by Ling Cao

“Some business decisions are operational, some are tactical, some are strategic, and some will determine the fate of a company’s future. JD’s strategy for expanding the operations of JD Logistics will have a major impact on the company as a whole,” said Zhenhui Wang, CEO of JD Logistics, when sharing his thoughts during a lesson he taught at an online forward-thinking cross-disciplinary business school in China.

A critical decision

In November 2016, JD Logistics made a critical decision to fully open up its services to third parties. What has the process looked like over the past three years?

Wang added, “Previously, 100% of JD Logistics’ orders came from JD.com. After we opened up our business to external partners, revenue from external services accounted for more than 40% of our total revenue. Once that number reaches 50%, I think we can say our strategy has been a success.”

JD built its in-house logistics network back in 2007 with the goal of providing customers with a best-in-class shopping experience. Now, JD’s logistics network has integrated technology-powered supply chain and logistics services. It is the only comprehensive logistics platform in the world to provide small-to-medium sized warehousing, oversized warehousing, cross border, cold chain delivery, frozen and chilled warehousing facilities, B2B and crowdsourcing logistics, it has expanded to parcel delivery services in 2018. JD made all of these services available to third parties.

 

How JD Logistics expanded

During this year’s 618 Grand Promotion, JD Logistics’ external services revenue grew by over 80% y-o-y. Many merchants also found that it’s more efficient to stock their products in a JD warehouse, especially during the COVID-19 outbreak in China, when JD maintained operations amid insufficient availability of warehousing and transportation services in the market.

A representative from Meixiangshike, a beef supplier on JD’s platform, shared the benefits of using JD’s logistics services: “Sixty percent of customers will inquire if the products will be delivered by JD Logistics, and 75% customers will choose to buy if the answer is yes.”

Since merchants come from a wide range of industries, their needs can differ greatly. For example, apparel companies may face pain points in terms of inventory forecasting and management; the auto industry may face challenges like how to manage a large quantity of nonstandard accessories and send them to offline stores efficiently, and food and beverages brands will think about how to ship products to customers as fast as possible. JD has identified these factors and established integrated supply chain solutions for each of them, involving logistics resources at every step, from hardware to software, and from online to offline channels. Most importantly, these solutions are tailored for different industries and entirely open.

Before partnering with JD, one bookstore needed to source products from more than 60 book suppliers. But after integrating with JD Logistics, this same bookstore was able to source all of their books from JD’s inventory, with replenishment services from JD’s nationwide in-house logistics network every week, which significantly reduced labor costs and delivery delays. Since the partnership began, the store has decreased inventory turnover to 220 days from over a year. Using JD’s big data analysis capabilities, the store now also has insights about customer buying behaviors and chooses book assortments tailored to its customer base, leading to more sales.

JD Logistics has opened up its platform to many types of clients, including e-commerce platforms, short video platforms, and offline retailers and stores. Among them are over 700 key accounts, which contributed to 20% of JD Logistics’ revenue in 2019, including Unilever, GREE, Walmart, and Mead Johnson.

JD Logistics has already entered lower tier markets. The company has grown its network and has allocated necessary resources to expand its external capabilities to additional areas. This is also consistent with many of the consumer brands on JD’s platform who seek to attract more customers in these new markets and grow their business.

 

The thinking behind the strategy

“First, we need to look at the industry as a whole. Before 2017, China’s logistics industry lacked integration capabilities, even though an increasing number of companies have comprehensive logistics demands and are looking for external partners. There’s huge opportunity right in front of us,” Wang shared.

Wang also said, besides the whole industry, it’s important to look at JD Logistics itself. JD Logistics has gained customers’ recognition all throughout China because of its fast and high-quality logistics service, which has also set the industry standard. Given this success internally, JD has made these services available to external partners.

In addition, JD’s logistics strategy needs to be congruent with its overall vision for the larger JD brand. First, making these services available for external partners can increase sales, which can accelerate business growth and help reduce expenses. Second, it can bring strong competition to JD’s retail business and development, creating more value for the company.

 

It’s not an easy task

Expanding JD Logistics is not easy. Bing Fu, head of strategy at JD Logistics, said, “The most difficult part is that all of the nearly 200,000 JD Logistics employees need to rethink how to approach the business from both an operational and management perspective, so as to consider client’s needs and wants.”

