Will JD.com’s low-price strategy also apply to the automotive aftermarket?
On September 26, the day Tuhu Auto Care was listed on the Hong Kong Stock Exchange, Miao Qin, Vice President of JD.com Group and President of JD.com’s Retail Automotive Division, sent a message of congratulations on Moments, saying at the same time that JD Auto Care “all ‘Zhenhu Price’ products are better than Youyou quotient is 5% lower.” The congratulatory message and the letter of challenge were sent at the same time.
Since Liu Qiangdong, founder and chairman of the board of directors of JD.com, proposed at an internal meeting at the end of last year that low prices are the only basic weapon, JD.com will comprehensively promote low-price strategies in 2023, launch a tens-billion subsidy channel, liberalize POP investment, and lower freight thresholds. Miao Qin’s remarks this time seem to indicate that JD.com will also wield low-price weapons in the automotive aftermarket.
IPOs and price wars have happened countless times in the history of China’s Internet development. After Dangdang went public, it launched a price war with JD.com in the book field. Only this time, the battlefield is the automotive aftermarket.
In fact, in the past ten years since the Internet has penetrated into the automotive aftermarket, JD.com is not the first to use the low-price brand. As early as 2013 and 2014, when the automotive aftermarket was booming, some companies tried to use low-price strategies to leverage the market and ignite the industry, but the effect was not significant. Times have changed, and under the low-price strategy, JD.com has once again ignited a war in this industry.
"Yidian Finance" attempts to answer three questions in this article:
First, why did JD.com choose to extend its low-price strategy to the automotive aftermarket?
Second, why now, to shock the "Tiger"?
Third, with lessons learned from the past, can JD.com’s low prices for car maintenance be effective?
Why keep a car?
Three-quarters of 2023 has passed, and the full extent of JD.com’s low-price strategy has been fully revealed. After Liu Qiangdong established a low-price strategy last year, in addition to obvious competitive measures such as tens of billions of subsidies, JD.com also adjusted its business structure. In April this year, JD.com announced a new round of proactive changes. JD.com Retail eliminated the business group level and changed the business group into a business unit.
Automobiles are one of the businesses undergoing adjustments. In June this year, JD Retail integrated its entire vehicle, vehicle products, second-wheel and car maintenance omni-channel businesses and teams to establish a new JD Auto Division, headed by Miao Qin, vice president of JD Group and former head of JD Retail Life Services Division. Report to Xin Lijun, CEO of JD Retail.
This adjustment is tantamount to a delegation of power. While giving greater trust, it also allows the automotive division to dare to think and do more. The "Tiger Price" reiterated by Miao Qin on the launch of Tuhu this time is a "heavy hammer" given by the car maintenance omni-channel business department of JD.com's retail automobile division to the automobile aftermarket.
Why did JD Auto choose the automotive aftermarket as a breakthrough point for its low-price strategy? According to "Yidian Finance", there are two reasons: first, the automotive aftermarket still has prospects; second, there are price pain points in the automotive aftermarket.
According to statistics from the Ministry of Public Security, there will be 319 million motor vehicles in the country in 2022, including 306 million fuel vehicles, accounting for 96%; the number of new energy vehicles will reach 13.1 million, accounting for 4.10% of the total number of vehicles. At the same time, China's new car sales are still growing steadily, with passenger car sales of 23.563 million units in 2022, a year-on-year increase of 9.5%.
Against this background, the automotive aftermarket continues to grow. According to a CIC Consulting report, China's automobile service market (including automobile repair and maintenance, automobile cleaning and car beauty, and installed accessories) has reached RMB 1.2 trillion in 2022, and is expected to grow at a compound rate of 9% from 2023 to 2027. The annual growth rate increases and will reach 1.9 trillion yuan in 2027.
While being optimistic about the prospects of the automotive aftermarket, JD.com also has an insight into its existing price pain points.
△Chen Haifeng, Vice President of JD.com’s Retail Automotive Division and General Manager of the Car Ownership Omni-Channel Business Department
Chen Haifeng, vice president of JD.com's retail automobile business unit and general manager of the car maintenance omni-channel business unit, shared this story at a media communication meeting: When he was on a business trip in Guangzhou, the taxi driver was very happy to tell him that he bought four tires on JD.com 618. My car has traveled 110,000 kilometers. When it reaches a certain mileage, the front and rear wheels start to be swapped. This is the first time I have changed the tires.
Tires are consumables and must be replaced after driving for a certain number of kilometers. Even if the road conditions are good and the tire wear is not that serious, they must be replaced after 70,000 to 80,000 kilometers for safety reasons. Doesn’t the driver know this common sense? Know that the only thing holding him back from switching is the price.
As Chen Haifeng said, "China's supply chain and the global supply chain are in a state of competition and cooperation. It can give Chinese consumers too many choices. However, for car owners, there are gaps in knowledge and information in the automotive aftermarket, and it is extremely opaque. Moreover, there are hundreds of thousands of service stores in China, and the supply chain level and service level are also uneven.”
