Pressing the pause button on internal circulation, e-commerce platforms and merchants begin to seek change

Compared with other platforms, 1688, which focuses on the B-end, was once a pure land. In the eyes of the platform merchants, they are doing wholesale business, and no matter how competitive the outside world is, 1688 can't get it. But with the rise of the trend of substitution, a large number of small B merchants and C-type consumers have flocked to 1688 to find source factory goods, and the platform has begun to raise the standard volume service; buyers have also become more picky. When purchasing a product, 74% of customers compare three platforms on average, and compare more than three merchants after entering 1688, while two years ago this proportion was only 50%.

Factories and merchants have complained that it is too difficult to do business now. Lu Hongwei, chairman of Nantong Dongdi Textile Co., Ltd., said: "Ten years ago, you could get bonuses if you opened a factory because we were the world's factory. In recent years, everyone has realized that it is not that business is difficult today, but that business was too easy in the past. In the future, a more competitive market may be the normal state of business itself."

However, the degree of internal circulation continues to decline. How can merchants balance revenue and reasonable profits while maintaining quality? 1688 recently gave a solution. The platform launched a "efficiency improvement and revenue increase" plan for source manufacturers, and provided free AI business assistants to help merchants simplify operations, increase traffic and orders. Judging from the internal test results of 10,000 merchants, this will be the key to 1688's breakthrough.

E-commerce involution intensifies, merchants fall into operational difficulties

As the internal competition in e-commerce continues to escalate, the "three mountains" of difficult operations, high costs and low profits weighing on merchants are becoming increasingly heavy.

In 2023, mainstream domestic e-commerce platforms successively launched the "refund only" policy. This is a feasible option for low-value products and fresh food, but the one-size-fits-all approach has caused huge controversy, and merchants and freeloaders have begun to compete.

A user bought a product worth 100 yuan on an e-commerce platform, and after receiving it, he applied for "refund only" and got the product for free. He then sold it on a second-hand platform for 80 yuan, making a net profit of 80 yuan. This type of buyer may also sell the product at a low price after using it for a period of time. After the platform widely implemented the "refund only" policy, a group of professional users who took advantage of the situation emerged.

In the first half of this year, various industries have staged price wars one after another, and high-frequency price cuts have become the norm. Dong Fanming, general manager of Shanghai Xinmai Food Industry Co., Ltd., mentioned the depth of e-commerce involution: "On May 29, Pinduoduo launched the 'automatic price tracking' function to help merchants automatically keep an eye on the prices of competing products. Within the authorized scope, as long as the other party's price is lower than their own, the system will automatically lower the price lower than the other party, and the lower-priced products can get more exposure and traffic."

The ever-lowering prices forced e-commerce sellers to look for cheaper sources of goods, and the pressure was transmitted to 1688, the source of purchasing and wholesale.

He Yudi, general manager of Dongyang Shangdao Fishing Tackle Co., Ltd., said that there are many products on the fishing line market that are priced at RMB 5.9 with free shipping, and it is impossible to make a profit at this price in the entire industry. So how do these merchants make money? He Yudi learned that many people put small game cards in the packages for game companies and earn advertising fees to subsidize losses. Merchants who use extremely low prices to exchange for traffic have entered a dead end of "selling at a loss but cannot stop."

Faced with a grim industry situation, Dong Fanming also began to "adjust himself three times a day": price, service, and advertising, but he found that no matter how high the price was, it would not wake up the consumers who were pretending to be asleep.

"The mooncakes we sell on 1688 are 4 to 5 yuan each. This year, some mooncakes are 1 yuan each. When we buy them and eat them, they are indeed mooncakes, not other foods." What surprised him even more was that the merchants who sold these mooncakes for 1 yuan each were not factories, but middlemen. "The cost of making a mooncake for me, without labor, is more than 1 yuan per piece. I don't know how they make it."

In the context of price wars, it is easy for products to break the bottom line of quality. Taking fishing line as an example, He Yudi said that people cannot tell the difference when they buy fishing line online, and they can only know whether it is good or bad after using it. Many merchants seize this point and cut corners to make the cost and price very low. "We can't compete with them at all."

In order to lower the price, He Yudi's factory has taken a number of measures to reduce the overall cost, including improving the level of intelligent equipment and reaching an agreed price with logistics companies. However, no matter how he cuts the cost, he cannot achieve the price of 5.9 yuan with free shipping. Like him, many merchants have stopped rolling.

Regarding the current e-commerce business, Ma Shuzhong, dean of the China Digital Trade Research Institute of Zhejiang University, pointed out that low-quality internal circulation is a kind of mutual harm. Competing on price is a dead end. Instead of competing for a limited cake, it is better to make the cake bigger and stronger. Where does the cake come from? The answer lies in technology and innovation.

1688 fights against internal competition and launches "efficiency improvement and revenue increase" plan and AI business assistant

August is a critical month for business in the second half of the year. In response to the operational difficulties generally reported by sellers, 1688 has introduced a series of anti-involutionary measures, including launching a "efficiency improvement and revenue increase" plan for source manufacturers in the industrial belt, and releasing a free "AI business assistant" to make business more certain and easier for merchants.

In terms of improving efficiency and increasing revenue, 1688 will improve the operating efficiency and business results of merchants by simplifying their business models on the platform. Merchants' businesses will be simplified to two models: self-operation and supply model. Self-operation uses AI, and the supply model uses hosting.

