JD.Com, Inc (NASDAQ: JD) is eyeing a 10 billion yuan ($1.5 billion) subsidy campaign against the budget shopping app PDD Holdings Inc (NASDAQ: PDD) in Early March to compete.
The subsidies will cover JD.Com’s self-operated online shops and storefronts set up by third parties on its platform, SCMP reports.
In December, JD.Com founder Richard Liu Qiangdong criticized his lieutenants for diverging from a low-price strategy and other strategic missteps.
“Losing the low-price reputation will roil the foundation of our existence,” Liu warned in an internal email at the time, adding that “low prices were the most important weapons responsible for our past success, and they will be essential in the future.”
PDD first rolled out its multibillion-yuan subsidy program in mid-2019, which helped the latecomer solidify its position in China’s small towns, where consumers tend to be more price-sensitive.
Shares of Chinese companies, including JD.Com, PDD and Alibaba Group Holding Limited (NYSE: BABA), were down by 3%-8%.
While JD.com enjoys a firm footing in higher-tier cities, its network is not as extensive as Pinduoduo’s in lower-income regions, according to Zhuang Shuai, founder, and chief analyst at e-commerce consultancy Bailian.
While Chinese consumers are often attracted to cheap merchandise, he said that budget pricing is a double-edged sword that could lead to costly battles and red balance sheets, especially when growth in China’s e-commerce sector has stagnated. “We’ve seen Pinduoduo make significant losses in its early days.”
JD.Com’s price war could fuel a period of hyper-competition in the sector that may erode margins, Bloomberg reports.
The move could mark an acknowledgment on JD.Com’s part that it is facing market share pressure from Pinduoduo, Vey-Sern Ling, managing director at Union Bancaire Privee, said. Ling termed the move negative for the e-commerce industry, including Alibaba Group Holding Limited (NYSE: BABA).
JD.com’s move also suggests that its superiority in logistics did not prove enough to thwart competition from smaller players.
Price Actions: BABA shares traded lower by 3.11% at $96.90 in the premarket on the last check Tuesday. JD shares traded lower by 8.53% at $48.50, and PDD shares traded lower by 4.73% at $89.00.
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