Taking tires as an example, the price ranges from a thousand yuan to a hundred yuan per tire, and the prices of different stores also vary during offline installation. In addition, engine oil, transmission oil, brakes, spark plugs, coolant, air conditioning, etc. are also maintenance items that need to be done regularly. Some routine maintenance costs thousands of yuan, and some service levels are not guaranteed.
This has caused many car owners to fall into the dilemma of "buying expensive ones for fear of being ripped off, buying cheap ones for fear of being unsafe". But in fact, with the rise of Internet power in the automotive aftermarket, cheapness and quality can have both. Like other e-commerce fields, the purpose of the existence of Internet platforms such as JD.com is to eliminate information gaps, including price.
Zhou Qi told "Yidian Finance" that once she only planned to change the engine oil, but many items were added without her knowledge, and she ended up spending 800 yuan. This was a store recommended by her family, and she later bought it directly online. My family helped me change the oil and filter, which cost only 120 yuan.
Why now?
Low-price competition is not new in the automotive aftermarket. During the O2O entrepreneurial boom around 2013 and 2014, countless people entered the automotive aftermarket, offering money-burning subsidies such as “one-yuan car wash”, “coupon car wash”, and “free car wash”. Popular. Later, most of these platforms either closed down and exited, or merged with other companies for development.
In recent years, although the automobile aftermarket is still growing, its volume seems to have become quieter. Recently, whether it is the launch of Tuhu Automobile or JD Auto's "Shock Tiger Price", it has added fire to the industry. So, why did JD Auto choose to implement a low-price strategy here? Is it just because it wants to shock the "tiger"?
On the one hand, this is JD.com’s strategic consideration for its own development.
As early as 2017, JD.com began to enter the automotive aftermarket, and has accelerated its development in the past two years. In 2022, JD.com will upgrade to JD.com Auto Care, and in 2023, JD.com’s automotive business will be integrated into a strategic first-level department. Whether it is JD Auto or JD Car Maintenance, the launch of low-price initiatives such as "Zhenhu Price" is part of their accelerated development.
"Zhenhu Price" was launched in mid-September, covering products such as tires, maintenance, accessories and batteries. According to information revealed by Chen Haifeng, the "Zhenhu Price" will not only continue, but will also continue to increase. For example, JD.com will soon launch 50% off tires from brands such as Giti and Kumho.
On the other hand, from the perspective of the automotive aftermarket industry and market, now is the right time.
In the history of China’s Internet development, price wars have occurred in many industries. JD.com has successively launched price wars with Dangdang, Suning, etc. in the fields of books and home appliances 3C. Food delivery, travel, Internet coffee and other fields have also been subject to price wars. spread. In these fields, the logic behind price wars is to exchange subsidies for market share and make profits after occupying a certain market share.
But this logic obviously didn’t work in the automotive aftermarket, at least not at the time.
The transformation of consumption by e-commerce generally follows the order from easy to difficult, and from light to severe. The more difficult and severe the transformation, the more difficult it is. The e-commerce of consumer goods such as clothing and daily chemicals will be basically completed within a few years, and the e-commerce of catering will be basically completed within ten years. It is conceivable that it will take longer to complete the basic e-commerce of the more difficult and heavier automotive aftermarket. time, more money.
Previously, money-burning subsidies such as "one-yuan car wash", "coupon car wash", and "free car wash" did not burn out the future. One of the reasons is that the Internet of the automotive aftermarket was just starting at that time. There were many platforms in the midstream and the model was still being explored. During this period, downstream consumers and upstream supply chain companies did not have high awareness, acceptance, and recognition of it.
After ten years of development, the timing is obviously different now:
First, the competition situation is different. After a series of integrations, the competition pattern in the industry is basically stable, and it is basically competition between several major forces such as JD.com, Tuhu, and Tmall;
Second, the situation in the upstream industrial chain is different. Foreign brands are paying more and more attention to cooperation with Internet platforms. This year, global executives from Michelin, Bosch, Continental, and Mobil visited China for the first time. The first stop was JD.com. At the same time, domestic brands are also rising;
Third, consumer cultivation is different. After years of penetration of the Internet in the automotive aftermarket, consumers’ awareness, acceptance, and recognition of Internet platforms such as JD Auto Care have increased.
At this time, the automobile aftermarket has gone through the cold start period and is waiting for a big hit. JD.com’s “Zhenhu Price” for car maintenance is just such a big hit. Different from the "low price - grab share" logic of other Internet industries, JD.com's low price logic for car maintenance is "low price - stimulate consumption - expand the market". The greater purpose is to create incremental growth and further heat up the industry.
Can JD.com’s low-cost car maintenance be effective?
With lessons learned from the past, can JD.com’s low-price strategy for car maintenance be effective?
As Chen Haifeng said, any consumer industry is a price-sensitive industry, and low-price strategies can be effective. However, it should be noted that the automotive aftermarket sector is very different from other consumer industries, and low prices alone are not enough.
