by Tracy Yang

On March 2, JD.com released its Q4 and FY2019 earnings results. The core indicators all exceeded expectations. The number of annual active customers reached 362 million in 2019, increasing 27.6 million as compared with Q3 – the highest growth rate in the past 12 quarters.

Compared with the previous three quarters, the growth rate showed a significant accelerated growth trend. The accelerated growth of JD.com’s annual active users results from JD.com’s continued emphasis on customer experience.

 

The Winning Strategy

JD.com always puts customer experience first. In 2007, after obtaining the first round of financing, Richard Liu, Chairman and CEO of JD.com, argued strongly that JD.com should build its own logistics network, because at that time, 70% of JD.com’s customer complaints were related to logistics.

A large number of customers either complained about slow delivery, or that they found their packages were seriously damaged. Considering JD.com’s demand could not be met by China’s logistics companies at that time, Richard Liu believed that only a self-built logistics network could solve this problem. When talking with the investors, Richard Liu highlighted that building up a large number of logistics centers and information systems would really transform the company’s future core competitiveness and continuously improve the user experience. Many people may think that it is a money-burning action, but he believed it is worth it for the user experience.

Richard Liu and his forward-thinking paid off, and today JD Logistics has been successfully transformed from a cost center to a profit center. JD.com relies on its nationwide logistics network to provide same-day and next-day delivery service to Chinese consumers, a level of service no other e-commerce company at JD’s scale in the world can match. Fast delivery has become one of JD.com’s key differentiators and has helped the company win the favor of Chinese consumers. Even competitors who were not optimistic about JD.com’s heavy asset model have followed suit and begun to focus on the logistics network.

In the past 10-plus years, JD.com has built a professional and high-quality logistics service team with more than 180,000 employees, among whom all the couriers are full-time employees, trained and managed by JD Logistics. They enjoy top-notch welfare benefits in the logistics industry, including insurance policies and a housing fund. Over 800 couriers bought their own homes in 2019, and the number of employees earning over RMB 20,000 per month increased by 225% YOY.

 

“Value-added” Delivery

JD.com’s couriers cover designated housing communities, office blocks and other areas each day. Unlike the couriers from other logistics companies, JD.com’s couriers are obviously more likely to gain the trust of consumers, and they will even become friends with them. In the community, they will say hello to the customers as if they were familiar friends. Chinese consumers sometimes put garbage bags outside of their doors and then throw them away when they go downstairs. JD.com’s couriers will take the initiative to help their customers throw away the garbage when they make deliveries. This obviously goes beyond the typical relationship between service personnel and users.

In addition, JD Logistics released the industry’s first five-star delivery service standard, which is based on previous customer feedback and JD’s understanding of premium delivery service. JD.com hopes in addition to fast delivery, JD couriers can also make Chinese consumers feel warmth and care in their daily interactions.

With the outbreak of COVID-19, JD’s couriers are going above and beyond the call of duty to be there for customers. They do everything they can to help people in China, from helping customers buying emergency medical supplies, to buying medicine for chronic diseases, to taking care of consumers’ pets. Although they are just ordinary people, in this critical period, they have become the heroes in every city.

 

Customer First  

Customer service and after sales service are important steps to guarantee the customer experience and JD.com has always paid great attention to this. Richard Liu has adhered to the value of “customer first” from the very beginning and set a good example for all JD employees.

In the early days when JD.com was established, to save money, Richard Liu was reluctant to rent a house. He slept in the office for four years and worked until midnight every day, sleeping on the floor of the office. He put an old-fashioned alarm clock next to him and would set it in two-hour increments, so that he could keep his promise of 24-hour service and check if there are any customer complaints. At that time, Richard Liu was JD.com’s very first customer service personnel.

Over the past decade, JD.com has invested more than RMB 15 billion in building up its customer service team. Currently there are more than 10,000 employees on the team and three major customer service centers have been built up in two cities in Jiangsu province, Suqian and Yangzhou, and in Chengdu, Sichuan province.JD.com’s customer service team has also become the largest one in China’s e-commerce industry with leading service and technical capabilities.

