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Article / 03 December 2014 at 5:57 GMT

Up-to-date promotions keep Alibaba ahead of its rivals

China Watcher / Shanghai
China
  • Following the success of Single's Day, Alibaba has created the 12.12 event
  • As it's less well-known, Alibaba is investing heavily in its promotion
  • Alibaba's rivals are forced to participate for fear of losing sales 

By Neil Flynn

Single’s Day – where western investors got to experience the sheer size of the world’s biggest online shopping event – seems like a distant memory. But with the success of the festival that it created, Alibaba has created another shopping festival, and its rivals have to follow suit in order to compete with Jack Ma’s behemoth.

The 12.12 shopping event, held on December 12, was created last year by Alibaba. It follows a very similar format to Single’s Day, where there are selected promotions between December 1 and December 11, and then all product ranges have discounts of up to 50%. 

As the event isn’t as well known or as established as Single’s Day, Alibaba has spent a lot on marketing 12.12, as the metro stations and online media platforms have large 12.12 promotions. It should be noted that Single’s Day is a big media event for Alibaba, and the media are invited to view the live sales updates. But 12.12 won’t have this, so investors will have to wait until the release of the fourth-quarter results to find out how the firm performed during the sales event.

Alibaba's 12.12 Promotion
Remember the date ... An example of Alibaba's promotion of its 12.12 event. