Last month, China eCommerce giant Alibaba announced that it will invest US$4.5 billion in bricks-and-mortar retail Goliath Suning. Although this seems like a bold offensive, when we see this in the context of the maturing China eCommerce scene, we can see that Alibaba really had no choice.
It’s fair to say that all anyone wants to talk about in China these days – in marketing circles – is eCommerce. The explosive growth, the emergence of ‘Singles’ Day’ as the ‘one hyper buying day to rule them all’ and the huge IPO of Alibaba have propelled China eCommerce into something of a celebrity topic. But the honeypot attracts the bears. And we now have massive China-sized bears all frantically clawing at the continually evolving eCommerce culture. Now they are forming e-alliances and are e-ttacking each other.
It all started back in 2012. Suning, known as the stores to go to for buying cameras and phones, suddenly purchased Redbaby, a ‘mum and baby’ portal to widen its appeal and try to make itself into China’s Walmart and Amazon. It signalled its strategy to step out of its niche and move strongly into eCommerce, something it had struggled to do on its own.
The following year, Suning adopted an ‘open platform’ model, where individual merchants can sell their wares. Most of China’s eCommerce firms started out mimicking traditional retail models, where they bought products from wholesalers and sold them on their platform. Alibaba was the exception, because it operated its ‘Tmall’, where other brands could set up shop inside the ‘mall’. With the ‘open platform’, Suning was following other retailers, putting a foot in both the wholesale and ‘mall’ strategies – a bid to use an Amazon model to attack Alibaba’s dominance.
With hypercompetition and billions of dollars at stake, the eGiants turned to service innovation. In a bid to exploit Alibaba’s indirect control of their merchants, Tencent and Jingdong announced that through China’s major cities, they can deliver products within two hours of the order being placed. Alibaba was forced to respond by offering its own ‘same day’ delivery service.
And then the players ‘upped the ante’. Yihaodian, the preferred site for buying imported infant milk formula, announced its own alignment with Walmart as part of an attempt to position itself as a safer choice amid a series of food quality scandals. It also formed partnerships with six Western countries to import more food items and further exploit the lack of trust consumers have in wholly locally sourced and sold items. A calculated attack that resulted in a fivefold increase in sales.
In the same year, just before Singles’ Day, Jingdong complained to the government’s powerful ‘antitrust’ authorities that Suning was price-fixing. Suning had announced a ‘unified price strategy’ to prevent its online stores from selling goods at lower prices than its offline stores. The number-one reason to buy online has always been lower prices; consumers would go to Suning to inspect the products and then go to Jingdong to buy them. Price equalisation eroded Jingdong’s main benefit in an instant. Jingdong’s attack against Suning was a weak attempt to keep them out of tech product eCommerce. Fat chance.
Throughout the product and competitive service enhancements, the battlefield had moved to the quality of services. In this new playing field, attention is now on how fast and how well nationwide goods are delivered. And since online-only players lack the distribution network to get goods to consumers outside the large cities, the 2015 strategy is to align with a partner to create this.
Jingdong has already joined with Yonghui Superstores to use its network of supermarkets to deliver fresh food, same day across the country. The second big grouping is WeChat owner Tencent, which has aligned with search engine Baidu and the Wanda property and entertainment group to leverage their physical distribution network. These moves left eCommerce pioneer Alibaba exposed and with little choice but to find its own offline partner in Suning to ensure it wasn’t left behind.
How consumers feel about this latest development will be clear to see after the 2015 Singles’ Day. Let the battles begin.
This article was written by Ed Bell, CEO of FCB Greater China and originally appeared on WARC.