On the one hand, this industry is very heavy, has a long chain, is highly professional, and is a matter of life and death. There is no room for sloppiness and quality problems.
Compared with other consumer products, the automotive aftermarket involves many links and the services are highly specialized. The replacement and maintenance of tires, engine oil, glass fluid, brakes, transmission oil, brakes, etc. all require certain professional knowledge. This means that price is not the only dimension that car owners care about, product quality and service quality are equally important.
At the end of 2022, Liu Qiangdong proposed a user experience formula. The numerator is product plus service, and the denominator is price. The division of the two must be greater than or equal to user expectations. In his understanding, JD.com's low price means that the price is low enough, but it is not simply the lowest price on the entire network, but a low price guaranteed by the quality of products and services.
At the media communication meeting, Chen Haifeng also emphasized that what JD.com wants to launch is not a price war, but a battle to defend the value of the automotive aftermarket. The “value” is first and foremost user value: “Users’ needs are not low prices, users The demand is to pay the corresponding price and be able to obtain correspondingly valuable or more valuable services and goods.”
In their interpretation, low price is the first, the core, and the 1 before 0. Low prices test supply chain capabilities and platform capabilities. While asking brand owners for low prices, at least ensuring they are no higher than other platforms, JD.com itself also has to "bleed", such as subsidizing the installation fees of offline stores and launching "buy-buy" services. "Double the price" service, etc.
Having been in the retail and automotive aftermarket for many years, it has such confidence. Years of e-commerce development have allowed JD.com to establish cooperation with many automotive supplies companies, forming a differentiated supply chain for oil tankers, and reaching omni-channel strategic cooperation with many domestic and foreign leading oil, tire, and accessories companies including Castrol, Dunlop, and Bosch.
At the same time, JD.com’s accumulated service capabilities in the e-commerce field have also been copied by JD.com Auto Care to the automotive aftermarket. Since last year, JD Car Care has upgraded its services and launched JD Auto Customer Service Hotline, Auto Doctor and 24-hour emergency rescue service.
On the other hand, unlike food delivery and travel, which are about "services looking for people", e-commerce in the automotive aftermarket is about "people looking for services." In addition to low price and high quality, the core demands of car owners are proximity. This requires the platform to be able to provide accurate service push based on LBS, while also meeting demand and providing as many and rich store options as possible.
It is understood that JD.com has opened more than 1,400 high-standard stores in more than 160 cities across the country, and has cooperated with more than 30,000 third-party directly connected stores and 4,000 4S stores to build a complete offline service network.
As Chen Haifeng said, the biggest core advantage of JD.com's car maintenance is its super centralized site. There are two networks in this centralized field. The online traffic network serves more than 600 million users in China, and the offline service network serves more than 34,000 stores. At the same time, its offline service network is still expanding. It is opening up to more stores and technicians, and heading towards a wider sinking market.
While expanding the offline service network, it is also improving the service quality of this network and promoting the standardization and transparency of offline services. For offline stores, JD.com has its own rating system. Stores with higher cost performance and better services will receive traffic support from JD.com, while those with poor service will be punished or even terminate cooperation.
One of the reasons why previous low prices had little effect in the automotive aftermarket is that the platform is "lame", either empty but with traffic but no supply chain and service network, or with supply chain but no traffic. Jingdong’s car maintenance system walks on two legs, which makes it faster and more stable.
All low-price strategies face challenges of health and durability, and another meaning of Chen Haifeng's "value defense" lies in industry value. He emphasized that the source of "Zhenhu Price" or JD.com's low price for car maintenance is not malicious subsidies, but the use of JD.com's own warehousing and logistics ecological advantages to help industry partners and itself optimize costs.
For example, it has opened up social inventory sharing with Continental, connected the products in dealer warehouses to JD.com, and coordinated its cooperation with JD.com Logistics and Debon Logistics.
"Zhenhu Price" is low-price competition, but it is not just low price. JD.com's low-price strategy for car maintenance is essentially a reshaping of the supply chain and ecology with price as the core, and it is also a reshaping of the value of the entire industry. By heating up the market with low prices and driving industry standardization through the digitization of supply chains and stores, JD.com wants to initiate an industry change from price to value.
Conclusion
This year, the internet is rolling again. The food delivery field, which has been stable for several years, and the coffee field, which has just finished its business, have once again adopted low prices as one of their main competitive strategies due to the entry of new competitors. E-commerce companies are even more aggressive on low prices. It's just that unlike the previous disorderly low prices of "killing one thousand enemies and losing eight hundred to yourself", the current low prices are more rational.
Compared with more mature fields such as e-commerce, takeout, and coffee, under the leadership of JD.com, the automotive aftermarket has just begun to roll up. Other industries are growing due to maturity, while the automotive aftermarket is growing mature due to growth. The Internet has eliminated or suppressed black cars and black intermediaries. With platforms such as JD.com participating in and even dominating the social division of labor in the automotive aftermarket, the future of this industry also has endless imagination.