(Chinese Version)

NetEase’s Yanxuan, a project incubated by NetEase Mail internally, seems to be able to keep surprising us.

Little did many people would know that it only took one year for Yanxuan, which runs under a controversial ODM model, to grow into a competitive power that’s now being studied and copied by e-commerce giant Taobao and tech unicorn Xiaomi. All of these platforms are encouraging consumers to make purchases rationally while promoting their 6.18 Father’s Day Shopping Festival. When Yanxuan is opening theme hotels, and book stores, the public believed that Yanxuan would eventually end up to be a Muji. In response to that, Yanxuan’s director Liu Xiaogang told TMTPost that Yanxuan positioned itself as a comprehensive e-commerce platform.

“In fact, we will provide whatever users want if able to. We don’t set a limit for ourselves.” Up till now, with both great feedbacks as well as controversies, Yanxuan is setting to provide consumers with quality and price-effective goods, focusing on product selection, supply chain management, original design, brand building and user service etc., in an attempt to build up a refined platform. Yanxuan is taking firm steps towards its goal of seven billion.

“It doesn’t cost much to live a quality life,” in Liu Xiaogang’s opinion, Yanxuan’s future development is not limited to the ODM model, or Muji’s model, but another shopping solution for consumers to choose from besides Taobao and JD.

A very different Father’s Day

The 6.18 Shopping Festival originated from JD’s anniversary celebration and it has become a major shopping event in China like the Double Eleven Shopping Festival whereas all sorts of e-commerce platforms compete with each other with sales activities.

On May 23rd, Tmall announced its 6.12 Carnival in Shanghai. Two days later, JD also announced the 6.18 Mid-Year Shopping Festival in Beijing while Suning announced to have sales activities in 4000 brick-and-mortar stores. VIP on the other hand, is going for brand and strategic upgrade direction, holding a “global quality selection and authentic goods”.

The 6.18 e-commerce war seems very much similar to the Double Eleven Shopping Festival, but it’s in fact quite different this year.

On Wuzhen conference in 2016, Lei Jun expressed that Xiaomi aimed to become the Muji in the tech world and announced the establishment of the new brand MIJIA (Mi Home). On April 5th this year, Xiaomi announced the official launch of MIJIA’s app. Before June 18th, Taobao launched Quality Selection while MIA rolled out Rabbit Mom’s Selection. Even Suning is testing the waters with its selection sales model.

NetEase has been around for over two decades, and it wasn’t until recently that it launched Yanxuan. The birth of Yanxuan drew both praises and criticisms. The Towel Bro’s opinion piece helped review Yanxuan’s ODM model and people often criticized Yanxuan for “copying” Muji. However, Yanxuan’s 6.18 campaign is very different too. When other platforms are incentivizing users to purchase goods with low pricing, Yanxuan sets a rather weird rule: an order with less than three items would enjoy a 20% of, an order with more than three items has no discount.

It’s worth noting that Yanxuan’s unconventional promotion approach has achieved great performance. According to data, Yanxuan’s transaction jumped by 20 times.

“We have been promoting our concept since the 6.18 last year. We are hoping that our users will shop with rationality,” Liu said in the interview with TMTPost, commenting that any promotion activity wants consumers to buy as much as possible while Yanxuan wants users to buy products they need. “It’s no good for boosting user loyalty if users realized they bought something they didn’t need.”   

Not long ago, JD’s CMO Xu Lei stated that this year’s 6.18 would be the turning point for China’s retail industry. Signs have shown that mainstream e-commerce platforms are gradually giving up on single promotion activity but transform to promotion of high quality. Even JD, who made 6.18 happen, is turning to quality instead of price war this year.

So what exactly is happening in the e-commerce industry?

Confusions within the e-commerce industry in the second half of the game

“I have discussed with many other industry insiders why NetEase suddenly started to do e-commerce business when it’s turning 20 years old. One important fact is that even today many consumers find the existing e-commerce platforms are not good enough in some perspectives,” Liu said, believing that the overly complex e-commerce system, excess products, low quality knockoffs etc. are holding back the user experience improvement.

According to consulting firm Euromonitor’s 2016 Global Consumer Top Ten Trend Report, consumers’ demand is changing: they are more willing to spend on time, eat healthier, much more picky, and now prefer innovative and cost-effective products. Consumers are no longer taking low price and quantity into their main consideration, but the brand and quality.

At present, most e-commerce platforms are falling behind consumers’ demand change. Data from the State Statistics Bureau, China’s e-commerce industry is having lower growth rate, dropping from 48.7% in 2014 to 26.2% in 2016. It’s apparent that the traditional e-commerce industry is losing the dividend.

“In the past, retail was centered around low price and convenience. In the future, consuming scenarios would not be limited to a single channel under the influence of consumer demand change and technological development. The consuming scenarios would transform to online and offline space. The era of consumer retail is coming,” JD’s CMO Xu Lei believed. From Xu’s view, today we have the problem of excess options instead of product shortage. “The issue lies not in the high price nor performance, but the quality and personality.”

It’s not only e-commerce platforms that have met the bottleneck. Liu Xiaogang believes that the traditional manufacturing industry also has very clear issues.

He told that China has incredibly strong manufacturing industry and that Chinese factories can actually make good quality products. But there is a phenomenon in China. “The traditional manufacturing industry has this logic. They adopt manufacturing techniques and materials, in other words, quality, according to your payment.”