Both models have their own advantages. Lu Hongwei said that as a factory merchant, he certainly hopes to adopt the hosting model, where the platform helps with operations and sales, and he only needs to be responsible for supply. However, the current hosting model in the e-commerce industry requires commission deductions, which requires each factory to calculate its own accounts.

1688 has four revenue-increasing measures: newly signed TrustPass members will receive a 1,000 yuan marketing red packet upon joining; new merchants are provided with a "double guarantee" for their business results - "guaranteeing customer acquisition and order acquisition", helping merchants to obtain at least 50 Class B orders or buyers per month; two types of member merchants, strong merchants and super factories, can directly enter the core traffic scenarios, and there is no longer a transaction amount threshold; the platform has initiated a "10 billion scale traffic subsidy", which will increase the exposure of promoted products by more than 40% compared to before, and the average click cost will be reduced by 38%, with a 38% saving in promotion costs for every 1,000 clicks.

Through these measures, 1688 can support the revenue of merchants, save promotion costs and increase traffic. In addition, AI business assistants can reduce the burden of business operations for merchants and explore more performance possibilities.

According to an insider of 1688, the platform provides merchants with free AI business assistants , which is equivalent to equipping merchants with a digital employee team. Through 1688's AI technology, the platform can better and faster understand buyers' needs and discover more effective business opportunities.

Similar merchant AI products on the market generally charge an annual fee of more than 10,000 yuan. However, 1688 will make all existing AI products for merchants free, and subsequent merchant-side AI products will also be free, saving sellers a lot of expenses.

In the early grayscale testing of the AI ​​business assistant, 1688 gave priority to merchants with weak e-commerce operation capabilities to open trials. The platform invited 10,000 merchants to participate in the internal test. One month of test data showed that the traffic of all merchants increased by 54% and the order increased by 40%, and the efficiency improvement results far exceeded expectations. In addition, the adoption rate of many business suggestions provided by the AI ​​business assistant to merchants was as high as 70%.

While freeing up merchants' operational energy and significantly improving their performance, AI business assistants will become a key springboard for merchants to break through.

Merchants actively "break the volume" and leverage 1688 to achieve high growth

1688 has taken action in the hope of helping the industry return to a reasonable ecology. Merchants at the center of the internal circulation wave hope to escape from unfair competition, and a group of merchants are already actively seeking change.

He Yudi, a "second generation of factory workers born in the 2000s", started by improving product quality. He led his team to implement four innovative technologies: the first is the UGP mixing technology, which enables high-quality and high-yield mixed polyethylene wires; the second is the synchronous wire drawing process, which increases the wear resistance of the wires while retaining the maximum tension; the third is the improvement of the SKD solid bonding technology; and the fourth is the high-density seamless braiding technology.

After these core technologies were put into use, the overall tensile strength of Shangdao Fishing Gear's fishing lines increased by 32% compared to ordinary domestic fishing lines, and the service life was extended . Specifically, ordinary fishing lines can be used about 100 to 200 times, while the products of He Yudi's factory can be used 500 times, 800 times or even 1,000 times . One of its B-end customers praised it highly, and he supplied these fishing lines to downstream merchants, and the return rate of offline sales was as low as one in ten thousand.

Dong Fanming redefined the "three rolls". "Roll price means we differentiate our products; roll service means improving the customer experience across the entire chain; roll advertising means we want to optimize the retention of old customers."

In terms of service, Shanghai Xinmai hopes to be more and more meticulous. Many merchants have customized needs, so the company introduced AI packaging design. For example, it provided French caramel croissant tarts for Hema MAX , and quickly made "French, hand-painted style" packaging in response to customer requirements . In terms of advertising, Dong Fanming focused on deeply exploring the value of customers who have purchased and maximizing the value of advertising. The company reasonably reaches customers through the user SCRM system , which has a good effect on the number of repurchases and customer orders .

Shanghai Xinmai also wants to break through in the sales market. It is planning to expand into overseas markets such as Thailand and Singapore as well as the United States and Canada , and is conducting research and development on the overseas applicability of its products. Dong Fanming believes that the key to breaking through is to do a good job in products, services and retention.

The market has never stopped changing. For most factories that have been in operation for decades, the current "involution" is also a hurdle that they must overcome before they can continue their journey.

Before joining 1688, Lu Hongwei had been engaged in foreign trade for 23 years, but had never set foot in the field of e-commerce. Currently, he has only opened an online store on 1688, and the sales of a single store exceeded 10 million yuan within one year.

He said: "From the traditional order-based factory transformation to 1688, and then to spot plus customization, each step is full of challenges. But the market is like this, demand is constantly changing, we can only face it positively, jump out of our comfort zone, and embrace these changes, in order to survive in this highly competitive market."

As the industry becomes increasingly competitive, 1688, which has adopted the differentiated “anti-involution” approach, may attract more merchants, and the sales feedback it generates will be another plus point.

Dong Fanming introduced that the company's performance in the first half of this year has increased by 80%-100% compared with the same period last year . Even though the price of mooncakes on 1688 is the highest, it can still find buyers who meet its high-end positioning. He Yudi took over the factory's 1688 store at the end of 2023. As of now, sales have increased by 120%. He said that cooperation on 1688 can increase customer trust, and 1688's layout in AI has given him opportunities for further growth in sales and profits.