To motivate creativity among people in the organization and help the team adjust quickly, JD tested a performance mechanism called Big Boss in its logistics business group back in 2018. Under this mechanism, JD will give small teams or groups on the frontlines more authority, so they can manage their work as if they are running their own business. For example, one regional leader needs to manage its region’s business directly and be responsible for profits and losses. Executive management will only set rules or guidance. A delivery manager can also be a Big Boss. For example, they can decide how to manage the station and determine the most efficient way to allocate different couriers for various tasks, including region assignment and sending or collecting parcels.

At the same time, executives from headquarters will regularly go to frontline delivery stations to make sure employees all understand this guidance. Richard Fan, head of JD Express who was at the time leading JD’s central region of China and routinely visits four provinces there. “I will talk with each head of station and explain the value of the new mechanism,” said Fan. “It’s easy to understand if you explain using data. I let them know that under the new mechanism, their potential growth is greater than before, and they will earn more if they better manage the whole station.”

All of the employees share the same corporate culture and their value is also indispensable. For JD Logistics, customer experience is always top priority, and based on that, JD Logistics will try to improve efficiency.

The healthy atmosphere will also help attract more talent. At the JD Logistics annual meeting in January, Wang said, “None of these breakthroughs would be possible without our employees. In 2019, JD Logistics invested RMB 1 billion yuan in talent development. In 2020, we will allocate another RMB 1 billion yuan as bonus on top of salaries in our talent development, and in building a welcoming environment that fosters all kinds of talent.”

 

Industry insight

From warehousing and transportation to last mile delivery, JD has built an integrated logistics network that can shorten the fulfillment process to increase efficiency and reach customers faster with improved precision.

According to Chinese business media outlet LatePost, JD Logistics has built a brand new business model compared with industry peers, who have to rely on additional resources.

There is still a long way to go as JD Logistics continues to implement its strategy. This is a strategy that will not only make JD Logistics’ business sustainable, but also bring valuable infrastructure to society at large. As Wang put this way, “Eventually, our dream is to leverage technology to provide value to global clients and become the world’s leading supply chain and logistics provider.”

 

(ling.cao@jd.com)

by Ella Kidron

In the last few weeks, rumors have been circulating that Walmart will be launching a paid membership service in the U.S. to rival Amazon Prime. According to a Vox report, the service, Walmart+, will cost $98 per year and covers same-day delivery for grocery and general merchandise, to discounts and early access and deals. This comes as no surprise, as the U.S. is by no means an exception in the global rush online. According to market research firm Rakuten Intelligence, e-commerce spending in the U.S. was up more than 30% from the beginning of March through mid-April, compared with the same period last year. People are spending more time and money online, and buying in larger quantities. Families, who may have been spread out, are spending more time under one roof in quarantines. American and European consumers are accustomed to spending their days in the Amazon ecosystem – whether shopping on Amazon’s e-commerce platform, reading books on their Kindle, or ordering from Prime Pantry.

The same is true of China, where online retail sales of physical goods grew by 3% to reach RMB 1.123 trillion yuan in the first two months of the year – a period during which overall retail sales plunged 20.5% year-on-year. The trend has continued, with both JD.com and Alibaba reaching record-breaking transaction volumes during the past 618 Grand Promotion. What is less well-known, however, is that China has a paid membership ecosystem of its own pioneered by none other than JD.com – JD PLUS.

Designed for “highest quality” users

JD PLUS has been around for nearly five years. It now has over 15 million members – defined as the “highest quality” users on the platform, based on frequency, spending level and other criteria. The business was first introduced in 2015, and officially came online in March 2016. At the time, JD observed a comprehensive consumption upgrade, and a willingness from users to embrace paying for services. The willingness to enjoy better services was becoming stronger. At the same time, the entire e-commerce industry, and perhaps the Internet industry at large, was facing the issue of gradually increasing user acquisition costs. “We wanted to gather the best of JD’s resources together to provide to our highest quality users,” said Chunhui Meng, head of JD PLUS. The subscription fee helped JD PLUS screen for these types of users.

Chunhui Meng, head of JD PLUS, speaks to audience at “JD PLUS Open Class” in January 2020

 

The per capita spending of JD PLUS members is nine times that of ordinary members. These high quality and high spending members also place seven times the amount of orders, and repurchase rate per capital is double that of ordinary members. After joining the JD PLUS program, the average annual spending, order number and weekly revisit rate increased 96%, 50% and 20% respectively.

Overtime, the JD PLUS ecosystem and strategy have grown, focusing first on benefits within the JD platform, and later expanding to shared benefits across platforms, and finally to cover multiple scenarios, including offline ones. JD PLUS looks at its membership benefits as vertical and horizontal – vertical being benefits on JD’s platform, and horizontal being cross-industry and even multi-scenario benefits.