JD.com’s customer service team has also leveraged the company’s strong technology capabilities to further improve service quality and efficiency. Apart from human customer service, smart service robots are also used in daily service to Chinese consumers, including a smart sentiment-sensing customer service robot, an AI shopping guide, and more. Based on big data analysis of customer behavior, AI technology is widely used to deal with customer demands related to refund, return and repair, so that Chinese consumers can enjoy fast and personalized service.

In addition, favorable refund and return policies are also important for the overall customer experience. JD Fangxin Shopping is a great example. It includes instant refund, door-to-door replacement, fresh food compensation, damaged package return, price insurance, 30-day quality problem return, delivery delay subsidy, freight insurance service, etc.

During the Spring Festival this year, JD Super, JD’s supermarket, launched a price insurance service for its goods. If consumers buy goods from JD Super and find that the prices of goods are lower in the following period of time, they can get compensation in the form of money, Jingdou (an e-voucher which can be used as cash on JD.com) and so on. In fact, the price insurance service had already covered various categories, like home appliances, food and beverages, automotive supplies, fresh food, furniture,  and clocks. This is part of JD’s relentless pursuit of improving the user experience.

 

Word-of-mouth

JD.com has always focused on the ultimate demand in the retail industry. JD Retail continues to care about the improvement of word-of-mouth, which is impacted by product quality, shopping experience and customer service.

JD.com’s efforts have born fruits, which can be reflected in the company’s Q4 and FY2019 earnings results. JD’s impressive increase of 27.6 million new users is higher than its key competitor in China’s e-commerce industry. It is also worth noting that over 70% of new users in Q4 were from tier 3 to tier 6 markets. This aligns closely with JD’s strategy on low tier market penetration.

As one of the key initiatives for deeper penetration in lower tier markets, JD.com launched Jingxi (“xi” in Chinese means happiness), an app specially targeted at consumers with relatively lower incomes in lower tier markets.

JD’s survey found that unlike consumers in tier 1 and 2 cities, who stick to one app for the majority of their purchases, consumers in lower tier markets use multiple apps or platforms, and they will pick the platform based on the categories they are buying. In recent years, more and more consumers in those markets have begun to try online shopping and demand has shifted towards quality products.

 

User Lifecycle

During the Q4 and FY2019 earnings call on March 2, Xu Lei, CEO of JD Retail said, “The consumers in low tier markets like interactive and entertaining methods in online shopping rather than simply buying products. The purchases of those consumers are driven by impulsive buying and the conversion rate is also high. Based on insights on these consumers, JD.com will further develop interactive marketing initiatives to engage more with them and leverage its partnership with Tencent to obtain new users.”

In terms of user growth, JD.com points to both new user growth and current user maintenance. The company launched a series of innovative initiatives to achieve quality user growth.

The performance of current users is also very impressive, since JD.com began to focus on lean operation of current users. By analyzing the shopping behavior of current users, JD.com introduced the concept of user lifecycle, and divided current users into introduction period/growth period, maturity period and decline/loss period. For users in different periods, through machine learning and quantitative analysis, JD.com has formulated the optimal matching of appropriate marketing channels and user benefits and interests to promote user growth and drive conversion rates.

During the epidemic period, more and more Chinese consumers and enterprises rely on JD.com for daily work and life, which is a reflection of the trust JD.com has gained. From Jan 20 to Feb 28, JD.com had already provided a total of 220 million individual food items, covering rice, flour, noodles, cooking oil, meat, eggs, vegetables, milk and other daily necessities, weighing over 290,000 tons, to consumers across the country. The number is still climbing. Bearing trust in mind, JD.com will continue to carry out its “customer first” value proposition and shoulder its responsibility as a responsible retailer in China.

 

(tracy.yang@jd.com)

by Ling Cao

One thing people may not know about JD.com is why it can provide fast and reliable delivery to its over 360 million active customers, even though quite a lot of them take it for granted.

The answer is simple: an integrated, technology-driven supply chain network, which JD manages digitally. The sudden outbreak of COVID-19 has tested the capability and reliability of JD’s supply chain, and the well-organized network has made sure that over 6,000 tons of medical supplies and daily necessities have been transported to Hubei to date.

