By integrating white-label supply chains, adopting a quasi-self-operated model, and offering numerous low-priced items with psychological pricing, JD.com is once again attempting to penetrate lower-tier markets. The company's user base is predominantly from first- and second-tier cities, making lower-tier markets a weak point. Since 2020, going down-market has been JD.com's most critical "must-win battle." As more players deploy industrial belts and leverage white-label products to capture these markets, speed remains the key factor in this competition.

9.9 yuan always seems more attractive than 10 yuan. This 0.1 yuan difference is the famous psychological pricing tactic in economics. In the Jingxi Self-Operated flagship store, this pricing strategy is everywhere: 2.9 yuan egg yolk pastries, 3.9 yuan switches and sockets, 5.9 yuan animal resin figurines, and 9.9 yuan compressed face towels. Jingxi internally believes that 9.9 yuan is the upper limit for what consumers consider a cheap product, and "the conversion rate between 9.9 yuan and 10 yuan is completely different." By integrating white-label supply chains, adopting a quasi-self-operated model, and offering numerous low-priced items with psychological pricing, JD.com is once again attempting to penetrate lower-tier markets.

"New JD Users" Attracted by 9.9 Yuan

In the Jingxi Self-Operated official flagship store on the JD App, one yuan can buy many things: a piece of Japanese-style raw chocolate, a pack of 40 baby wipes, a roll of 20 drawstring trash bags, or a 50g tube of hand cream. These "traffic-driving products" aim to attract nearly 1 billion price-sensitive users in lower-tier markets. It appears to be a shopping world with an average price under 10 yuan, covering categories such as cleaning and personal care, apparel and beauty, and fresh food, with the slogan "Factory direct, simply cheap."

Jingxi Self-Operated interface Source: JD App

Xia Jie (pseudonym), a mother living in a county town in Guizhou, is a new JD user. After reading an online "Mom's Double 11 Money-Saving Guide," she ordered a series of products from Jingxi Self-Operated, including wipes, baby leggings, anti-dirty bibs, and a large-capacity diaper bag. Among them was a 3-yuan trash bag; after receiving it, she found it both beautiful and sturdy and immediately ordered hundreds more. The best-selling item in the Jingxi Self-Operated flagship store is a 6.9-yuan pack of 240 tissues. "New JD users" excitedly commented: "Using the new user benefit, the price is too good!" "First time ordering on JD; tissues are consumables, so I'll stick with this store from now on!"

These low-priced products come from white-label merchants in fifth- and sixth-tier cities. A mung bean cake factory in Xinmi, a county-level city under Zhengzhou, Henan Province, had previously only been able to sell locally due to no preservatives and high cold-chain transportation costs. After listing on Jingxi Self-Operated, it now sells thousands of orders daily. A small Bluetooth earphone factory in Guangdong, with products priced under 10 yuan, had insufficient orders. After integrating its supply chain with Jingxi Self-Operated, orders increased to tens of thousands per day.

Qi Ting, head of the Jingxi Business Unit, attributes this growth to Jingxi's quasi-self-operated model. Starting late last year, Jingxi began experimenting with this model, which goes further than a fully managed model: merchants without e-commerce experience only need to produce, while product selection, pricing, operations, logistics, and pre- and after-sales service are all handled by Jingxi. Currently, the Jingxi Self-Operated team has three parts: sourcing and sales, marketing, and quality control, and is expected to grow to over 800 people by the end of this year.

Relying on the quasi-self-operated model, Jingxi has achieved initial results. During this year's 618 shopping festival, Jingxi Self-Operated received over 1 million orders in 4 hours, and by the end of the promotion, order volume had increased 260% month-over-month. Over 10 million users ordered 2-yuan free-shipping items, and over 500 products sold more than 10,000 orders. During this year's Double 11, Jingxi Self-Operated sold nearly 80 million items, with daily necessities transaction volume increasing over 600% month-over-month. Qi Ting told Snow Leopard Financial News that the number of new users attracted by Jingxi Self-Operated is growing rapidly, their proportion is rising, and the share of users from fifth- and sixth-tier cities far exceeds JD.com's overall user base. A person close to JD.com told media that Jingxi's lower-tier market user stickiness is much higher than that of the main site; in June this year, the average monthly purchase frequency per user reached 7 times. But JD.com wants Jingxi to move even faster.

A New Route to Continue Going Down-Market

Spreading out an administrative map, one can see nearly 300 prefecture-level cities, nearly 3,000 counties, and nearly 40,000 townships. This vast network, home to nearly 1 billion consumers, is a battleground for domestic retail e-commerce. McKinsey predicts that by 2030, over 66% of China's personal consumption growth will come from lower-tier markets, especially county towns. JD.com's desire to compete in lower-tier markets is particularly strong. According to financial reports, from 2018 to 2021, JD.com's annual active consumer numbers were 305 million, 363 million, 472 million, and 570 million, with growth rates of 20%-30%, but slowing. In comparison, Pinduoduo had 869 million annual active buyers in 2021, and Alibaba had nearly 1 billion. Li Mingtao, chief expert at the China International E-Commerce Center under the Ministry of Commerce, told Snow Leopard Financial News that JD.com's user base is mostly from first- and second-tier cities, and lower-tier markets have always been its weakness. To achieve user growth, expanding to other user groups is inevitable.

