Mar 16, 2020|
In-Depth Report: How JD Tackles Counterfeits
by Brad Burgess
“JD leaps to a 20-month high after sales outlook quells virus fears.” Such is the headline from Bloomberg as I write this, referring to the surprising business results that JD.com achieved and disclosed during the company’s most recent earnings call on March 2nd.
Some investment analysts also mention in their post-earnings notes how impressive JD’s new customer acquisition is at 28 million for Q4 2019, 70% derived from China’s lower tier cities and much higher than peer companies.
While JD’s fundamentals seek to be a guarantor of quality and authenticity, it’s worth taking a look at how the company goes about it.
“One Strike And You’re Out”
JD maintains that one of the most important reasons for its rapid and healthy development over the years is rooted in the belief of right success, strengthening platform rules and technology, and effectively protecting trademarks and intellectual property rights. In so doing, JD can establish a positive ecosystem, creating a virtuous cycle. The focus has always been on quality. From designing the business model to outlining the playbook and rules for JD’s platform operations, this ecosystem “encourages the good, and repels the bad”. This includes directly cooperating with brand merchants, upholding business integrity and protecting IP rights.
At the same time, JD believes that advanced prevention is much more effective than dealing with difficulty after the fact. JD’s attitude toward fakes and shoddy products is absolutely “zero tolerance”. Systemically, the company’s approach for intellectual property protection is to develop robust prevention as a precedent and modus operandi for the business. For JD’s platform business, there is a preference for “strict management” over “broad management”. JD would rather give up the advertising revenue that recruiting a large number of merchants may deliver in favor of monitoring all aspects of operations and guarding against infringement to the greatest extent in exchange for its obligation to be responsible to customers.
“One strike and you’re out” is an important principle. This is how JD severely punishes merchants that are selling products that infringe. Once illegal activity is confirmed, JD will act by imposing severe punishment on the offender, acting according to the contract terms, removing and blacklisting them at the same time.
Proof of the Pudding
Part one in this series introduced how JD’s business model creates a unique customer experience that Chinese consumers have come to trust. The customer growth mentioned above linked with a new consumer cohort is further proof of the pudding.
It’s important to understand that the most significant guarantor of authenticity at JD.com is this very business model. I wrote about this here. To recap the key points, JD’s core business that makes it unique from others is its first party business, which is what Chinese have come to know JD for. This is why JD is foremost a retail company primarily rather than a marketplace. A fundamental aspect of this model is JD’s ability to choose large (and – by extension – reputable) suppliers. These products also enter JD’s own self-built warehouses, which are outfitted at each step of the way throughout the supply chain with technology that inspects the quality of the goods to be in inventoried. At the same time, more and more third-party businesses are also using JD’s warehousing and distribution services and accepting JD’s inspection and supervision.
Fully managing the supply chain from the starting point to the last mile is the primary way to guarantee quality and is unique from other e-commerce companies. It is also the foundation and premise of strict quality control.
This is quality control at the business system level. This point cannot be overlooked. And, it’s this very system that enables strict oversight.
Additionally, it’s worth noting that more and more merchants on JD’s third party marketplace platform are using JD Logistics for their supply chain solutions, which leads to greater control over the process. Thus, JD’s third party marketplace model is also stronger than that of the competition.
A Rigorous Quality Control System
JD has established a highly rigorous quality control system to ensure the quality of the goods sold, with strict standards applied.
Guaranteeing authenticity is a multi-stakeholder approach. Internally, JD has established a quality control team which is composed of corporate-level quality control and sub-teams across business departments. This team works closely with people responsible for supplier qualification review and daily supervision.
JD’s authenticity guarantee starts with a strict entry threshold. For all merchants in JD Retail, JD has a strict entry qualification audit to protect access. 100% of key categories require brand manufacturers to authorize and endorse the merchants, requiring those merchants to sign a quality commitment letter and pay a quality deposit. JD’s dedicated quality control department reviews all qualification documents, brand authorizations, trademarks, and others and strictly controls all links to avoid suspect merchants or products from entering the platform. Merchants must also meet a series of strict requirements upon entry, among which the most basic is to ensure authenticity. This process is not only document review, but also random inspection of products and factory inspection.
After business commences, JD continues to conduct strict monitoring on merchants and products. There are three approaches engaged for this purpose: active inspection, mystery shopping, and a points management system.
Active inspection refers to JD screening products and publicity on the platform through a quality management system. Mystery shopping is when JD entrusts renown global inspection and testing companies to purchase products sold by JD anonymously to send to brand owners and to labs for verification, dealing with issues if discovered.
Organizations like Intertek and CCIC will assist JD in conducting regular spot checks on almost all categories of products to better control product quality.
A “points management system” is an effective tool for JD to regulate merchant’s operational behavior. If merchants violate the rules, JD will deduct points according to the severity of their actions. Different points correspond to different punishments, such as removing goods off the shelf, store reduction, closure, etc.
Externally, JD also interacts closely with brands themselves to share information. To work in an environment of mutual trust and transparency, JD actively cooperates with brand owners and numerous brand protection organizations. At present, there are over 1,000 brands and brand protection organizations that have established IP protection cooperation with JD. Some of these include CAASA, QBPC, CBBC, JETRO, KOTRA and other well-known intellectual property protection organizations within China and from around the world that JD closely collaborates with.
Communicating with Chinese government departments is also important to stay informed with any issues which may arise.
“Peace of Mind Purchase”
With the growth of China’s middle class and an overall preference for trading up for higher quality branded goods across China, cross-border e-commerce shopping has become increasingly common. However, this opportunity also brings challenges. For example, how to distinguish quality goods, navigate sometimes opaque information about the circulation of goods, deal with slower logistics, and handle the difficulty of return and exchange can all be confusing. How to not only reduce confusion – but to succeed in such a challenging environment?
In July 2018, as one of the largest cross-border e-commerce platforms in China, JD Worldwide launched 35 “peace of mind purchase” initiatives to guarantee product quality and improve the overall customer experience.
These initiatives are split into quality control and after-sales service. In sum, there are six pre-sales quality control measures, seven during the sales process and twenty-two after sales. The 35 initiatives are up to date, and JD hopes to improve the user experience overall through this. Given available public and industry information, JD’s approach here is a best practice for the industry. JD is committed to building the most comprehensive and reliable cross-border e-commerce platform for top brands from across the world, and improving on the customer experience.
JD’s tagline on its website is “Authentic products. Delivered today.” One of the company’s six core values is Integrity (诚信). These are intimately linked to the company’s commitment to quality and authenticity.
JD’s supervision and oversight on authenticity is consistently strict and sophisticated. If there are ever any tips about quality issues as it relates to JD, the company welcomes people to reach out to firstname.lastname@example.org.
This is just an overview of what JD does to guarantee quality. It happens foremost at the system level. It’s also through a rigorous process and strictly managed oversight that the company is able deliver on its brand promise.
*”How JD tackles counterfeits” is a three-part series that tells JD.com’s story. Part one introduced how JD’s beginnings and business model guarantee authenticity. Next, part three will introduce some of the technology behind JD’s quality control.
(Part 2 of 3)
Read Part 1: LINK