Furthermore, JD is opening up its logistics capabilities to third parties. This includes building a supply chain management platform for governments, which makes emergency supplies such as masks, goggles, and protective gear easier to manage, distribute and trace digitally. This platform is also open to SMEs to provide services covering planning, replenishment and analysis. JD is also providing free software to small and micro enterprises to help them get back to work, which helps them become digitized and improve fulfillment efficiency.

 

An Open Platform

An agile supply chain makes a great difference to an organization, and companies have started to care. According to Gartner, the supply chain management software market grew by 12.5% to $14 billion (RMB 97 billion) in 2018. The Internet has created omnichannel shopping scenarios. The supply chain is not just relying on how much a company should supply, but also on how much supply consumers need. A technology-powered digital supply chain plays important role.

JD is an e-commerce logistics leader in China. Its whole network has built from scratch a dozen years ago. JD has accumulated experience in terms of how to run an efficient supply chain from managing its own inventory covering a wide range of categories like electronics, consumer goods, and fashion, to purchase planning, to managing a sophisticated network nationwide digitally.

Talent is also key in this process, As of December 31, 2018, JD has employed 16,380 research and development professionals to design, develop and operate its technology platform, develop and post content, and improve the AI, big data and cloud technologies and services that manage this fulfillment infrastructure and the large number of orders JD has to receive, process and fulfill each moment.

For example, a consumer goods merchant that previous ran its supply chain traditionally and manually manages the goods replenishment between different warehouses. With online orders surging, the challenge is that without understanding the intricacies of which products and how many each warehouse needs, they are left in a situation where some warehouses have too much inventory while others lack inventory, resulting in additional transportation costs to transfer merchandise between warehouses and the inventory turnover days increased.

JD leveraged its digital supply chain tools to provide them with sales forecast, smart replenishment based on system analysis, and provided a professional team on operation consultancy, which improved the efficiency of the whole supply chain from a strategic level. As a result, the forecast accuracy and the fulfillment efficiency have hugely increased, while inventory turnover days has decreased by 30%, and half of its operational employees have been freed up to do other work, These results go far beyond the client’s basic need. In this way, whether no matter it is shampoo, detergent or personal care products, and no matter the color and type, when customers want to buy something online, the stock is as sufficient as possible and timely delivery is guaranteed.

 

One Stop Solution

People may think digital supply chain management is something that only big companies need to care about, but the fact is, companies of all sizes can benefit tremendously. JD is also collaborating with industry leaders. For example, last August, JD signed a strategic partnership agreement with LLamasoft, a leading provider of enterprise supply chain design and decision-making solutions. Both companies will leverage their respective capabilities to provide clients and merchants with a one-stop supply chain optimization solution in China.

Since December 2017, many small and medium sized companies which are largely in China’s third or fourth tier cities, have benefited from JD’s Cloud Warehouse Management Solution, a smart, cloud-based supply chain management solution.

JD will open its digital supply chain system to merchants who use JD’s service, and leverage big data to help them accurately predict inventory demand and supply, and to organize warehouse layouts for maximum efficiency. One partner, Zhongshang, a warehouse operator based in Sichuan, was able to expand its facilities to 400,000 storage units in six months, having already attracted two business customers and fulfilled over 8,000 daily orders using the solution.

While the country is still fighting COVID-19, various industries need to resume operations. On February 19, JD helped one small merchant from Shandong province who sells fresh and chilled produce, and runs a small warehouse of 400 square meters, with 6 warehouse employees, by opening up its WMS (warehouse management system) priced at 8,000 RMB per year, free of charge, which made the company’s inventory management more accurate and transparent than before. At the same time, it helps with standardization of the supply chain system.

A representative from the company said, “We want to have a digital supply chain management system, but as a small company, making that kind of investment would be impossible. Thanks to JD to providing us the tool for free; it has been an eye-opening experience to help us understand just how important digital supply chain management is.”

Since JD launched this service on February 17, over 300 merchants have applied for JD’s free digital tools, ranging from apparel brands, supermarkets and logistics service providers.

