Business     

Online price war worries some consumers

Xinhua, August 17, 2012

• An ongoing price war between Chinese online retailers may have temporarily spiked sales, but it has also triggered concerns among consumers over potential market disruptions.

  Starting from Wednesday morning, major online retailers like 360buy, Suning and Gome started offering massive discounts, with each company claiming to sell its products at lower prices than its competitors.

  However, online shoppers and experts who have seen similar price-cutting races in previous times have been skeptical about the offer, despite scooping up a fair number of bargains.

  The Ministry of Commerce on Thursday also expressed concern over the battle by reiterating that all marketing strategies must comply with laws and market rules.

  Shen Danyang, spokesman for the ministry, said online retailers should focus on boosting management and service while protecting the interest of consumers and suppliers.

  In a survey conducted on Sina Weibo, the country's most popular microblogging site, 90.7 percent of 42,003 respondents said the price war is simply a promotional stunt.

  "Prices on their websites have wobbled somewhat, but only a few items owned by both stores have a distinct discount," said "Tongkongshishang."

  Meanwhile, market observers worry that excessively low prices may dampen the enthusiasm of suppliers and create problems in securing sufficient stocks, which may lead to a delay in giving the customers their discounted goods.

  Chunlan, a major air conditioner manufacturer, said the price war may affect upstream suppliers and create disorder in the home appliance market, adding that consumers will ultimately suffer.

  Chinese law forbids companies from selling at prices lower than cost in order to squeeze out competitors.

  Liu Junhai, vice president of the China Consumers Association, said the companies engaging in the price war are not making an effort to offer diverse products and better services, but to try and occupy a larger portion of the online retail market.

  Zhang Yin, an analyst at venture capital fund Matrix Partners, said the price war is a fairly efficient marketing strategy for online retailers, as they can raise sales revenues by sensationalizing the situation.

  "In this sense, all companies involved in the war are winners," Zhang said.

  360buy, China's second-largest online retailer by sales, recently announced that it will consider seeking an IPO next year. Company chairman and founder Liu Qiangdong said Tuesday that the decision has won support from his investors.

  Suning, one of 360buy's biggest rivals and the country's top retailer in terms of sales in 2011, has been challenged by gloomy performance and a share price decrease in recent days.

  On Thursday, shares of Suning tumbled 4.48 percent to 6.18 yuan per share. The company's shares have slumped more than 40 percent since the end of June.

  Suning has predicted that its net profits will fall by nearly 30 percent year on year in the first half, while 360buy has said that it will likely face a loss as well, despite a 120-percent growth in its first-half sales.

  Chen Shousong, an analyst at Analysys International, said the home appliance market may be slack in the second half, as demand for the durable and relatively expensive items may wane after the discount frenzy subsides.

  Chinese consumers will benefit little from the price war, according to Liu.

  "If the winner ends up monopolizing the online retail market, shoppers will be deprived of the benefits of benign competition," he warned.

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