“Internet+ is a model that combines the Internet with the traditional manufacturing industry. I am not saying only Internet companies can pull that off. Internet companies can also do that,” Liu said, stating that brands would be an important tendency in the future.

After the so-called consumption upgrade, Chinese consumers have more matured consuming concepts, especially the younger generation. Under the pressure of everyday life, consumers are growing to be less sensitive towards the pricing. But as we further enter the information era, the overwhelming options to choose from are confusing the consumers. Yanxuan on the other hand might be able to better satisfy their needs.

Whether a good model, or a good system, can bring good changes to society lies in if a brand voice can make the whole ecosystem more efficient.

“Yanxuan’s model is similar to F2C model. We connect factories and consumers,” Liu explained. The reality is that the economy is slowing down and we are having excess production power. E-commerce platforms should think about how to enable the traditional manufacturing companies to have their own brands, so as to get rid of the unnecessary overwhelming information load and excess production capacity.

NetEase is not the only player that has such awareness. On the 6.18 Anniversary Ceremony launch conference, JD announced that they would transform from a channel provider to a retail service and design provider, offering up resources like supply chain, data, logistics and marketing etc. to the public.

Analysys pointed out in its report China Internet Retail B2C Comprehensive Annual Report 2017 that it’s important for e-commerce platforms to increase its efficiency, achieve differentiation competition under current scale through innovation. “Take Yanxuan for example. By penetrating upstream manufacturers with quality e-commerce concept through ODM and C2M model, Yanxuan would become a case of hot trend of the Internet retail upgrade.”

This is an ever-changing era. In the new business era, which is led by consumer demand, whether it’s supply chains or e-commerce platforms, they all should make adequate changes according to the trend. The appearance of Yanxuan model at this time is leading the tendency in the second half of the e-commerce game.

 “The moat”

Yanxuan, who entered the year of 2017 with a quality lifestyle image, is closing in to the GMV goal of seven billion set by Ding Lei. However, NetEase needs to consider to build a moat as more players are imitating.

Although ODM model has been seen as a controversial “copy to China” mode. Yanxuan’s style similar to Muji has a rather low threshold, and therefore it’s easy to copy Yanxuan’s model. But Liu Xiaogang clearly has a different opinion.

“You can’t replicate a model. If you can replicate it, it’s not a model,” Liu Xiaogang said, believing that every enterprise has a different philosophy, and that not every company can handle their operation model. In his opinion, Yanxuan’s strength lies in the participation of the whole industrial chain. “If only a few suppliers joined us and we only made a few products, Yanxuan would be another platform today.”

“Bringing products with better quality to our users is Yanxuan’s main concern. That said, profit should not be your main concern,” Liu reiterated again and again in the interview, emphasizing that Yanxuan’s core is the quality and service, which is a model born to serve consumers’ demand.

For Yanxuan, the foundation of the moat is the quality control of the products. “Good material doesn’t equal good products. The same goes to manufacturers. But it’s a good start,” Liu said. Although Yanxuan positioned itself as a comprehensive e-commerce platform, it won’t really expand its Sku. Uptill now, Yanxuan’s Sku has grown to over five thousand. Compared with mainstream e-commerce platforms, Yanxuan follows a very strict product selection rule.

Liu reiterated that every product on Yanxuan is approved and modified by Yanxuan’s designer team, and that it’s never a simple selection process.

TMTPost found that popular items on Yanxuan have the following characteristics: good product quality and user experience, with potential to grow momentum in a vast market space and accumulate brand reputation.

Besides Yanxuan’s supply chain and quality control system. Liu Xiaogang also believes that Yanxuan’s barrier is based on the continuous increase of their design ablity.

“In traditional chain, we believe design and manufacturing are the most important factors,” Liu said to TMTPost. In the early phase, we found that many factories have very strong R&D capability. Then Yanxuan’s designer team would invest time and energy in cooperating with them to bring good products. Then we adjust the product style according to the city and consumer.

“We are building a complete system. This system not only includes the design, production and selection, but also quality management and service system.” At present, Yanxuan is gradually increasing the ratio of their originally designed products.

TMTPost learned that Yanxuan had integrated all NetEase’s related products into Yanxuan. On May 22nd, Jiangsu Television Network and Yanxuan jointly announced originally designed product Black Pineapple.

“All our originally designed products are patented. So we will also have the moat powered by the patents.” Liu Xiaogang introduced that Yanxuan’s design team has been expanding since early last year, and that Yanxuan now has over a hundred designers and an outsourced team of nearly five hundred people. Yanxuan has also signed many designers ad design firms.

“Muji is not our goal. We don’t aim to become the next Muji.” After one long year of development, Yanxuan, who has already been a leading runner in the sector, is maturing fast. It already has plan for Yanxuan theme hotel and bookstore. Yanxuan has started to plan on offline brick-and-mortar experience store. Liu Xiaogang hopes that Yanxuan’s model would bring changes to the industry and turn the tide.

“I once told many industry workers that Yanxuan is not afraid of new players that learn from Yanxuan’s model. Instead, I am hoping that together we can bring this industry to a better direction,” Liu said.

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The article is published with authorization from the author @Gao Mengyang, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.