A week ago, I presented JD.com to the class, one of the biggest E-commerce company in China. As promised, this follow-up blog post will give you an inside look into of the company based on my research and first-hand experience.
First, I will give you a sense of how big the E-commerce market is. “China now has 772 million internet users according to a report published by the China Internet Network Information Center (CNNIC) today. Internet users are showing significant growth rate with 40.74 million new netizens during 2017. China has its Internet penetration rate reaching 55.8%. Moreover, Chinese mobile phone users reached 753 million, showing continuous increase while users of other devices going down. “The proportion of internet users using mobile phones rose from 95.1 percent in 2016 to 97.5 percent in 2017.”
With large number of internet users, China’s online-shopping is experiencing incredible boom according to a new report from Goldman Sachs who estimates that its momentum will be sustained and more than double in size over the next few years. Disposable income and consumer spending in China has been growing continuously at a slow but steady state. Average spending of China’s Online shopping reaches to top $1,800 in 2017. China has already become the world’s largest online retailing market, which was $1.7 trillion last year.
Thus, numerous companies are trying to take advantages in this huge market, among which Alibaba and JD.com are ranking top 2 online-shopping platform. JD.com aims to become China’s go-to, one-stop online shopping platform, gaining competitive advantage against Tmall from Alibaba.
Similar to Amazon model, you can buy almost everything in JD.com. It provides different product mix with speedy delivery. Focusing on new product introductions, JD.com strives to grow its marketing mix. Its return policy establishes credibility, making it the the most reliable E-commerce online shopping platform. The company has incredibly extensive network of retailers and suppliers (somehow Porter’s five forces are ringing bells in my brain). With vast network of suppliers and distributors, JD.com is able to cover bigger geographic area. Better product quality and authenticity are the most competitive edge against JD’s biggest competitor Alibaba.
Like I mentioned in class, JD.com has its built-in chat channels for customer service, where you can ask detail question about the product you are about to buy, lowest price guaranteed. While I had one-day shadow in customer service department, I witnessed and tried myself helping customers getting their refund via built-in chat channels. It creates better customer experience by providing instant response, comparing to calling customer service, waiting in lines and getting instructions and messages by robots. Although a lot of E-commerce companies in China has built-in chat channels like JD does, JD has one of the biggest customer service center, providing top shopping experience. JD recently introduced third party retailers into its platform which provides C2C shopping choice to customers, directly competing with Alibaba. With built-in Channel included, customers can bargain with those retailers, getting customized items and lower prices. Most customers will get their demand fulfilled. Like Professor Kane said in class, it is not worth losing a customer, getting negative social impact to the company just because someone gets turned down and upset. Furthermore, on the delivery day, you can track your delivery person on your phone. Imagine tracking your delivery like tracking your uber! I would say the delivery person is more like a friend when you order more often and meet the same person every time. You may even have his cell number, and he will always try to delivery in hand. If not, management office or receptions of company will do.
You may raise a question “how is Amazon doing in China?” It is ranked #4 in China’s E-commerce companies according to the latest data. Why can’t Amazon China stand out? It is because customers have very low switching cost, and Amazon China does not have many competitive advantages. One of the significant milestones for JD is that the company started building its own logistic system in 2007, after receiving its first investment from VC. Why does E-commerce companies like Amazon, JD tend to build their own logistics?
Let’s put it this way. Suppose you are a customer and you want to get a toy in JD.com. After comparing prices from different shopping platforms, you find out that a third-party from Alibaba has the same product and 5 bucks cheaper than JD.com. However, JD provides speedy delivery. If you order it today, you will probably get it this afternoon or tomorrow. If the toy has any quality problems, it’s easier to return from JD.com. That’s the significance from a customer behalf. For retailers, a third party logistic company will get your data if you pick it to deliver products. It will bargain the delivery fee once someday making retailers in disadvantage stages. Thus, the CEO Richard Liu envisions the importance of building logistics system on its own, and providing 211 delivery rule. That means same day delivery for orders submitted prior to 11AM and next day delivery (before 3PM) for orders submitted before 11PM. It sets a new standard in China’s B2C e-commerce sector. JD customer does not have to sign up for “prime membership” like Amazon does. They enjoy the speedy delivery service by purchasing products from JD retailers. As far as I am concerned, Chinese online shoppers have become more picky because of JD’s service.
(My delivery day)
JD logistics is one of the most advanced logistics system world-wide. Warehouses in major cities are all automatic. It also has unmanned delivery cars testing in big campus where an automatic delivery car approaches to a customer, who dial in passcodes and gets his or her order.
As for now, JD logistics have a huge group of employees working for delivery. The motor tricycles they drive provide satisfactory deliveries. I once ride on one of those tricycles, and it actually works very well traveling between buildings and roads. Those delivery men are all directly employed from JD, getting better wages and benefits from JD. I once considered that if unmanned delivery cars and drones take their jobs one day. However, I have seen those delivery workers learning new techniques, becoming engineers to manage warehouses, repair cars and drones, or become regional managers of JD. That is a nice way out.
Since E-commerce market is very competitive, a company has to either enter a niche market, provide lower prices or better shopping experience in order to succeed. One interesting thing I mentioned is that JD has its delivery men wearing suits and gloves while delivering luxury items. By providing better shopping experience, JD strives to get more loyal customers.
Overall, I think JD is a good company with great potential. I am thrilled to see how it will compete Alibaba, Amazon in the future. I know I am skipping JD Finance here, because I don’t want this blog to be too long to read. I hope you like my presentation last class and additional information here. If you have any questions I am always happy to answer.