Many companies are just like this merchant – they want an agile and digital supply chain but lack the resources. JD made it possible for all types of merchants to benefit by opening up its services, so that companies don’t need to build them from scratch. JD will also continue to upgrade the system as it accumulates experience by working with different partners. It’s a win-win cooperation.

 

An Incoming 5G Era

Digital supply chain is a fully-connected digital network. Take JD’s 5G powered logistics park as an example — the world’s first of its kind. The park enables digital operations, smart management and control, and automatic security. Vehicles, employees and goods across the entire logistics park coordinate efficiently to complete production.

For example, 5G will enable digital docking. In a traditional logistics park, a lot of manual interventions are needed, from drivers who enter the park and have to find a dock to load/unload onto, to warehouse staff who must manage dock scheduling. In the 5G smart logistics park, all of these processes are automatic and digitalized.

Wenming Zhe, Chief Architect and head of Logistics R&D Architecture at JD Logistics commented: “5G will make communication between devices more efficient and stable leveraging its large bandwidth, low latency, and wide connectivity. It will drive the transformation to automation and digitalization in the logistics industry.”

Digital supply chain has a broad spectrum of application scenarios Recently, JD Logistics officially launched “Jingyi”, an internet trading platform for cargo transport resources. It will help JD digitally connect trucks and drivers to merchants or other users in need of cargo transport. The platform aims to become a central point for the sharing of reliable cargo transport resources across society. To date, over 30,000 drivers have already signed up to the platform.

 

Long-term Commitment

Logistics infrastructure isn’t built overnight; it takes years of building and tweaking the network. It is not simply a coincidence that JD is be able to achieve over 90% of orders delivered same or next day, but rather an inevitable result of JD’s long-term commitment.

More specifically, here is the journey of a package:

• Step one: When an order is placed, the order information will go to a warehouse based on customer’s address, where it is then packed and sorted.
• Step two: The package will be transported from the warehouse or sorting center to a delivery station nearest to the customer’s address.
• Step three: The courier will deliver the package to the customer’s doorstep

To ensure that the process runs smoothly, JD does the following:

• Step one: JD needs to build an appropriate warehousing and delivery network, including RDC (regional distribution center) in a city, which works as a major warehouse as well as the city’s FDC (forward distribution center), which is closer to the customer, and will coordinate with RDC, to a TDC (transfer distribution center) if needed.
• Step two: Once the network is built, JD will optimize the process based on it, forecast inventory based on sales, and select location for a delivery station based on order rules to ensure the most appropriate coverage for a delivery station. Since 2007, JD has expanded product categories from consumer electronics, home appliances, daily necessities, books and fashion, by accumulating experience from the whole process, JD can continuously upgrade its supply chain network.

Digital supply chain is also part of JD’s overall strategy for building an Open Platform for Digital Supply Chain that the company announced during its 2019 global smart supply chain summit. The goal of the platform is to enable players of all shapes and sizes to reap the benefits of an agile supply chain regardless of whether or not they have the resources to operate their own supply chain and logistics department.

Digital supply chain is one of the key trends for the future of the logistics industry. Yet there are still many factors the industry needs to care about and work together to move forward. These issues include how to further standardize application software, enhance timely planning and analysis, and find sufficient talent, especially algorithm scientists, etc. JD and its partners have a long way to go, but they are already moving in the right direction.

 

(ling.cao@jd.com)

by Rachel Liu

The coronavirus outbreak has caused a significant surge of demand in daily necessities, health products and fresh produce among Chinese consumers, especially on e-commerce platforms since many people are reluctant to leave their homes. At the same time, demand from another group of “customers” cannot be ignored: pets.

Family members

Pets are important family members and sometimes even experience “role reversal” with their masters. JD’s pet products category saw a jump in sales during the epidemic, especially in the categories that are needed daily, such as pet food, snacks, cat litter and dog diapers (since pets are not able to go out as often either).

JD’s commitment to maintain delivery during the Chinese New Year holiday for the 8^th consecutive year has enabled many pet owners to take good care of their animal friends during the epidemic. Many brands have also benefited. A popular multinational pet food brand saw over 100% year-on-year increase in sales during February, and even already achieved its Q1 sales target.

