“It is my priority to engage our users deeply,” said Trudy Dai, president of Alibaba.com, reaffirming the new strategic direction for the tech giant’s core e-commerce business.
During a webinar held on May 20 this year, Dai told over 300 Taobao and Tmall merchants that the e-commerce giant would be shifting the focus of its core e-commerce operations from trading to user consumption.
In the wake of management reshuffles since December 2021, Dai has been charged with revitalizing Alibaba’s business as it struggles to find its feet after its growth strategy collapsed due to tougher competition and tighter government controls on internet companies.
In January this year, Dai, a co-founder of the Alibaba Group, was appointed president of core domestic e-commerce. In April, she succeeded Daniel Zhang, Alibaba’s chairman and CEO, as legal representative at both Taobao and Tmall, where she also serves as chairwoman and general manager.
Alibaba has come a long way since its founding in 1999. The e-commerce company started out with a “platform” business model, generating revenue from online marketing services and commissions from third-party merchants selling on its marketplaces. Today, the multinational technology firm is turning to consumer spending to drive its growth.
The change in strategy has become more pressing due to the mounting challenges faced by the e-commerce giant. Besides geopolitical tensions, economic headwinds, and tougher government controls, the tech giant has to grapple with intensifying competition from domestic rivals in China’s online retail market such as Pinduoduo, ByteDance-owned Douyin, and Kuaishou Technology.
These challenges were reflected in Alibaba’s latest earnings report. While the Chinese e-commerce firm reported a 9% year-over-year increase in revenue for the quarter ending March 2022, it registered the slowest growth since the company listed in New York in 2014. This is despite the fact that the conglomerate hit a historic milestone of 1 billion annual active consumers in China for the fiscal year 2022.
Notably, Alibaba’s most important revenue source from its online shopping platforms, Taobao and Tmall, which accounted for 31% of total revenue, failed to grow in the March quarter after declining for the first time since its IPO in 2014.
Taobao was launched in 2003 as a C2C marketplace for small businesses and individuals, while B2C platform Tmall was set up in 2008 for international and Chinese brands and retailers to run their online storefronts.
The e-commerce unit’s pivot to consumer spending is in line with Alibaba’s recent announcement to stick with its core strategic engines of China consumption, globalization, and technology to power growth.
One of the first things that Dai did as the new head of Alibaba’s domestic e-commerce division was to engage with online vendors from Taobao and Tmall. According to Chinese online media reports, over the past six months, she spent a considerable amount of time meeting Alibaba’s online retailers trying to understand their needs and concerns to add value to their businesses.
Those sessions provided Dai with invaluable feedback on what was needed to steer the e-commerce giant towards a path of sustainable growth. A key takeaway from these discussions was the need for Alibaba to deepen its engagement with users.
Dai wasted little time in drawing up a plan to drive much-needed change. To align with Alibaba’s shift from new user acquisition to user retention on its e-commerce platforms—a strategy earlier sketched out by her predecessor Zhang—Dai turned her focus to cross-category users as part of efforts to improve the unit’s operating efficiency. She looked to tap existing customers from across Alibaba’s different categories, which was more cost-effective than acquiring new users.
Dai also set goals for the new growth strategy: over the next three years, Taobao and Tmall aim to cultivate 100 product categories that maintain over 100 million buyers.
In tandem with the strategic plan, new performance benchmarks were drawn up. No longer focusing solely on GMV growth, the tech giant changed the key performance metrics for Taobao and Tmall from platform AACs (annual active consumers) and GMV to product category AACs and seller AACs, respectively.
To achieve strategic alignment, Dai also initiated a restructuring exercise, one that saw her deploying company resources to where they were needed most. In a major initiative that kicked off in January this year, Dai led the restructuring of the back-end operations of Taobao and Tmall. The reorganization aimed to streamline the business operations of the e-commerce platforms and improve their user experiences. By integrating both platforms, Alibaba can provide its services to a much larger number of users and unlock potential synergies through operational efficiency and cost reductions. Three new operation centers were also set up for Taobao and Tmall, focusing on platform strategies, user expansion, and industrial development for merchants
To attract more merchants to set up online stores on Taobao and Tmall and retain them, Dai reduced the number of sales promotional activities. A common gripe among Taobao and Tmall merchants was that these programs, mostly discount campaigns, increased their operating expenses and lowered their profits. “Our profits were greatly reduced,” a merchant of childcare merchandise on Taobao told 36Kr.
To address these concerns, Dai personally reassured vendors on platforms such as Tmall Zhenghong, Tmall Vitality Camp, and Tmall Wonderful Box that fewer sales programs would be launched, as reported by Chinese online media.
Meanwhile, other issues highlighted by Alibaba’s online merchants were also brought to Dai’s attention. A food vendor recently told Chinese media, “The reduction of operating expenses has little impact on our businesses. We don’t need lower costs; we need more users to visit our stores.”
In response, Dai announced that Taobao will step up measures to help its retailers attract more customers to their online stores. These include carrying out white-box testing to help identify and resolve software flaws in its product search function.
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