As the '618 Shopping Festival,' China's biggest discount event in the first half of the year, has begun, e-commerce companies that have focused on price discounts are rapidly introducing new strategies to open consumer wallets. This involves enhancing the convenience of the shopping process or applying artificial intelligence (AI) recommendation systems to encourage more active consumer spending. In the current situation where domestic demand is sluggish, it is analyzed that a strategy that only emphasizes low prices is no longer effective.
On the 21st, according to the Chinese tech media 36kr, Alibaba's e-commerce platforms Taobao (淘宝) and Tmall (天猫) simplified their long-standing complex discount policies to 'up to 15% instant discount,' enhancing consumer convenience. Another major e-commerce company, JD (京东), maintained its existing discount structure while also promoting premium services targeting relatively high-priced products to attract high-income groups. Additionally, they are increasing consumer touchpoints by opening new offline stores in Beijing to coincide with the 618 Shopping Festival.
The industry is also focusing on live commerce and content commerce, which combine shopping with real-time broadcasting or social media (SNS) content. The strategy is to naturally expose products while increasing consumer interest to boost product immersion and purchasing conversion rates. A typical example is Taobao and JD providing cash subsidies for live commerce in collaboration with the short video platform Kuaishou (快手).
Alibaba is also actively utilizing AI by implementing an AI recommendation system that can increase purchasing conversion rates, while JD has introduced 'digital influencers' that can save expenses to one-tenth of existing personnel costs.
The 618 Shopping Festival is considered one of China's two major shopping festivals alongside the Double Eleven (双十一) on Nov. 11 in the second half of the year. It started as a discount event to celebrate JD's founding anniversary, and now the entire e-commerce industry participates. In this period, companies have competitively increased discount rates and provided subsidies to attract consumers.
However, the perception in the industry is that simply engaging in price competition as in the past is no longer sufficient to grow sales, and various new promotional strategies must be introduced. The backdrop to this is the sluggish domestic demand. Consumer sentiment is weakened due to economic uncertainties such as youth unemployment and a stagnant real estate market. Until 2019, prior to COVID-19, China's retail sales increased by 7.8% compared to the previous year, but last year, it only grew by 3.5%. By April of this year, the retail sales growth rate was limited to around 4-5%. According to 36kr, as a result of this domestic recession, the sales during last year's 618 Shopping Festival entered a decline for the first time in 16 years.
To stimulate domestic demand, the Chinese government is implementing various stimulus measures. This year, the government is further expanding the 'Trade-in' policy, which provides subsidies for replacing old home appliances with new ones. The day before, it lowered the loan prime rate (LPR) for the first time in seven months to inject liquidity.
However, these stimulus measures are insufficient to reverse the atmosphere in the domestic market. Bloomberg reported that 'the Chinese government, which set a 5% economic growth target for 2025, prioritized domestic demand stimulation this year, but April's retail sales indicated that people are unwilling to spend,' adding that 'to achieve 5% growth, consumption must still increase.'
This is also why the Chinese e-commerce industry is introducing various new strategies. These strategies are evaluated to be gradually effective. In fact, Taobao and Tmall have seen increases in transaction amounts for cosmetics and home appliances due to the simplification of discount policies, and participating companies have used Alibaba's AI system to increase purchase conversion rates by about 30%. JD's digital influencer strategy generated sales of 14 billion yuan (approximately 2.7 trillion won) over five days.