Where is the dealer road?
Recently, Moku.com received a call from an industry colleague, talking about the “vicious competition” incident that he encountered when e-commerce platforms hit dealers at low prices. The business scope of this e-commerce platform reflected to us by Mr. A is hardware tools, including some abrasive products. We call this platform Y platform for short. The business model of Y platform is: it has its own shops, which are purchased by itself and sold to customers. At the same time, some distributors of abrasive tools brands have their own shops on the platform. Speaking of which, it is only a common form in online shopping malls. If it is beneficial, there are more choices, more convenient procurement and so on. However, the problem is that the sales price of Y platform’s products, whether in its own stores or in stores, is lower than the market price, or even at cost price. Take a nylon wheel as an example. The dealer’s purchase price is 23 CNY, which usually increases the profit of 10%. It costs about 25 CNY to sell it to the user. The platform sells 23 CNY directly, which has no profit margin for the majority of dealers.
You are popularity, I am sales
So how is Y platform purchased?Mr. A told us that platform Y generally does not take goods from manufacturers, but selects well-known brands in the market, takes goods directly from brand dealers, and then buys other dealers or end customers at low prices through platform subsidies. From the perspective of the platform, low-price sales are to enhance the popularity of the platform and increase website traffic. From the perspective of distributors who cooperate with the platform, even if it is provided to the platform at cost price, it is still “profitable”. Because when the dealer’s sales volume reaches a certain amount, the manufacturer usually has a rebate. In addition, there are 5 or 6 points of profit through selling invoices. One is to earn popularity, one is to earn sales. The “chain of low-price sales” was thus formed. But this approach will undoubtedly harm the interests of most dealers. Mr. A said that through nearly 20 years of hard work, he has accumulated some customers, but platform Y has made the market price transparent, leading to the loss of customers of many physical dealers. Just imagine, how sad it is for future generations to enjoy the cool market that they have not been easy to open up!
The platform welcomes everyone to bonus hunter. Whose wool is it?
At present, Y platform has large warehouses in Guangdong and Hunan. The warehouses in Guangdong are about 30 kilometers away from Guangfo Hardware City. Some merchants in Hardware City also sell at low prices on the platform. This has a great impact on the surrounding dealers.
Y Platform also talked to Mr. A about cooperation and said that the platform could help him sell the price he could not sell. It was euphemistically called asking Mr. A’s customers to collect the wool from the platform.
How rich is “wool? Mr. A listed a product sold in the store. The official price is 1.45 CNY, while the platform quoted 1.3 CNY. Even if the dealer and the manufacturer purchase 1000 boxes, the price cannot be obtained.
The reason why Y platform can sell such a low price is mainly the subsidy of back-to-back capital. Its ultimate goal is not to help manufacturers promote products, but to accumulate the flow of their own platform, accumulate strength, do large-scale, and then through a series of capital means to earn more benefits.
In order to quickly enter the market, Y platform generally does not choose new brands, but chooses well-known brands, so as to attract more attention. How can some dealers and store customers not give in when the platform pays its own fees and the products are sold at cost or even lower than the cost price?
However, the platform’s low-price marketing activities will inevitably affect the brand’s price system.
The market price is chaotic, what is the attitude of the manufacturer?
Mr. A, in conjunction with some dealers and several manufacturers, gave feedback on the low-price competition of Y platform. He found that some manufacturers were hindsight of this. The manufacturers still felt that they were normal dealers purchasing, but they did not know that Y platform had lowered the factory price by 10%.
There are also some strong enterprises in order to strictly enforce marketing discipline, maintain market order and protect the reasonable profits of dealers in various sales areas, and send warning letters to dealers who have cooperated with the platform, prohibiting them from supplying products to platform y. However, the actual situation is that Y platform can still be seen to continue to sell these products. The platform’s response strategy is: if you can’t get the goods from the dealers in Guangdong, you will also get the goods from the dealers in Hunan, Henan and other provinces, and even get the goods at a very low price through various methods. Continue to sell on the platform.
Some manufacturers seem to show acquiescence because they are interested in short-term sales growth.
There are still some manufacturers who want to deal with this problem, but they can’t stop such behavior. At present, there is no better solution.
Just imagine, if manufacturers ignore the interests of dealers and do not prevent things from happening, in the long run, it will definitely cause confusion in the price system and the loss of dealers. Those dealers that have been lost either sell other brands, or create their own brands and OEM production. Then in the end, only the platform is purchased with the manufacturer, and the initiative of price is on the platform side. And for manufacturers, losing many dealers also means losing a large number of terminal users, and the sales volume of manufacturers will inevitably shrink.
Only by protecting the price system can the product life cycle be extended.
Of course, the above is only one of our extreme assumptions. The volume of dealers is very large. It is not realistic for Y platform to monopolize this cake. However, the bad impact of low-price competition on the market price system cannot be underestimated.
The first is to destroy the normal development of the existing supply chain industry, the second is to disrupt the market price order by low-price dumping, and the third is to squeeze the living space of the dealer group and affect social stability.
Dealers are the entrance to offline traffic, and each dealer has its own customers. Once the number of dealers decreases, customers will be lost and the sales volume of manufacturers will also decrease.
And the value of dealers is not only to help manufacturers develop customers and sell goods, but more importantly, to do after-sales service, including technical guidance, problem feedback, etc., which the platform cannot do.
Protect the price system of traditional channels, so that traditional channels have the power to sell products. If low-price dumping disrupts the price system, the life cycle of the product will also face termination.
Don’t give up food because of choking.
In recent years, due to the unclear market situation at home and abroad and the weakening demand, many factories want to expand various channels, but the choice of channels is very important. The sales method that uses price as a means of competition and has side effects on the subsequent market is not desirable.
And we can’t stop eating because of choking. We still need to see the promotion of e-commerce platforms to traditional industries. In fact, the e-commerce platform is also a kind of “distributor”. He broke the geographical restrictions of traditional distributors with the help of the Internet. If he can choose a good platform and make good use of it, it is bound to help manufacturers and distributors expand market channels.
In recent years, the General Administration of Market Supervision has also resolutely implemented the central government’s strategic deployment of “strengthening anti-monopoly and preventing disorderly expansion of capital”, actively working with relevant departments to systematically plan and comprehensively implement policies, carefully formulate work measures and plans, and strengthen supervision in the platform economy. Law enforcement, and the effectiveness of governance has gradually emerged.
For those platforms that still exist to seize the market in the form of low prices, manufacturers and distributors must pay enough attention, and at the same time actively cooperate with the regulatory authorities to control the improper price behavior of the platform, and ultimately create a green and healthy market environment.