Pinduoduo’s market value plummeted by 100 billion yuan. Is low price really the trend in cross-border transactions?

On October 24, Eastern Time , Pinduoduo's stock price plunged by more than 20%. As of that day, Pinduoduo's market value plummeted by 100 billion yuan. The plunge in Pinduoduo's market value also brought Temu to the center of sellers' topics again.

When Temu was first launched, various promotional methods such as low prices and discounts were used continuously. The prices of goods on the platform were generally lower than those on other platforms. Amazon, which is also a competitor, also has a group of sellers who survive by low prices. This has also caused many sellers to wonder: Is low price really the trend of cross-border business?

Promotional methods are being used one after another, are low prices the trend?

Since Temu was launched in the United States in early September, it has launched a series of promotional activities, including 20% ​​off on first order for new users, free shipping, 30% discount, free returns, 1 cent pick 1 free shipping, etc., so much so that some industry insiders describe Temu as the overseas price butcher.

In fact, the title of overseas price butcher is not undeserved. On Temu, most clothes and shoes cost no more than $10, and household products costing only a few cents are everywhere. The key is that buyers can also add a 30% discount when purchasing, which is almost equivalent to giving it away for free. On the platform, a pair of sunglasses costs only $0.99, but in other shopping malls, similar designer sunglasses cost more than $500, and this situation is not an isolated case.

Unlike other platforms, Temu explicitly requires sellers to supply goods at a price lower than the market wholesale price, which means that the lowest-priced products available to consumers are based on the sellers’ profit margins being extremely compressed and the subsidies provided by the platform.

"Can you make money at such a low price?" many netizens asked bluntly.

Some sellers who have already settled in the platform reported that their profits are not high, mainly relying on volume. "The profit is only a few cents, less than one-tenth of the Amazon platform. The profit of a few cents reflects a risk several times higher, which is really meaningless." said a seller.

Different from the above sellers, some sellers have a positive attitude. As the saying goes, more ants are meat, and small profits but quick turnover are money. In their view, the platform's low-price strategy is only temporary. They will follow the platform first, and when it is successful later, they will naturally reap the dividends from the platform.

Some industry insiders also believe that Temu’s strategy may not be to make a profit by selling goods, but to make money in the secondary market by splitting users.

The editor found on an overseas social platform that a user posted, "As long as a new user accepts my Temu invitation, I can get a commission of up to 50 US dollars." Obviously, the platform is using the model of paying commissions by attracting new users to achieve social fission, which is very similar to the strategy of Pinduoduo in China, and coincides with the views of some industry insiders.

However, the capital market is not optimistic about this method of burning money in a short period of time and acquiring customers by offering low prices. Take Wish for example. After its launch, it ranked first in downloads for many years. However, as the saying goes, "the success is due to Xiao He, and the failure is also due to Xiao He", because of its long-term pursuit of low prices, its customer churn rate was very high, and it eventually fell.

As things stand, Temu’s low-price strategy is effective in the short term, but we don’t know the long-term effect yet. After all, Temu and Wish have different foundations and the environment has changed. At the same time, like Temu, there is a group of Amazon sellers who are also pursuing a low-price strategy.

Amazon sellers are tired of selling products at low prices for charity

In the view of some Amazon sellers, the stocking and operating costs of high-priced products are very high, the initial capital investment will be huge, and there will be high-risk issues such as returns. Therefore, some sellers began to create low-priced products to meet the needs of buyers.

While rushing to low-priced products, the problem of profit has also come to the minds of many sellers. You know, in the early stage of creating low-priced products, most sellers have almost no profit.

As far as profits are concerned, Xiao Li, who specializes in low-priced products, has a deep understanding of this. In his opinion, the profit margin of a product that costs around ten dollars is too small. The average ad click rate is between 0.6 and 0.7, but this profit cannot support the advertising fee at all. To make low-priced products, you can only lose money in the early stage to raise the natural position. Only after reducing the advertising fee can you make a certain profit, which naturally increases the risk of the product.

The company's resistance band, which was priced at 9.99 euros, was also reduced to 5.99 euros by many sellers. In addition to the high price and CPC, the conversion rate of the advertisement was also very low. Even if the advertisement had orders, the long-term overall Acos was above 50%. In the end, I didn't make any money and lost 30 yuan.

"I sell loofah balls on Amazon and joined the Amazon Small and Light Program, but it's almost unprofitable," said a seller. Selling six loofah balls at 8.9 euros means paying Amazon FBA fees of 2.8 euros and product costs of 3.7 euros, leaving a profit of only about 2.3 euros, which means that if you want to earn a considerable income, you need to sell hundreds of loofah balls. If you want to raise the price, no one will buy such a product at a high customer price.

Xiao Liu is also a seller who has been engaged in low-priced products for many years. His daily sales volume is more than 500 orders, but the inventory (Amazon warehouse + sea shipping) is basically 4 months' inventory. In terms of daily inventory, Xiao Liu has already invested 50,000 to 70,000.

Not only is the cost of stocking up high, but the cost of getting the goods + the first-leg fee is also about 10 yuan, plus various fees such as CPC and various charitable acts of similar sellers. The high cost price has exhausted Xiao Liu physically and mentally. Later, Xiao Liu plans to increase the unit price of the product to ensure his profit margin while supporting the traffic cost.

In addition, FBA fees are also a key headache for many sellers. Some sellers even said that FBA fees have been rising again and again, constantly squeezing the sellers' meager profits, and the sellers' entry is the end.

However, some sellers believe that consumers like low-priced products, and the sales volume of low-priced products is generally not too low. They can reduce the cost of goods by purchasing in bulk, and then expand their profit margins by selling more products at a lower profit margin. Seller Xiao Chen is a beneficiary of low-priced products. He mainly sells small items with a price of less than $5. He has little competitiveness, but his product sales and profits are good.

Some sellers pointed out that if they want to sell low-priced products, they can consider products with dual attributes of "price + function", because consumers focus on price in addition to function when purchasing products, so they will pay more attention to the price. This type of product has two major characteristics: one is that the product appearance changes slowly, and it may still be the same ten years later than it was ten years ago; the other is the herd effect when consumers buy. Since they cannot judge the quality of the product, the consumer's purchasing standard will shift from quality to sales volume. The consumer's psychological model is that high sales volume + good ratings are equivalent to good quality.

Overall, whether low-priced products are popular depends not only on the product and the size of the seller, but also on the fit between the product and the platform.

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