Pricing strategy of Taobao, the largest online shopping platform in China
Taobao is a Chinese online shopping website similar to eBay and Amazon, which is operated in Hangzhou, Zhejiang. Founded by Alibaba Group on May 10, 2003, Taobao Marketplace facilitates consumer-to-consumer(C2C) retail by providing a platform for small businesses and individual entrepreneurs to open online stores that mainly cater to consumers in Chinese-speaking regions (Mainland China, Hong Kong, Macau and Taiwan) and also abroad. At the end of 2010, the number of registered members on Taobao had reached over 370 million, around 80% of the Chinese online shopping market. With around 760 million product listings as of March 2013, Taobao Marketplace is one of the world’s top 20 most visited websites according to Alexa. For the fiscal year ending on March 31, 2013, the combined gross merchandise volume(GMV) of Taobao Marketplace and Tmall.com Sellers are able to post goods for sale either through a fixed price or auction. Auctions make up a small percentage of transactions. The majority of the products are new merchandise sold at fixed prices. Buyers can assess seller backgrounds by information available on the website, including ratings, comments and complaints. To better understand how Taobao makes outstanding profits for both the retailers and the platforms, we can actually look into detail of how they price their products and services. There are several ubiquitous strategies.
1. Contrast pricing: When the seller starts pricing, they cannot blindly set a price according to their own subjective wishes, they must first look at the other seller’s pricing, compared to it and then set a reasonable range.
2. 9-pound pricing: Usually in the supermarket or in other shopping malls, the price of many products ends up with 9, such as 19 pounds, 199.99 pounds. The advantage of using 9 at the end is somehow tricky. Although 20 pounds and 19 pounds have only one pound difference, the consumers subconsciously will feel a lot cheaper. The shopping experience is completely different when they spent more than ten dollars to buy something comparing to spend more than 20 dollars to buy it.
3. Volume pricing: Some Taobao sellers will set a very low price for a specific product to attract buyers to browse the store, so as to achieve the purpose of increasing the volume of customers. This strategy is able to attract more customers to the visit the shop, but the general turnover rate will not be very high. It goes even worse and plays side effect if not using appropriately.
4. pricing taboo: For each kind of product, once the price is determined, one should try to avoid frequent changes in prices, this will usually lead to negative impact on the store.