JD’s pet business – including chiefly pet food, products and services – had been growing rapidly even before COVID-19 occurred. Established four years ago, the business department has experienced compound annual sales growth of over 70% (meaning each year sales growth was over 70% higher than the year prior). JD Pet seeks to be the one-stop shop platform for pet lovers to find quality, suitable, and satisfactory products and services.

“Pangpang” (chubby), a golden retriever belonging to Haiyan Cao of JD Pet’s marketing team

 

More disposable income, huge market

The Chinese pet market has reached sales of over 200 billion RMB in 2019, increasing by 12% compared with 2018. According to China’s Pet Industry 2019 White Paper published by goumin.com, the number of pet dogs and cats in China reached about 10 million in 2019, increasing 8.4% year-on-year, with about 23% of families having pets.

There are mainly three reasons for the increasing popularity of pets in China. The most important one is the growth of China’s economy and people having more disposable income, which gives them extra money to raise pets and provide better care. What’s more, the elderly who don’t live with their children and the number of young people living alone in cities is on the rise. These two cohorts are both looking for companionship that pets can provide. Having pets is becoming part of the integral culture especially among white collar professionals in top-tier cities. This is chiefly because apart from companionship, pets also provide them a way to express themselves. Lastly, the Internet is disseminating “pet culture”, educating customers and providing advice on how to raise pets well.

The e-commerce penetration rate in China is 20.7%, almost twice as high as in the U.S. Chinese consumers are more used to getting everything they need online. According to Internet Retailing, a global research institution, online sales of pet products in China account for 42.9% in 2019, while its only 16.1% globally. The market opportunity for pet e-commerce in China is astounding.

 

The emergence of the “cat economy”

China is now embracing the age of the “cat economy”, with more people choosing cats over dogs. The numbers of pet cats around China increased 8.6% year-on-year in 2019, surpassing the growth rate of dogs, which is at 8.2%. The phrase “cat lady” may have some negative connotation with some outside China, but in modern Chinese society (especially among those born after 1985 and 1990) having a cat (or several cats) is a symbol of happiness and contentment. Chinese cat keepers usually call themselves “cat slaves”– they like to see the elegant, independent animal as their master, instead of vice versa. Another nickname of cat keepers is “Poo-poo-cleaning Officer” – more uncanny evidence of the high family status of cats.

The 2019 China Pet Products Consumption Report released by JD and Nielsen in November 2019 points out that the future development of China’s pet market will be similar to Japan, where the “cat economy” is already mature. In Asian countries, the working hours are usually longer than in the West. Most people return home exhausted and do not have the time or energy to walk dogs. Most Chinese people live in apartments instead of houses with yards, so cats that require smaller space than dogs became more suitable as pets.

Heyang Liu of JD Pet’s sales team, with his cat “Miss”

JD’s big data shows that the sales growth rate of cat food is over twice as high as dog food. Chinese consumers are focusing more on the health of their cats and on the food they eat, so they are willing to pay a premium for healthful, wholesome food, as well as pet disinfectant products that will help their cats live longer and healthier lives.

Amo Wang, a 27-year-old marketing professional in Beijing, has a three-year-old cat. She shares: “I always buy the most expensive cat food and snacks that I can afford, because this will help my cat stay healthy and energetic. I also buy him a lot of health supplements such as nutrition cream. It costs a lot of money but he is more than just a cat to me. He is my family member now, and it worries me so much every time he gets sick.”

 

A trusted platform for pet lovers

JD Pet has covered almost all types of pet-related products and services in the past years while developing the business. These include pet food, snacks, toys, clothes, daily products, smart products, OTC drugs and services such as bathing, grooming, vaccines and sterilization. Customers turn to JD for trusted products, one-stop shopping experience, fast delivery service, and a platform that always strives to understand more about them and their animal friends.

China does not have large chain pet supermarkets like Petco in the US. If unable to shop online, customers can only go to the mom-and-pop stores in their neighborhoods or pet hospitals. There are usually limited choices, and it’s not easy to carry 20kg of cat food back home.