From 2020 to 2021, JD.com launched an unprecedented aggressive offensive to capture this huge market, with the core strategy being to learn from Pinduoduo and offer low prices. In 2020, going down-market was listed as a "must-win battle" in JD.com's annual strategy. Multiple down-market projects, including the Jingxi Business Unit, Jingxi Pinpin, and Jingxi Tong, were integrated into a new Jingxi Business Group. Among them, the community group buying business Jingxi Pinpin, reportedly led personally by Liu Qiangdong, had up to 10,000 employees at its peak and entered 20 provinces. The results seemed promising. In 2020, 80% of JD.com's 110 million new annual active users came from lower-tier markets. In 2021, JD.com added 97.8 million new users, 70% of whom came from lower-tier markets. But the cost was also significant. In 2021, JD.com's marketing costs increased 42.7% year-over-year to 38.7 billion yuan. In the second half of that year, JD.com suffered losses for two consecutive quarters, with new businesses represented by Jingxi incurring the heaviest losses. As a result, JD.com's net loss for the year exceeded 3 billion yuan.

In the fierce battle for lower-tier markets, burning cash is inevitable, but the ROI of that spending is more critical. Then-CEO Xu Lei mentioned Jingxi in an earnings call, admitting that barriers built by throwing money at the problem would not last. In 2022, amid the overall collapse of community group buying, Jingxi Pinpin gradually withdrew from cities and laid off staff, and the Jingxi Business Group, established only two and a half years earlier, was hastily disbanded. But this setback did not make Liu Qiangdong give up on lower-tier markets. He reiterated that low prices are JD.com's only fundamental weapon and listed lower-tier markets as the top priority among JD.com's four must-win battles for 2023.

Looking back, one of the key reasons Jingxi Pinpin failed to gain an advantage in lower-tier markets was its over-reliance on local procurement, with almost no national centralized procurement, leading to high procurement and distribution costs and making it difficult to form a price advantage. At the time, media comparisons found that Jingxi Pinpin and the Jingxi App had slightly higher prices than other platforms. The solution was simple: concentrate traffic on a limited number of SKUs, use scale advantages to reverse-engineer the supply chain, introduce low-price industrial belt supply on a large scale through national centralized procurement, and offer genuinely low prices that resonate with lower-tier market users. In November 2023, JD.com revived Jingxi and began experimenting with the quasi-self-operated model, seeking a more suitable path to lower-tier markets within JD.com's business ecosystem, planning to validate the approach over a year. Internally, Jingxi believes it carries JD.com's persistence in going down-market.

The Battle for Industrial Belts

Jingxi Self-Operated has been established for exactly one year and has delivered its first report card. The Jingxi Self-Operated official flagship store has 153 million followers and has partnered with dozens of industrial belts, such as Jieyang menswear, Shantou toys, and Wuhan paper products. Qi Ting stated that these core industrial belts have very leading core merchants, and it is expected that the number of partner factories will exceed 10,000 by the end of the year.

JD main site search interface for Jingxi Source: JD App

At the same time, Jingxi Self-Operated's products now cover 3,000 subcategories, with products in tissues, earphones, and underwear each selling over 1 million units per month. Qi Ting believes that the current quasi-self-operated model is the most suitable for Jingxi, as it "can maximize JD.com's core strengths in self-operated sourcing and logistics fulfillment." On November 9, Jingxi announced a 10 billion yuan annual subsidy plan to support white-label merchants in traffic, logistics, and assets. The further goals are to establish 100 national product industrial belts, create 5 core industrial belts with transaction volumes exceeding 10 billion yuan, and incubate 5,000 white-label super factories.

Li Mingtao analyzed to Snow Leopard Financial News that these low-priced products do not squeeze merchants' profits but instead get closer to source factories through more efficient supply chains and larger-scale procurement, "which is the advantage of the entire JD platform."

However, it is undeniable that in the highly competitive lower-tier market, Jingxi still faces many challenges. On one hand, the barriers of JD.com's warehousing and logistics system, on which Jingxi relies, are lowering and are no longer insurmountable. For example, in logistics and distribution, there are currently at least 7 national logistics distribution networks in China, including STO, ZTO, YTO, Yunda, SF Express, J&T, and JD Logistics. JD is just one of them. In addition, there are many small third-party logistics providers. An industry insider noted that the logistics advantages of traditional e-commerce platforms are gradually being caught up and are no longer an unbreakable moat.

On the other hand, more and more players are deploying industrial belts and using white-label products to capture lower-tier markets, each staking out their territory. Pinduoduo launched its New Brand Plan as early as 2018, focusing on supporting OEM factories. In 2020, Pinduoduo announced an upgraded five-year plan for industrial belts—from 2021 to 2025, it aims to support 100 industrial belts, drive 1 trillion yuan in sales, and expand partners from 1,000 to 5,000. According to Hua'an Securities, Pinduoduo's white-label and new merchant GMV contribution reached as high as 67% in 2022. Alibaba's Taotian Group's semi-managed model, Taogongchang, has launched the "Star Factory" and "Star Origin" plans. Douyin and Kuaishou have also released industrial belt plans. At the China New E-commerce Conference in October this year, Zhang Fuping, Vice President and Editor-in-Chief of Douyin Group, revealed that it plans to create 20 ten-billion-yuan industrial belts by the end of the year. When asked whether she is worried about white-label manufacturers switching to other platforms, Qi Ting said, "We are not worried about merchants leaving." But in this competition, speed remains the key.

[New Order · Symbiosis]

The 10th China FMCG Innovation Conference

Date: March 17-19, 2025

Location: Chengdu, China