Features, Retail Insights

“Singles’ Day’s” Dirty Little Secret

In one minute and 25 seconds, Alibaba scored shock and awe sales of $1 billion. Say again!!? Not only that, sales exceeded $10 billion in five minutes and 21 seconds faster than last year. Then they went on to finish the day selling a whopping $30.8 billion, more than Macy’s does in an entire year. The number of delivery orders surpassed a billion. This was its 10th annual Singles’ Day, (so called because it’s on 11.11). It set an eye-popping historic record, up from its previous record of $25.3 billion in 2017. While this represented a nearly 27 percent increase, it was smaller than the 39 percent year-on-year growth recorded in 2017.

Unbelievable? Yes, it is. That old line, “If selling a billion dollars’ worth of stuff in one minute sounds too good to be true, then it probably is.” This was confirmed in a conversation I had with my friend, FIT (Fashion Institute of Technology) Professor Vincent Quan, who enlightened me about something I was unaware of. At the risk of appearing naïve to my readers, his tutorial also inspired me to write this article with his contributions to inform readers of The Robin Report who also may be as unaware of the reality behind the Alibaba Singles’ Day process as I was.

 

First, Quan establishes the context. He clarifies GMV and Alibaba’s two major platforms contributing to Singles’ Day and how its model differs from Amazon. He reminds me that “Alibaba is an e-commerce platform that connects buyers and sellers on two sites. T-Mall is the platform connecting major brands both domestic and international with consumers. Taobao is the platform connecting independent sellers with consumers. Thus, the ‘sales’ reflected on Singles’ Day is deemed Gross Merchandise Volume (GMV). Amazon operates as a retailer and an intermediary on one platform but owns and sells much of its inventory directly to consumers. While Amazon does generate GMV sales on its site, the majority of items sold generates actual revenue since the seller is Amazon itself.”

Okay, so what’s the “dirty little secret?” Quan informs me that “On November 1 (10 days prior to Singles’ Day) Alibaba allows consumers to preview the merchandise offered for sale. This is the pre-sale period. The business model for Alibaba is dissimilar to Amazon in that Alibaba allows consumers to ‘secure’ their intended purchases in their shopping carts prior to Singles’ Day (more on this shortly). Amazon requires consumers to purchase merchandise placed in their carts usually within several minutes during their promotional events else the item goes back into the inventory.”

And while Alibaba does not intend this pre-sale to be a secret (I call it that just to be provocative), in the world of business competitors and finance, it’s convenient to be a bit misleading to gin up the numbers. It’s always about the numbers, right? A billion dollars in one minute? And everybody goes nuts!

Of course, the major players in the U.S. already know about Jack Ma’s enthusiasm to hype his business. Hey, nobody does price promoting gimmicks better than our own home-grown retailers. And guess what? Consumers could care less about the gimmick as long as they believe they’re getting the best deal ever.

Quan explains the consumer benefits (most important) and the benefit for Alibaba. “During the period between November 1 and 11, consumers accumulate items in their shopping carts. For many brands, there is a non-refundable deposit required to secure the item. The deposit improves the conversion rate such that consumers are reluctant to lose their deposits. On the vendor side, pre-sale orders are accumulated so that full demand visibility is provided. Such visibility allows the vendor to adjust the level of supply at the SKU level and in some instances, secure additional inventory through the supply chain if an item sells out quickly. In other instances, vendors may add additional or similar items to the event based on early demand. On the other hand, having a highly sought item sell out within seconds creates a marketing buzz for the brand and a feeding frenzy so that buyers don’t want to miss out next time.

“For the consumer, there are several incentives to shop during the 11.11 event. First and foremost, items are offered at lower prices from their original retail, thus incentivizing consumers to buy. There are also other ways to incentivize consumers. For the recent event, Alibaba offered a ‘spend 400 CNY (Chinese currency) and receive a 50 CNY discount’ on items purchased. The promotion kicked in for every 400 CNY spent so that a consumer spending between 800-1199 CNY received a total discount of 100 CNY and so on. Once the purchase reached the 1200 CNY threshold an additional 50 CNY discount would apply. The Alibaba discount applied to all combined purchases on T-Mall regardless of brand.

“Brands can also influence consumers to purchase their brands exclusively by offering a ‘brand only discount’ based on 400 CNY increments. In this example, a consumer purchasing an item originally priced at 569 CNY for the discounted price of 512 CNY would receive an additional 30 CNY price reduction. In our example below the math would work like this.”

What’s the bottom line here? By strategically offering a 10-day pre-sale shopping period to the Singles’ Day event, both Alibaba and the brands sold through the T-Mall store benefit, along with consumers. E-tailers listen up – this is the playbook you might want to adopt to reap what you sow!

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