Recently, several domestic platforms announced that the search weight has reverted to a distribution logic prioritizing GMV.
Many students have asked me if this proves that the price war is over, and what Amazon's logic is. After reviewing some materials and my understanding of Amazon, I would like to share my thoughts on this news and my speculations about Amazon's traffic logic.
Table of Contents#
01 / Why domestic e-commerce platforms are changing
02 / The traffic distribution method of search e-commerce
03 / Has Amazon changed?
04 / Conclusion
This article was first published in the G26 Cross-Border E-commerce Entrepreneurship Community, numbered 2402.
Why domestic e-commerce platforms are changing#
The reason for adopting a low-price model in the past two years is due to the economic downturn and the success of Pinduoduo. Many platforms also want to tap into the sinking market, so they followed the low-price model. However, after following this model, they found that the online shopping demographic has entered a stage of saturation, making it difficult to achieve significant growth. After lowering prices, they discovered there weren't enough customers to compensate for the GMV loss caused by the low prices.
For example, if 100 customers could generate 1 million GMV, after a price reduction, although there are now 110 customers, the GMV is only 800,000. This would lead to a decrease in the platform's commission income.
If low prices cannot attract more customers, then low pricing becomes meaningless and negatively impacts the e-commerce platform's profits (since e-commerce platforms operate on a commission model). If this continues, not only will they fail to attract new customers, but they may also face bankruptcy.
Therefore, in July of this year, major domestic e-commerce platforms began to gradually restore the GMV-based traffic distribution mechanism.
The traffic distribution method of search e-commerce#
The keyword ranking we often talk about can generally be achieved through two pathways: natural keyword weight and shortcut through advertising.
The distribution mechanism we are discussing today refers to the criteria by which a platform's natural traffic is allocated. There are roughly two types: one is the GMV priority mentioned today, and the other is conversion rate priority.
What is Amazon's logic?#
Regardless of how the ordinary rules of e-commerce change, e-commerce platforms still need to make a profit. Compared to some platforms that profit from fines, I think Amazon is relatively fair. As long as our products can generate profit for Amazon, the traffic will definitely tilt in our favor.
Based on Amazon's unique profit model (commission + logistics delivery fee), even if the product price is low and affects commission income, the logistics delivery fee is not waived, which does not affect Amazon's revenue. Therefore, I personally believe that Amazon's distribution logic primarily focuses on conversion rate.
In the case of the same product at different prices, the changes that occur can be illustrated with two images to demonstrate why a higher conversion rate can allow Amazon to earn more money, while excessively low prices can lead to no profit for us. Thus, what we need to aim for is reasonable profit, not exorbitant profit, and certainly not charity.
Selling price of $30, conversion rate of 10%, Amazon's final revenue is $295.
![[Conversion Rate 10%.png]]
Selling price of $15, conversion rate of 20%, Amazon's final revenue is $345.
![[Conversion Rate 20%.png]]
Data for reference only, does not represent all situations, please adopt cautiously.
Additionally, Amazon is essentially a traffic distributor; it also purchases traffic from channels like Google, Facebook, and offline billboards, and then distributes it to sellers. If a customer sees or clicks on a product but ultimately does not purchase, it not only wastes traffic but may also create a negative impression of the Amazon platform.
Therefore, I often say that doing Amazon requires prioritizing customer satisfaction. Satisfaction encompasses product quality and customer affinity for the product. As long as this concept is upheld, Amazon will provide us with traffic. Reliable product quality and good conversion rates will lead to increasing traffic.
Using black technology to artificially boost a product will only yield temporary results if the product itself is not solid.
Conclusion#
Many people say that after domestic e-commerce platforms return to the GMV logic, the price war and internal competition have ended. I do not think so, at least not for sellers on e-commerce platforms.
However, for major e-commerce platforms, it seems that internal competition and price wars have come to an end.
For example, if merchants want sufficient GMV, the first thought is to create high-ticket products. However, if the product lacks sufficient competitiveness, this approach will certainly not hold. This leaves only two options: either engage in fake orders or use lower prices to achieve a sufficiently high conversion rate to meet GMV requirements.
Regardless of the method used, it does not affect the e-commerce platform's goal of achieving GMV growth. However, for sellers on e-commerce platforms, competition will definitely become more intense, and tough times are still ahead.
Of course, risks always accompany opportunities. Currently, we need to focus more on the first option: how to enhance our product competitiveness and achieve sufficient premium pricing.
Returning to what I often say, product selection is not of much significance; either stock products or engage in product development.
I personally believe that these two options are not necessarily mutually exclusive. All e-commerce platforms look at comprehensive indicators; we cannot focus solely on GMV or conversion rates. All indicators must be outstanding to survive in the upcoming reshuffle.
Let us encourage each other.