A year after the launch, JD hosted its first PLUS DAY promotion, a one-day promotion dedicated to providing PLUS members with even more discounts and exclusive benefits. In 2017, ahead of Singles Day (November 11^th), JD.com and Sam’s Club offered a discounted bundled membership for Sam’s Club and JD PLUS. This is particularly appropriate, given Sam’s Club introduced China’s very first paid membership program over 20 years ago, and JD PLUS was the first Chinese e-commerce company to offer such a program. According to Alizila, Alibaba has a membership ecosystem as well, 88VIP.

At the time JD’s joint membership with Sam’s Club was announced, JD PLUS was gaining steam and Chinese consumers had started showing an increasing willingness to pay for membership programs. According to an iResearch report from 2017, nearly 50% of a sample of Chinese consumers surveyed indicated that they were willing to pay a 10% price premium for better quality.

 

Benefits beyond retail

From 2018, JD PLUS began to take a different shape, expanding beyond retail to include several other services – turning its focus to providing a truly cross-industry premium benefits program. In April 2018, PLUS inked a partnership with popular video streaming platform iQiYi. Soon after, in September it hit a milestone of 10 million members, and simultaneously announced a raft of new benefits for members, including coupons or memberships for restaurant meals and takeaway, entertainment services, travel bookings, wealth management products and more. Since then JD PLUS has formed partnerships with popular Q&A platform and online books provider Zhihu (知乎，“do you know?” in Chinese), several famous hotel chains, and more.

 

Key milestones of JD Plus through 2019

Earlier this year, JD PLUS announced it will develop strategic partnerships with over 200 brands in 2020. In April, when JD.com announced its own mini program platform, Burger King became the first partner in the catering industry to use JD’s mini program to distribute benefits to customers with its JD PLUS Member Center mini program.

Most recently, just ahead of this year’s 618 Grand Promotion, JD PLUS partnered with Tencent’s QQ Music, a leading music service provider serving over 800 million users, to offer a bundled membership. Customers who purchase a membership package via either JD PLUS or QQ Music, will be able to enjoy both JD PLUS and QQ Music VIP benefits. Through the partnership, JD and Tencent expand the reach of their respective services to more Chinese consumers.

Membership programs offer retailers a number of advantages, including increased spending. According to Business Insider, about 40% of Prime members spend more than $200 on Amazon over a 90-day period, compared to 13% of non-Prime customers. Once customers pay an up-front fee to a retailer, they are likely to return and shop more often in order to realize a greater return on their initial payment.

JD PLUS users spend significantly more money on JD than non-plus members, with many users regularly spending RMB 1,000 yuan per month, or well over this amount. Members tend to be young, highly-educated professionals primarily living in first or second-tier cities. According to internal data, as of the end of 2019, JD PLUS’s offline lifestyle benefits had served 7 million families, JD PLUS’ designated customer service provided over 3.49 million hours of customer service support. Over 10,000 high spending users have saved over RMB 10,000 yuan through the plus membership – . Over 64% of PLUS users make purchases for their families. It is one of the reasons PLUS offers larger quantity packages of certain items. For example, last year JD’s C2M program, in which it uses customer feedback and analysis to understand how to provide more suitable products to the market, helped the plus team understand the ideal packaging size for a box of cherries. In just 24 hours, almost 90,000 cases were bought, roughly equivalent to 10 days of sales. PLUS members accounted for more than 97.9% of purchases on the day.

 

Shopping privileges

JD PLUS includes 12 major shopping privileges on JD, including monthly free shipping coupons, ability to earn JD beans (京豆) with purchases at an accelerated rate, access to millions of premium goods and an alliance of brands which offer a 5% discount exclusively for JD PLUS users. When it first started, JD PLUS had an exclusive membership celebration, PLUS DAY, annually. To increase benefits for users, however, beginning this year, the 8^th of every month is designated as PLUS DAY. For example, exclusive access to purchase Feitian Moutai, the most popular brand of Moutai, the liquor served at state dinners in China, as well as coupon packages that cover entire categories on the platform.

Looking ahead, Meng said: “In the future, we will continue to improve the ecosystem, prioritizing shopping benefits supplemented by cross-industry perks, so that we can provide better service for our members to enhance all areas of life. The loyalty of JD Plus members is second to none, and we are confident in our ability to maintain a leading market position.”

JD PLUS has become not a just a key to the world of e-commerce – a discount program – but a key to life, providing premium services and products no matter where consumers are. With JD’s immense experience and resources in retail and supply chain as well as deep cross-industry partnerships, the possibilities are infinite.

 

(ella@jd.com)