---
title: "E-commerce's 'Breaking the Volume': Finding New Ways to Compete"
description: "Just as aliens in 'The Three-Body Problem' used protons to lock down human technological progress, the vicious price war in e-commerce is suffocating Chinese manufacturing and source factories. Consumers like Mandy complain that they end up with junk despite low prices, and the industry is now seeking new solutions for growth in the second half of 2024, shifting focus from price competition to business growth and platform ecosystem improvements."
author: "Camille"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2024-10-09"
language: "en"
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---

# E-commerce's 'Breaking the Volume': Finding New Ways to Compete

> Just as aliens in 'The Three-Body Problem' used protons to lock down human technological progress, the vicious price war in e-commerce is suffocating Chinese manufacturing and source factories. Consumers like Mandy complain that they end up with junk despite low prices, and the industry is now seeking new solutions for growth in the second half of 2024, shifting focus from price competition to business growth and platform ecosystem improvements.

Just as aliens in 'The Three-Body Problem' used protons to lock down human technological progress, the vicious price war in e-commerce is suffocating Chinese manufacturing and source factories.

"I thought I was getting a bargain, but actually I brought home a bunch of junk. Even the refund-only option feels like a hassle—how do you calculate the sunk cost? Looking back, instead of comparing prices endlessly, I might as well have chosen a bigger brand from the start, at least I wouldn't step on a landmine," Mandy complained.

Since last year, 'competing on low prices' has become a core capability emphasized by e-commerce platforms, and it exploded in the first half of this year. Sellers cut prices to boost sales, and platforms subsidize to attract traffic, all essentially to stimulate more consumer spending.

As a consumer, Mandy should be the ultimate 'beneficiary' of price competition, but her complaints make her seem like a 'victim.'

Many people might share Mandy's feelings. In 2023, the national 12315 platform received 12.611 million online shopping complaints, accounting for 56.1% of total complaints. Consumers mainly reported issues such as receiving 'three-no' products (no production license, no product qualification certificate, no factory name and address), products not matching what was shown in live streams, and difficulties with returns and exchanges.

Philip Kotler, the 'father of modern marketing,' once said, 'There is no brand loyalty that cannot be offset by a two-cent price cut.'

Although low-price strategies can bring a surge in orders in the short term, in the long run they are harmful. Price wars not only squeeze merchants' profit margins but also trigger vicious competition and disrupt market order. The poor shopping experiences of 'Mandy-like' consumers are one of the 'chain reactions' of the price war.

Now, factories, merchants, e-commerce platforms, and consumers—all participants in the 'price carnival'—are trapped in the quagmire of price wars.

Currently, the second half of the e-commerce industry is about 'breaking the volume' (escaping involution).

**E-commerce Price War: No Winners**

The significant improvement in production efficiency and rapid decline in transaction costs make price reductions an inevitable part of business development. However, vicious price competition triggered by 'involution' is a huge disruption to business.

The rise of platforms like Taobao, Tmall, and JD.com rode the wave of China's economic boom. At that time, 'consumption upgrading' was the main direction of market development, so the 'within the Fifth Ring Road' population was the core user base for e-commerce platforms.

Unexpectedly, the rapid shift in consumption trends in recent years has made the lower-tier market the main player in the consumer market. Pinduoduo, with its 'lowest price on the internet' concept, seized the blank market 'outside the Fifth Ring Road' and achieved 'leapfrog development' in that scenario.

Now, with the peak of traffic dividends and the maturity of the e-commerce industry, 'involution' has become an unavoidable issue to achieve new growth. Thus, 'competing on speed,' 'competing on categories,' 'competing on services,' 'competing on content'... In an environment of slowing economic growth and high consumer sensitivity to value for money, 'competing on price' has naturally become the primary and core issue in e-commerce market competition.

The trend of 'value-for-money' consumption, coupled with Pinduoduo's counter-trend growth driven by 'low prices,' has made 'low prices' the 'following the trend' for platforms like Taotian, JD.com, and Douyin in 2023.

Throughout 2023, almost all e-commerce platforms and merchants actively or passively joined this 'price war.' However, entering 2024, competition intensified, and at some point, the price war shifted from low prices to the extreme of 'absolute low prices' and 'lowest prices.'

Clearly, the crazy price war has begun to backfire on the entire industry.

**The first to be eroded are the source factories in industrial belts.**

"Our factory's slippers cost 5.1 yuan per pair, but now the price war has driven it down to 5 yuan per pair—we're selling at a loss. Some competitors have pushed prices even lower to 4.5 yuan per pair. It's too intense now," complained a manufacturer from the slipper industrial belt in Jinjiang, Fujian.

The price war in e-commerce has undoubtedly passed pressure down to the source industrial belts. When all e-commerce sellers force source factories to provide lower prices, malpractices like cutting corners and reducing quality will return.

"I had to go see for myself why competitors could price at 4.5 yuan. Later, I visited that merchant's factory and found they could indeed produce at that price. There are three reasons: **First, local merchants usually do rough cost calculations.** They just go ahead and produce, and at year-end, they find they've lost hundreds of thousands.

**Second, their labor costs are extremely low.** The factory is in their own village, and the workers are villagers. In their spare time from farming, they can work at these factories and earn 2,000 yuan a month, which they think is great. Then there's land cost: the factory is on their own farmland, and it's an illegal structure, so essentially there's no factory building cost.

**Another important factor is raw materials.** Our factory uses new materials, but this factory uses recycled materials. So, although this factory sells at 4.5 yuan per pair on a platform, they could actually sell at 3.5 yuan. There's no lowest price; there's always a lower one," the manufacturer said helplessly.

The crazy price war has forced some merchants to reduce product quality to balance costs, ultimately eroding brand image and consumer trust, creating a vicious cycle. Over time, bad money drives out good, not only damaging the e-commerce market ecosystem but also greatly harming the development of domestic manufacturing.

**Not only factories and merchants in industrial belts, but also consumers and e-commerce platforms have not benefited from this price war.** During this year's 618 shopping festival, the promotion period was extended from ten days to nearly a month, and comprehensive e-commerce platforms achieved cumulative sales of 742.8 billion yuan. Last year's figure was 798.7 billion yuan, a year-on-year decrease of nearly 7%, marking the first negative growth in 16 years.

In 2024, around the industry's 'low-price storm,' e-commerce platforms, merchants, factories, and consumers—every participant seems to have become a 'loser' in the price war.

**Second Half of 2024: Finding New Solutions for Growth**

If the first half of 2024 was about attacking the 'consumer market' with crazy price wars, then the key to the second half is returning to the 'business market.'

Only by doing good business for merchants and doing good business for the platform itself can e-commerce thrive.

After the 618 shopping festival, the Taotian Group held an important closed-door meeting with merchants, clarifying several strategic adjustments for the second half of the year. According to 36Kr, the most important change is that the 'five-star price power' system, which has been used to allocate search weight since last year, is being weakened and replaced with GMV-based allocation.

'Five-star price power' is Taobao's self-created price evaluation system: based on the price of a single product compared to similar products inside and outside Taobao, it gives a star rating from 1 to 5 to determine whether the product has a price advantage in the market. Under this system, the lower the price, the higher the traffic.

Specifically, this year Taobao's assessment focus has shifted to GMV (Gross Merchandise Volume) and AAC (Average Annual Consumption), rather than pursuing high DAC (Daily Active Customers) brought by low prices.

Taotian is not the only one choosing to downplay low prices. According to LatePost, Douyin E-commerce has adjusted its business goal priorities, no longer putting 'price power' first, and will focus on GMV growth in the second half of 2024.

**It can be seen that after the baptism of price wars, e-commerce platforms are refocusing on the essence of 'business,' and focusing on GMV growth is the keyword for the second half of this year.**

In fact, unlike price wars that squeeze profit margins from the supply side, GMV growth requires multi-dimensional improvements in user numbers, repurchase rates, order volume, and average order value. It tests the platform's comprehensive service capabilities and requires not only investment from e-commerce platforms but also upgrades on the supply side.

**Judging from the policies already announced by various platforms, helping merchants achieve business growth has become a consensus at this stage.**

In July this year, Taotian announced it would cancel Tmall annual fees and instead charge a 0.6% basic software service fee, while optimizing the 'refund only' strategy, aiming to reduce merchant operating costs. Recently, Tmall Double 11 officially announced that this year it will invest tens of billions of yuan to help merchants grow their business from multiple dimensions, including promoting transactions, expanding customer traffic, and reducing costs.

In early August, as a factory-goods e-commerce platform rooted in industrial belts, 1688 introduced a series of measures to support the 'return to business' in the second half of e-commerce, including the 'Efficiency and Income Increase Plan' that promises merchants guaranteed order volume, customer numbers, and reasonable profits, as well as a free AI business assistant to help source factories use AI to serve young consumers and explore new business markets.

In late August, JD.com upgraded its 'Spring Dawn Plan' again, enhancing support for third-party sellers in three dimensions: traffic support, AI technology efficiency, and ultra-light asset operations.

Pinduoduo, which has already captured consumer mindshare with 'low prices,' has also turned its attention to merchants. At the Q2 earnings call, Pinduoduo Group Chairman and Co-CEO Chen Lei said directly that management is prepared to sacrifice short-term profits for long-term investment; the platform will invest tens of billions of resources to support new-quality merchants, waive 10 billion yuan in fees for quality merchants over the next year, continuously improve supply chain quality and efficiency, and improve ecosystem governance to cope with increasingly fierce industry competition.

