Recently, a sale’s promotion campaign (note: the link is in Chinese) is launched by China e-commerce merchants on Weibo, a twitter like website. On 14th August, Mr. Liu Qiangdong, CEO of 360buy.com made a statement on Weibo that all the major home appliances sold on his website will maintain ZERO gross profit in the coming 3 years, and will also be 10% cheaper than those sold by Sunning and Gome, who are also the major E-retailers in China. Facing the challenge, Sunning (SZSE: 002024) and Gome (SEHK: 493) replied that all their commodities will be cheaper than 360buy.com. After that, both sides announced they will adjust the prices in time to ensure its own prices are lower than the opponent. The quarrel on Weibo triggered a promotion battle between the e-retailers, and after the 1st day of fighting, 360buy.com said the total sales of the day had been over RMB 200 million.
The low-price strategy surely will boost one’s business, yet the over promotion will demolish the good-faith of the company which is fundamental to a company’s longevity . On the other hand, it may expose the retailer to a greater legal risk. The main legal risks involved in the E-battle are: 1) the false propaganda which deceives and misleads the consumers; 2) the sale’s price under the cost may damage the market order. And by the advertisements of the websites, either of them may be embroiled in at least one of the above risks. The following tweets can explain that:
The tweet from the chief of 360buy.com: From tomorrow 9 am, all the major home appliances sold on 360buy.com will be cheaper than Sunning’s offline stores. And we hold no bottom line price, once Sunning dare to name the price of RMB 1, then you could see RMB 0 from us.
The tweet from the chief of Sunning: The prices of all the goods including the products must be less than 360buy.com, and we will re-offer the prices when any higher prices detained by the users, also the users could get the compensation of double of the price differences.
If sides follow their announcement, theoretically, we could see rounds of price adjustment, and the final price will shall see is necessarily RMB 0. And then, the regulation of Anti Unfair Competition Law that: “An operator may not sell goods at a price below cost for the purpose of excluding his competitors” will be broken, or it may be regulated by the prohibitive regulations on false propaganda.
As checked, the prices offered on day one of the battle, no website could guarantee all its prices are lower than the opponents. And in fact most prices are lower or higher than those named by the rivals, and the rest remains the same. Furthermore, I also noticed a complaint from a consumer that the retailer has expeditiously increased the price before the promotion, and even we shall pay more for some articles’ purchased. For this reason, we can judge that all the parties enrolled in the battle have broken their promises, and their chiefs are suspected of false propaganda.
Maybe some users choose to laugh away, and after all, business to some extent is based on a beautiful propaganda, even with some extravagant descriptions in it. Yet, to my understanding, the competition in the market shall be good faith oriented, and any unfaithful conducts shall be prevented and punished, otherwise it would only leave an unfair treatment to the competitors. With the Gresham’s law, if it lasts for a period, an unfair atmosphere could be seen only at the end, and all the faithful participants will be driven out.
Consumers buying the products online according to the false propaganda are the victims after all, and despite the online prices being lower than those offline, the false propaganda in the long term will wear away the consumers’ confidence in online shopping. And that, I’m afraid, is the overall influence of the e-commerce industry.
In fact, many laws in China have the prohibitive articles on false propaganda. As provided in the Advertisement Law, no advertisements shall be with false content and shall not deceive or mislead the consumers, and if the advertisements have made a false propaganda on the products or the services, the supervision administration may order the advertiser to stop publishing the advertisement and to use an amount equivalent to its advertising expenses to publish a correction to counter the influence generated by the false and misleading advertisement. This will impose on the advertiser a fine of no less than the amount of its advertising charges but not more than an amount equal to 5 times the said charges. On the other hand, under Pricing Law, no false or misleading pricing measures shall be made to trick consumers or other managers to make the transaction. And for any false propaganda involving the pricing, they could be ordered to confiscate the illegal income hereby made, or a fine of no more than 5 times the illegal gains thereby made, and when the situations are severe, the supervision may order it to suspend the business or directly revoke the business license.
At the end, we would like to point out that the E-battle at this time honestly shows the competitive environment of e-commerce industry in China, fierce, but not regulatory. Although the competition is a good thing, it shall be carried out under the environment of open, fairness and justice, so that the competition may bring progress to the society. I hope the supervision administration can take the chance to regulate the operation of the E-commerce companies within the frame of laws, in order to establish a good competitive environment.
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