JD doubling down on low-price strategy

E-commerce giant attempts to woo users, secure growth amid hot retail competition

Competition in China's online retail segment is heating up as e-commerce giant JD lowered the threshold for free shipping services for products sold by JD's self-operated stores, a move industry experts said is part of the company's low-price strategy to attract new users and bolster sales growth.

Orders for items totaling 59 yuan ($8.11) or more sold by JD's self-operated stores can be delivered free of charge starting from Wednesday, down from 99 yuan, the Beijing-based company said. For books, the minimum order amount for free shipping remains at 49 yuan, while JD Plus members enjoy unlimited free deliveries without using coupons.

JD is doubling down on its low-price strategy to woo price-sensitive consumers amid intensified competition from domestic rivals. The company launched a subsidy campaign worth 10 billion yuan in early March to compete against online discounter Pinduoduo.

"From day one of our existence, our core competitiveness and the essence of our business have been low prices. That has always been the anchor of our business philosophy — cost efficiency and customer experience," said Xu Ran, CEO of JD, in an earnings conference call with investors last week.

Xu said JD is continuing to strengthen its supply chain capabilities and optimize fulfillment, and its commitment to promoting its low-priced daily sales model needs time and dedication. The company has witnessed a significant increase in the number of third-party merchants and product offerings during the second quarter, Xu added.

JD reported its net revenue in the second quarter of this year stood at 287.9 billion yuan, an increase of 7.6 percent year-on-year. Its non-GAAP(generally accepted accounting principles) net income reached 8.6 billion yuan, up 31.9 percent year-on-year.

Mo Daiqing, a senior analyst at domestic consultancy Internet Economy Institute, said JD's latest move to lower the threshold for free shipping can be seen as a continuous measure to implement its low-price strategy, which is expected to help JD broaden its user base.

"Enhancing user stickiness and cultivating high-quality users are crucial for major e-commerce platforms as the growth of the domestic e-commerce sector is slowing," Mo said.

The increase in logistics and transportation costs accompanied by lowering the threshold of free shipping services could be offset in the short term through the rise of overall sales revenue as well as the return of old users and an influx of new users, said Cui Lili, director of the Shanghai University of Finance and Economics' Institute of E-commerce.

Alibaba Group Holding Ltd is also ramping up efforts to offer price-competitive products and strengthen consumer engagement. Dai Shan, CEO of Alibaba's Taobao and Tmall Group, said the company will continue to invest heavily in the value-for-money battle by supporting small and medium-sized merchants and attracting more merchants.

Dai made the remarks during an earnings call on Aug 10, saying Alibaba's value-for-money battle will be an area of major investment, and the company aims to make customers understand that the product offerings on Taobao and Tmall are inexpensive. It also intends to guide its merchants to improve product cost effectiveness to boost growth and ensure stable returns over the long term.

During the April-June period, revenue from Alibaba's core e-commerce businesses — the Taobao and Tmall platforms — rose 12 percent year-on-year, with the number of Taobao's average daily active users growing 6.5 percent year-on-year.

Li Chengdong, founder of Beijing-based e-commerce consultancy Dolphin, said that high-priced items might deter some price-sensitive consumers while expanding the supply of lower-priced and discounted commodities will help JD obtain more users and improve user loyalty and repurchase rates.

Major e-commerce platforms are making efforts to bring more competitively priced products to shoppers, Li said, adding that these companies should strike a balance between bringing in cheaper goods and improving users' shopping experience.