Recently, multiple domestic platforms announced that the search weight has once again been changed to prioritize GMV allocation.
Many students have asked me whether this proves that the price war is over, and what is the logic behind Amazon? Referring to some information and my understanding of Amazon, today I will talk about my speculation on this news and the logic of Amazon's traffic.
Table of Contents#
01 / Why did domestic e-commerce platforms change?
02 / Traffic allocation method for searching e-commerce
03 / Has Amazon changed?
04 / Conclusion
This article was first published in G26 Cross-border E-commerce Entrepreneurship Community, with the number 2402.
Why did domestic e-commerce platforms change?#
The reason why the low-price model has been adopted in the past two years is due to the economic downturn and the success of Pinduoduo. Many platforms also want to enter the sinking market, so they followed the low-price model. However, after following this model, they found that the online shopping population has entered a stock era, making it difficult to achieve large-scale growth. After lowering prices, they found that there are not enough people to make up for the loss of GMV caused by low prices.
For example, previously, 100 customers could generate 1 million GMV. After lowering the price, although there are now 110 customers, the GMV is only 800,000. As a result, the platform's commission income will decrease.
If low prices cannot attract more people, then low prices are meaningless and will affect the profit of e-commerce platforms (because e-commerce platforms operate on a commission model). If this continues, they will not only fail to attract new customers, but may also go out of business.
Therefore, in July of this year, major domestic e-commerce platforms began to gradually restore the GMV-based traffic allocation mechanism.
Traffic allocation method for searching e-commerce#
The keyword ranking we often talk about can be roughly divided into two ways to achieve it: natural weight of keywords and shortcut through advertising.
The distribution mechanism we are discussing today refers to the allocation of platform's natural traffic based on what indicators. There are roughly two types: GMV priority mentioned today, and conversion rate priority.
What is Amazon's logic?#
No matter how the rules of e-commerce change, e-commerce platforms also need to make a profit. Compared to some platforms that rely on fines to make profits, I think Amazon is relatively fair. As long as our products can generate profits for Amazon, Amazon's traffic will definitely tilt towards us.
Based on Amazon's unique profit model (commission + logistics delivery fee), even if the low product price affects commission income, the logistics delivery fee is not reduced, so it does not affect Amazon's revenue. Therefore, I personally believe that Amazon's allocation logic is mainly based on conversion rate.
The same product will have different results at different prices. Two charts are used to illustrate why a higher conversion rate can make Amazon earn more money, but too low prices will result in no profit for ourselves. Therefore, what we need to do is to have a reasonable profit, not excessive profit, and certainly not charity.
Sale price of $30, conversion rate of 10%, Amazon's final revenue is $295.
![Conversion rate 10%.png]
Sale price of $15, conversion rate of 20%, Amazon's final revenue is $345.
![Conversion rate 20%.png]
The data is for reference only and does not represent all situations. Please use caution.
In addition, Amazon is actually a traffic distributor. It also needs to purchase traffic from channels such as Google, Facebook, and offline billboards, and then distribute it to sellers. If a customer sees or clicks on a product but does not make a purchase, it not only wastes traffic but may also create a negative impression of the Amazon platform.
So I often say that doing Amazon is about putting customer satisfaction as the top priority, and satisfaction includes product quality and customer's love for the product. As long as we adhere to this concept, Amazon will also provide us with traffic. With reliable product quality and good conversion rate, the traffic will continue to grow.
Using black technology to artificially boost a product, if the product itself is not strong, it will only be a flash in the pan.
Conclusion#
Many people say that after domestic e-commerce platforms return to the GMV logic, the price war and internal competition will end. I don't think so, at least not for sellers on e-commerce platforms.
However, it seems that the internal competition and price war have indeed ended for major e-commerce platforms.
For example, if a merchant wants to have enough GMV, the first thing that comes to mind is to create high-priced products. However, if the product does not have enough competitiveness, this approach is definitely not feasible. Then there are only two ways left: either manipulate orders or use lower prices to achieve a high enough conversion rate to meet the GMV requirements.
No matter which method is used, it does not affect the e-commerce platform's goal of achieving GMV growth. But for sellers on e-commerce platforms, the competition will become more intense, and tough times are still ahead.
Of course, risks always come with opportunities. Currently, we need to study more about the first approach, how to improve our product competitiveness, and obtain a sufficient premium.
Returning to what I often say, product selection is not of great significance. It's either stocking or product development.
Personally, I don't think these two approaches are necessarily mutually exclusive. All e-commerce platforms consider comprehensive indicators. We should not only focus on GMV or conversion rate, but all indicators need to be outstanding in order to survive in the upcoming reshuffle.
Let's encourage each other.