economy', 'decluttering', 'being more practical', and 'being simpler'.
Thus, while many companies are overwhelmed by the wave of price cuts, companies like Bee & Flower, Huoli 28, and Erke, which have always followed low-price routes, are showing signs of making a comeback. Pinduoduo, known for low prices, has reached the top in market value. Some people think luxury goods are still thriving, and the era of price cuts does not exist. A research report by the Bain Luxury Association also shows that in 2023, the growth rate of various luxury goods markets globally can still reach 8% to 10%. But that is a minority market for a few people, just as no matter how volatile the economy, a few people's wealth always rises rather than falls. For most brands to succeed, they ultimately need the support of the mass market and must follow the mass route and the trend of the times. For example, Luckin Coffee, with its 9.9-yuan coupons scattered everywhere, overpowered its old rival Starbucks China and officially took over the crown of 'largest chain coffee brand' in China. Mixue Ice City, known for 'extreme cost-performance', is popular in Australia, Japan, South Korea, and other markets.
In fact, the return to rational consumption is an inevitable part of economic and social development, and an inevitable part of human nature. Take automobiles as an example. In the most advanced automobile countries, the streets are now filled with popular brands, not luxury cars everywhere like us. During Japan's bubble expansion period, luxury goods consumption accounted for more than 40% of the global luxury goods market. At that time, a golf set worth 100 million yen (3 million RMB) had 650 sets pre-sold and sold out on the same day. But later, Japan's consumption concept generally returned to rationality, no longer paying for excessive premiums, but valuing simplicity and affordability, thus giving birth to new-generation big brands and enterprises like Uniqlo and Muji. Not only Japan, but almost all countries transitioning from developing to developed have gone through this process. This is also human nature. After showing off and overdoing it, you realize that many things are just that, and it's better to be down-to-earth and plain. Now, this return has come to us. More and more Chinese people who queue up abroad to buy famous brands will realize that these brands won't make their lives much better, and that this money is actually unnecessary. This change in consumption concept is not caused overnight, nor will it change overnight. This also means that companies must realize that even if the economy returns to better growth in the future, consumers will still consume rationally and wisely. If we are facing an era of price cuts now, then in the future, we will face an era of affordable prices.
It is particularly important to note that for Chinese consumer brand enterprises, this is both a challenge and an opportunity. The core may lie in four words: high cost-performance. It requires both high quality and cost-performance.