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Online book price war is a charade
November 14, 2011, Monday
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China's online retailers seem, to me, to be addicted to price wars, but none has generated so much drama as the recent discount battle among booksellers.
It all started on October 13 when Suning.com, China's largest electronics retailer, decided to expand into books. Suning launched its new product range with what were called the most generous price reductions in China's e-commerce history.
During a three-day opening promotion, which reportedly cost the company 10 million yuan (US$1.58 million), the company offered to match any amount spent with a voucher of equivalent value for any goods bought on the website within three days.
China's biggest online book dealer, Dangdang.com, responded immediately by offering higher rebates, and 360buy.com, China's second-largest online retailer, fired back with an across-the-board 50 percent discount.
The price war was similar to, but larger than, a price war that broke out between Dangdang and 360buy.com last year, when online book buyers faced long delivery delays because heavy demand outstripped stocks.
But many people, like my friend Ding, ended up feeling cheated by the bargains extravaganza. To them, the price war turned out to be nothing more than a marketing smokescreen.
"None of them cares that much about the book sales," Ding rued. "All they care about is catching the attention of consumers. They are all just evolving into online department stores."
It is true that traditional online book retailers such as Dangdang and Amazon are ramping up their non-book product categories to include the likes of cosmetics, clothing, consumer electronics and even home appliances. Amazon now estimates 50 percent of its sales in China this year will come from product lines outside of paper and digital publications.
And 360buy, which started as an electronics retailer, is chalking up only 3 percent of its sales from books since it launched into publications last November.
Still, online book retailing is likely to remain a battleground for a hard-knuckle price war, not because the retailers give a fig about books but rather because they need a product category, heavily discounted, to leverage interest in their websites.
According to research firm Analysys International, China's online book sales in the second quarter skyrocketed 85 percent from a year earlier. That shows that bargains do attract consumer attention.
Among China's top five business-to-consumer online platforms, Suning was the only one that had not opened a bookstore as of September 1. Now the battle is joined.
"It's time for Suning to join this big trend," said Cui Hongbo, senior partner of United Wisdom Consulting Group. "The mantra of online retailing in China is to scale up quickly to increase bargaining and financing power. It doesn't really matter what the shop sells to do that."
Unfortunately, wild expansion into new product categories often leaves retailers too preoccupied with staking out new territory and too inattentive to cultivating customer loyalty.
Books are a popular commodity in China, so their appeal as a marketing come-on is understandable.
Unlike items such as clothing and footwear, books are a highly standardized product with a predictable quality that enables consumers to easily compare prices both online and off.
Online prices are generally cheaper. As a result, many bricks-and-mortar bookshops are having a hard time of it. The web has changed book-buying behavior to a large extent.
Cui said price wars merely reinforce this trend.
Suning replaced Dangdang as China's third-largest online retailer in the third quarter, and the company is vowing to catapult itself into the top three booksellers by the end of this year.
Luo Qingqi, director of Pale Consulting Co, said Suning's product category expansion suggests a turning point in online retailing competition.
"Books may just be a start," Luo said. "I think the company will add more small, light items to its product mix - items that can be delivered with home appliances at relatively no extra cost."
Since 2008, Suning has been building its own logistics network to service its vast offline retail chain. Six logistics centers have begun operation, and another 18 are in the pipeline.
Suning Chairman Zhang Jindong said the company plans 60 more logistics centers in the next five years, each covering at least a 150-kilometer radius.
The drive to create online department stores requires big investment in stocks and logistics. Speedy delivery is a crucial part of attracting and keeping customers.
360buy Chief Executive Officer Liu Qiangdong once pledged on his microblog that his company would pump up to 30 billion yuan into four regional logistics networks in the next five years, serving seven mega-cities and 35 second-tier cities.
He said the company is considering an overseas initial public offering to finance that ambition.
Online retailers, no doubt, are prepared to blow a lot of money in the battle for supremacy. I think the price war is probably worth the sacrifice. At least for now, it is about slashing costs to create profits in the long run, rather than compromising both to pursue blind growth in the short term.
