E-commerce Discounts Threaten Small Business Viability

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In recent years, the platform economy has rapidly risen in China, promising consumers diverse options while presenting new challenges for producersA striking example is the e-commerce sector, where the National Bureau of Statistics reported that between January and October this year, online retail sales reached 12.4 trillion yuan, marking an 8.8% increase compared to the previous yearOf this, tangible goods accounted for 10.3 trillion yuan, also reflecting an 8.3% growth and representing a considerable 25.9% share of the total retail sales of consumer goods in China.

While the expansion of e-commerce has been significant, it has introduced several complexities, notably a fierce price war that has enveloped the industryVarious manufacturing executives have expressed that the platform economy has compelled them into a cycle of price competition that pressures quality and profitability

The low-cost strategies employed by many e-commerce platforms have pushed manufacturers, especially smaller enterprises with less bargaining power, into precarious situations, struggling for survival amid shrinking profit margins.

This juxtaposition of opportunities and challenges has sparked an urgent question: What are the underlying causes of such deep-rooted low-price competition, and how can a win-win situation for all parties be achieved?

The phenomenon of low prices, however, must not come at the cost of qualityA prime example of how this concern plays out can be observed in a creative cultural enterprise based in Chongqing, which has recently ventured into tourism in rural AnhuiThey have introduced a popular chrysanthemum tea to the marketIn order to penetrate the e-commerce market effectively, the company's leader, Zhang Chuang, reveals the pressure to slim down product pricing significantly

"If we price a jar of tea at 5 yuan, the production cost must drop below 2 yuanIf the platform demands a lower price, we end up compromising on packaging and even seeking out smaller factories for production to squeeze costs further," he explained during a recent interview.

The rise of e-commerce has gradually stripped traditional manufacturers of their pricing power, forcing them to reduce prices drastically, even leading to losses, all in a bid to stay afloatThis situation has sparked worries regarding product qualityMultiple sources have highlighted that many mainstream e-commerce platforms prioritize high cost-performance ratios, with algorithms favoring lower-priced goodsWhile platforms aspire to promote 'good goods at good prices', there are certainly instances of merchants compromising quality, thus disrupting the industry and market ecosystem.

One executive from a beauty company, Zheng Fei, voiced her frustrations regarding the immense pressure from major e-commerce platforms

"The predominant players are deeply engaged in price wars, especially with the implementation of comparing pricing systems during promotional periodsGeneric or 'white label' products compete aggressively, capturing market shares while undermining price stability," Zheng statedShe further noted that on e-commerce sites, many private label products primarily compete on price, providing little in terms of quality differentiation.

For instance, Sun Can, the head of a snack company in Hunan, recounted his experiences purchasing a white label correction product online that emitted a strong odor even after a week of use and deteriorated further after wearing"The quality is alarmingly subpar, raising concerns over many products listed on these platforms," he remarkedZheng agreed, noting that e-commerce's low-price tactics severely squeeze profitability, prompting some companies to divert their focus from quality to merely meeting cost objectives.

One leader of a publicly-listed snack company in Central China, Wenhua, reflected on the situation with disappointment

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His assessment of the ongoing trends suggested that some manufacturers have resorted to selling their goods at price parity or even at a lossOver time, this compromises product quality as companies prioritize survival over standards, ultimately resulting in a market populated with subpar products, whereby 'bad money drives out good'. This cycle leads consumers to distrust both platforms and brands, creating a vicious cycle"Manufacturers no longer make a profit, while consumers receive products that underdeliver," he lamented.

But what drives the low-price competition in e-commerce? According to media reports, Xia Jiechang, president of the Chinese Marketing Association, discussed the issue during an academic forum focused on enhancing the e-commerce ecosystemHe argued that the essence of the low-price phenomenon is fundamentally tied to algorithms and traffic dynamicsWith e-commerce growth plateauing and overall traffic limited, securing public domain traffic has become a pressing challenge for both platforms and merchants, ushering in an era of intensified low-price competition.

Many business leaders conveyed that they find themselves involuntarily trapped in this competitive spiral

E-commerce platforms often deploy substantial subsidies to undermine competitors' pricing, igniting fierce competition for consumer traffic"When manufacturers and distributors list similar products on platforms, low-priced ones are showcased first, often nudging consumers toward even cheaper optionsIt's a losing battle for businesses," Wenhua expressed.

This ruthless competition cycle, characterized by price comparisons and all-encompassing pricing strategies, has proven grueling for small to medium-sized manufacturers"In a market defined by competition, if you don't sell it, someone else will," Wenhua pointed outThe struggle permeates the manufacturing sector as even major manufacturers grapple with diminishing margins while weaker competitors revert to low-cost strategies to survive.

Even amidst adverse conditions, there are manufacturers who challenge the status quoSun Can noted that some firms prioritizing brand consistency and product quality over price gouging have observed a relatively sustainable business model

For instance, a microwave oven manufacturer in South China has steadfastly built its online presence, resisting the urge to depend on social media influencers or celebrity endorsementsThe firm has optimized its strategy based on its unique resources, rebuffing the trend of price competition entirely and maintaining its commitment to quality.

This unwavering dedication to a strong brand strategy and quality enhancement, as highlighted by officials from various sectors, provides a promising pathway for long-term sustainability against the backdrop of e-commerce dynamicsGuo Ping, secretary-general of the Cross-Border E-commerce Industry Association in Huizhou, emphasized that relying solely on low pricing threatens innovation within manufacturing"Brands must invest in development and quality improvementUnderpricing stifles growth potential, forcing management and operational frameworks to operate within rigid parameters," he cautioned.

Finally, industry experts contend that fostering a friendly e-commerce ecosystem where healthy competition prevails is becoming a pressing demand among manufacturers

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