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INSIGHTS | Weak 618 Sales but Opportunities for SME Brands

This year's 618 is the eagerly-awaited first major shopping event after the pandemic, and e-commerce platforms are using price wars to stimulate consumption. However, consumer confidence still remains weak amid the slowly recovering economy.

Although the 618 performance is not as good as expected, we still see potential opportunities for SME brands, after e-commerce giants announcing major restructuring.

Understanding changes in Chinese consumer behavior, challenges that brands are facing, and constantly changing strategies of platforms are crucial for your marketing success.

Weak Confidence Leads to More Cautious Consumers

Amid the largest 618 ever with deep discounts and price wars, consumers aren't as eager to shop as before. They have become more cautious and don't easily fall for discounts. On social media, the voice against consumerism makes consumers rethink their shopping habits. Consumers are spending less on non-necessity goods and are actively looking for more cost-effective but high quality options.

▲ Image via @装扮小窝 (Xiaohongshu)

An influencer shares tips on optimizing keywords for discovering cost-effective products, driving high engagement on social media.

For instance, searching for "tea house seating" instead of "new Chinese-style sofas" or "fish nets with high aesthetics" instead of "Instagram-style photo walls" helps consumers find functional and affordable options

In the mean time, consumers are getting smarter. Some found that brands raise prices before lowering them, making no real discount. Consumers are also tired of the complicated rules set by the platforms and the lengthy 618 campaigns lasting for almost a month.

▲ GIF via @打工果(幻想退休版 (Xiaohongshu)

An influencer persuades consumers to remove the cumbersome lifestyle of consumerism by ridding themselves of unnecessary purchases

GMV or Profit Margin?

In the past, brands see high Gross Merchandise Volume (GMV) as a symbol of market share and competitiveness, attracting investors, partners, and consumers.

To achieve high GMV, especially during mega shopping festivals, brands spend huge marketing dollars on top influencers, offer heavy discounts, and incur extra costs in logistics and inventory. However, this often leads to impulsive purchases, resulting in a flood of returns and complaints. It is an open secret that brands usually sacrifice profits to achieve high GMVs during shopping festivals. Some brands even lose money to get higher ranking on the list.

▲ Image via @Google

Since 2020, numerous media outlets have been publishing articles discussing the exaggerated GMV in e-commerce sales events

However, after the tough time during the pandemic, brands start to realize that GMV is merely a facade, while survival is the priority. Sacrificing profits to get high GMV is not sustainable. Brands should pursue a healthy financial model, and it is only reasonable to shift the focus back to the profits. Brands now realize that they should not rely too much on the shopping festival, and start to spread promotion costs over regular days, making promotions a norm to customers, in order to save costs and maintain the profit margin.

Opportunities for Small & Medium-Sized Brands

The e-commerce price war is always a hot topic. Pinduoduo, for instance, is disrupting the dominance of Taobao and JD with subsidies and budget-friendly products. Similarly, content-based e-commerce platforms such as Douyin and Kwai are rapidly expanding through short videos and live-streaming. This overshadows Taobao's diverse offerings and JD's high-quality service.

▲ Market Share of Chinese E-Commerce Platforms (2022)

Data via @前瞻经济学人, Chart via @Double V. Consulting

Alibaba (Taobao + Tmall) used to dominate the e-commerce market with a 50-50 split, but now its market share is being gradually eroded by new entrants like Pinduoduo, Douyin (Chinese TikTok), and Kwai. Meanwhile, Pinduoduo's market share is increasingly catching up with

Consumers expect budget-friendly yet valuable products. They want e-commerce platforms to offer reasonable prices for emerging brands and improve after-sales support for low-priced products. Supporting brands with high quality and friendly prices is crucial for e-commerce platforms to adapt to this shift in consumers' shopping attitudes.

Compared to big brands, small and medium-sized brands are more vulnerable to challenges in cash flow and intense competition. Although they boost diverse product supplies and timely market feedback, many of them opt-out of large-scale promotional events due to the lack of resources required for massive marketing campaigns and the thin profit margins caused by return risks.

▲ Image via @黑猫投诉

黑猫投诉 is a consumer complaint platform. A search for "e-commerce" yielded 51,415 results, primarily addressing false advertising and quality problems

To support small and medium-sized brands, major e-commerce platforms launched corresponding plans. One significant move was Alibaba's restructuring, merging Taobao and Tmall into "Taotian Group" in May this year. As of 2022, 70% of total revenue of Taobao and Tmall Group comes from Tmall merchants. Big brands' marketing spendings are the major revenue source of Alibaba. But now, Alibaba decides to shift the focus back to Taobao, providing more diverse products and affordable goods by adjusting the algorithm to support SME merchants. These measures aim to secure Taobao's position in the fierce competition with JD, Pinduoduo, Douyin, and Kwai. In the year leading up to this year's June 18, Taobao added 5.12 million merchants, with 1 million from other e-commerce platforms, accounting for roughly 20% of the total new merchants.

▲ Image via @Taobao-Tmall 618 Merchant Conference

On Taobao's 20th birthday, Taotian Group publicly debuted, and CEO Dai Shan's speech revealed three key choices for the group's transformative journey: user-first focus, ecosystem prosperity, and technology-driven advancements

For overseas small and medium-sized brands planning to enter the Chinese market in 2023, effectively utilizing the favorable policies of domestic e-commerce platforms can help reduce marketing costs, increase exposure, mitigate business risks, and provide more opportunities to grow. With consumers' ever-growing demand for quality and personalization, overseas brands emphasizing quality and branding equity will find vast prospects in China.

If you seek progress in market research, brand promotion, social media operations, and content marketing for entering the Chinese market, partner with Double V. Consulting to reach your ideal customers!


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