“I always shop on JD for cat food and cat litter,” said Molly Zhang, a cat owner who lives in the suburbs of Beijing. “There are not many pet product stores around my place, and my job is so busy that the stores are always closed when I finish work. On JD I can shop anytime and the products arrive the same or next day. It delivers to my door step so I don’t have to carry the heavy cat food alone home.”

When it comes to feeding their animal friends, pet owners wouldn’t want to risk buying counterfeit pet food. Especially with more customers looking for high-end, international brands, it’s essential to have a platform that offers simplicity as well as peace of mind. JD’s retail model purchases products directly from brand partners, stores them in its own warehouses and delivers them through its self-built logistics network, which ensures product authenticity. “I never buy cat food from ‘Daigou’ (purchase agents),” said Wang: “It’s too hard to tell if they are counterfeits or not. I just buy them from JD because I know they are authentic.”

JD’s commitment on authenticity and unparalleled delivery service also won trust from partners. Now JD has partnered with major Chinese and international brands including Royal Canin, Nestlé Purina, Mars Petcare, Bayer, and Nature Bridge, while JD is also the largest retail channel for many of above mentioned brands in China. Lots of brands have chosen JD to be the first channel to launch their new products. On February 28^th, JD became the first platform in China to launch Bayer’s Drontal tablets for cats. In 2017, JD became the first e-commerce platform to receive authorization to sell pet medicine in China. In 2018, it became the first ecommerce platform in China to directly partner with the world’s top three animal health brands: Bayer, Zoetis and Boehringer-Ingelheim.

Nestlé Purina’s popular Fancy Feast canned cat food, sold on JD

 

Pet lovers run the business

JD’s retail model means that the company needs to be responsible for selecting and introducing the products that customers want the most, so it can constantly attract new customers and generate more customer loyalty. The pet business team has a group of experienced professionals who keep track of the changing consumer trends and actively explore the best brands and products. Each of the 30 members of the team even has their own pet, and they are collectively caring for one lizard and two hedgehogs in their office area. Lucy Zuo just took charge of the team a few months ago after leading another department in JD, and she is already planning to have two pets.

Peizhe Li, head of JD Pet’s sales team, joined the team in 2016. Before that, he worked in the electronics department for seven years. “I chose to move to the pet team because I think the pet market in China has great potential, and I can use my experience here to help the business grow,” he said. Having a three-year-old dog named Tiantian (sky), he always shops on JD for all kinds of pet products and sees how to improve the customer experience through being a customer himself.

Capturing the development of the “cat economy”, Li and his team have been working hard on introducing more popular brands among cat owners and co-developing products with brands. For example, they introduced Canadian high-end pet food brands Orijen and Petcurean Go!, and provided traffic and marketing support to the two brands. In 2019, sales of Petcurean Go! on JD increased 300% y-o-y. During JD’s Singles Day shopping festival (Nov.1^st -11^th ), brand sales increased 23 times y-o-y. For brands that traditionally focus on dog products, like Nature Bridge and Myfoodie, they encouraged them to develop more cat products. In 2019, the sales growth of the brands was mainly driven by cat products.

More and more consumers are feeling that providing only basic pet food is not enough. They want to spoil their pets with all kinds of snacks, toys, clothes and grooming products. Li and his team are also working hard on introducing these products, especially through third-party merchants, because they can provide more diverse products and new brands. Cat lollipops, pet hot pot, pet ice cream, pet beer, and pet shampoo for sensitive skin…these are some of the hot-selling products on JD. Smart pet products such as drinking fountains for cats, automatic feeding machines and heated cat beds are also popular. In the first hour of this past November 11^th, sales of smart pet products increased 69 times y-o-y.

A cat drinking fountain

What else has the JD team done to enrich their understanding of the preference of pet owners and even their pets? How did they work with brands to meet customers’ changing demands? And, although e-commerce is soaring in China, customers still feel the need to go to offline stores and hospitals. How can a company provide a true omnichannel shopping experience for customers? Stay tuned for part two of this article to find out.

(Part one of two)

 

(liuchang61@jd.com)