It is reported that recently, in addition to policies like product card commission exemption and deposit reductions, Douyin E-commerce has introduced commission reduction and exemption policies for daily necessities and fresh fruits categories, using billion-level subsidies to help small and medium-sized merchants grow on the platform.

Subsidizing and supporting merchants, and reshaping the merchant ecosystem, are becoming the new focus of e-commerce competition. **Now, e-commerce platforms must win both users and merchants. By improving the merchant ecosystem, they provide users with better products and services, thereby achieving growth for both merchants and platforms, forming a virtuous cycle.**

2024, the second half of the e-commerce industry has begun.

**E-commerce 'Role' Shift:**
**From Shelf to Integrated Chip**

Around the 1990s, compared to typical urban convenience stores, Walmart was a magical presence. You could buy anything you needed there. Walmart was a dimensionality reduction attack on mom-and-pop stores in terms of supply chain, product variety, and price.

In the early days, Taobao had a nickname—'Omnipotent Taobao'—meaning you could buy anything you wanted on Taobao. Through dozens of product categories in the menu, you could see the richness of products on this e-commerce platform. It was like Walmart's shelves, which is the concept of shelf e-commerce.

**Now, with social development and industry competition, people's demands on e-commerce have led to various changes in its role.**

In the past, e-commerce only served as a shelf: 'If consumers need it, you have it.' Now, you not only need to have it, but also offer better prices, and the products recommended to consumers must be ones they like, with guaranteed quality. Sometimes just recommending isn't enough; someone needs to explain the products.

Therefore, e-commerce has extended its tentacles in many directions. From integrating good products from industrial belts, fully leveraging regional advantages and industrial cluster effects to bring consumers more high-quality, distinctive products; to algorithm-based interest recommendations, using advanced data analysis technology to accurately grasp consumers' interests and purchasing behaviors and provide personalized product recommendations; to live-streaming with hosts in the 'people-goods-field' model, enhancing the shopping experience through vivid, intuitive displays and interactions.

Today's e-commerce is no longer a single shelf form but a diversified business ecosystem that integrates marketing, technology, supply chain, logistics systems, and other services.

This integration gives e-commerce platforms greater capabilities, making them not just places for product transactions but also important hubs connecting consumers, merchants, and various links in the industry chain. By integrating resources, optimizing supply chains, and improving service quality, e-commerce platforms provide consumers with higher-value products and services. At the same time, they offer merchants broader market space and more precise marketing channels, helping them better meet consumer needs and enhance brand competitiveness.

1688, known in the industry as 'China's e-commerce source goods plate,' is playing this 'hub' role. For source factories, 1688 makes business more certain and operations simpler. For example, based on 24 years of knowledge accumulation in B2B e-commerce, 1688 has launched a free 'AI Business Assistant' for merchants, which is equivalent to providing a virtual data-driven operations team for manufacturers who are not good at 'business tactics.' It helps merchants sort out their 'business scripture' from analyzing current operations to deeply understanding buyer needs, from optimizing product information to running precise marketing.

For purchasing merchants, 1688 provides endorsement channels for quality white-label products like '1688 Premium Selection' and 'Membership Store,' as well as product selection centers that go deep into industrial belts, offering buyers a more worry-free 'hit product manual' across the entire online-to-offline chain. For C-end consumers, riding the wave of 'pingti' (affordable alternative) consumption, although 1688 has attracted many C-end individual customers, good products and good prices have also made these 'consumers' consider becoming 'merchants.'

On the 1688 platform, hundreds of thousands of C-end users convert to B-end users every month, and the annual number of such conversions reaches millions.

The platform's 'making business simpler and more certain' operating model attracts a steady stream of industrial belt manufacturers to join, giving the platform richer product resources, which in turn attracts 'large, medium, and small' purchasing merchants from across the country and even the world. At the same time, more and more 'passing' consumers discover 'business opportunities' here and join the merchant army. In a virtuous cycle, 1688 has turned a new business model called 'pingti' into a thriving operation.

The development of e-commerce seems more like an 'integrated chip.' With continuous technological progress, emerging technologies such as artificial intelligence, big data, and the Internet of Things are being more widely applied in the e-commerce field. E-commerce platforms will become more intelligent and personalized, providing consumers with more precise and efficient services.

The role shift from 'shelf' to 'integrated chip' is becoming an inevitable trend in the e-commerce industry.

"As long as the product quality is guaranteed and the price is reasonable, it actually attracts higher user loyalty than low prices. Because what I pay for is not just the product price, but also the resource convenience, strong experience, after-sales guarantee that the platform brings... Sometimes, choosing where to shop isn't just about the product itself," Mandy shared.

You see, that's how business works.


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