It all started on October 13 when Suning.com, China's largest electronics retailer, decided to expand into books. Suning launched its new product range with what were called the most generous price reductions in China's e-commerce history.
During a three-day opening promotion, which reportedly cost the company 10 million yuan (US$1.58 million), the company offered to match any amount spent with a voucher of equivalent value for any goods bought on the website within three days.
China's biggest online book dealer, Dangdang.com, responded immediately by offering higher rebates, and 360buy.com, China's second-largest online retailer, fired back with an across-the-board 50 percent discount.
The price war was similar to, but larger than, a price war that broke out between Dangdang and 360buy.com last year, when online book buyers faced long delivery delays because heavy demand outstripped stocks.
But many people, like my friend Ding, ended up feeling cheated by the bargains extravaganza. To them, the price war turned out to be nothing more than a marketing smokescreen.
"None of them cares that much about the book sales," Ding rued. "All they care about is catching the attention of consumers. They are all just evolving into online department stores."
It is true that traditional online book retailers such as Dangdang and Amazon are ramping up their non-book product categories to include the likes of cosmetics, clothing, consumer electronics and even home appliances. Amazon now estimates 50 percent of its sales in China this year will come from product lines outside of paper and digital publications.
And 360buy, which started as an electronics retailer, is chalking up only 3 percent of its sales from books since it launched into publications last November.
Still, online book retailing is likely to remain a battleground for a hard-knuckle price war, not because the retailers give a fig about books but rather because they need a product category, heavily discounted, to leverage interest in their websites.
According to research firm Analysys International, China's online book sales in the second quarter skyrocketed 85 percent from a year earlier. That shows that bargains do attract consumer attention.
Among China's top five business-to-consumer online platforms, Suning was the only one that had not opened a bookstore as of September 1. Now the battle is joined.
"It's time for Suning to join this big trend," said Cui Hongbo, senior partner of United Wisdom Consulting Group. "The mantra of online retailing in China is to scale up quickly to increase bargaining and financing power. It doesn't really matter what the shop sells to do that."
Unfortunately, wild expansion into new product categories often leaves retailers too preoccupied with staking out new territory and too inattentive to cultivating customer loyalty.
Books are a popular commodity in China, so their appeal as a marketing come-on is understandable.
Unlike items such as clothing and footwear, books are a highly standardized product with a predictable quality that enables consumers to easily compare prices both online and off.
Online prices are generally cheaper. As a result, many bricks-and-mortar bookshops are having a hard time of it. The web has changed book-buying behavior to a large extent.
Cui said price wars merely reinforce this trend.
Suning replaced Dangdang as China's third-largest online retailer in the third quarter, and the company is vowing to catapult itself into the top three booksellers by the end of this year.
Luo Qingqi, director of Pale Consulting Co, said Suning's product category expansion suggests a turning point in online retailing competition.
"Books may just be a start," Luo said. "I think the company will add more small, light items to its product mix - items that can be delivered with home appliances at relatively no extra cost."
Since 2008, Suning has been building its own logistics network to service its vast offline retail chain. Six logistics centers have begun operation, and another 18 are in the pipeline.
Suning Chairman Zhang Jindong said the company plans 60 more logistics centers in the next five years, each covering at least a 150-kilometer radius.
The drive to create online department stores requires big investment in stocks and logistics. Speedy delivery is a crucial part of attracting and keeping customers.
360buy Chief Executive Officer Liu Qiangdong once pledged on his microblog that his company would pump up to 30 billion yuan into four regional logistics networks in the next five years, serving seven mega-cities and 35 second-tier cities.
He said the company is considering an overseas initial public offering to finance that ambition.
Online retailers, no doubt, are prepared to blow a lot of money in the battle for supremacy. I think the price war is probably worth the sacrifice. At least for now, it is about slashing costs to create profits in the long run, rather than compromising both to pursue blind growth in the short term.
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