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Price war is just a marketing tool in online retail

THE online retail sector has been roiled by yet another price war, triggered after one of the largest websites launched a surprise attack on a rival struggling to break into online retailing.

360Buy, China's largest business-to-consumer shopping website, is going after giant appliance retailer Suning in a blitz that has shaken up all major online shopping sites, including Gome's online unit and Tencent arm 51Buy.com.

Liu Qiangdong, 360Buy's chief executive officer, went on the attack with an announcement on his official Sina microblog that home appliances sold on 360Buy would be priced at 10 percent below those offered by Suning's online store Yigou, starting on Wednesday.

Liu claimed 360Buy was willing to forego gross profits on its electronic appliances - which account for only 1 percent of sales - for the next three years. That was a shot across the bow of Suning, which derives its major income from household appliances.

"If Yigou sells a refrigerator for 1 yuan, then we'll sell one with a zero price tag," he proclaimed.

Li Bin, executive vice president of Yigou, responded by saying that all of its products would be priced cheaper than 360Buy's and went one step further, offering to refund the difference to consumer who have paid more at Yigou.

Some observers think the whole fracas is nothing more than a marketing stunt.

One of my university classmates working at a consulting firm said she was disappointed to find that a Sharp LCD television sold at Gome wasn't available on either Suning or 360Buy sites.

And upon further price comparison, she said she found that the cost of goods on those two sites was actually higher than on other online shopping venues.

"This sales promotion is far from what it appears to be," she told me.

Suning has been under growing funding pressure as it seeks to expand from its traditional bricks-and-mortar business into the online realm.

On Monday, Suning said it will issue 8 billion yuan (US$1.3 billion) of corporate bonds to fund expansion plans. The announcement came a month after the company completed a 4.7 billion yuan private placement.

Its share price stumbled on concern that investment in online stores won't pay off anytime soon, while income at Suning's street-side shops is showing slower growth. Suning shares fell more than more than 20 percent in Shenzhen in the past two weeks.

Perfectly timed

Suning appears trapped, with no choice but to rise to 360Buy's challenge. Liu's attack was perfectly timed.

You have to admire his pluck. He certainly has caught the attention of the business media and the public at large.

Liu's microblog postings spread like wildfire across the net. Most of his comments were reposted more than 100,000 times within 24 hours.

"It's obvious that Liu saved his company tens of thousands of yuan in advertising costs," said one of my media friends. "We have devoted most of our attention to him." In just two days. 360Buy's tactic turned into an online frenzy.

Alibaba Group's price comparison site eTao released several media statements as it tried to keep up with rapidly changing prices across the online retail sector. Tracking was difficult because there are so many different types of products and models sold on websites.

Analysys International researcher Chen Shousong said the price war - if you can call it that - may boost sales in the short run but won't have much of an impact beyond the initial flurry.

A serious and prolonged price war would wreck havoc with the market and harm the whole online sector, said Liu Buchen, a veteran home appliance industry watcher.

The sad thing is that prices are about the only way to attract online customers in such a competitive market.

Some consumers may benefit, but it's in nobody's interesting to have a market that goes off the rails where rational business practices are concerned.

In the end, everybody loses.


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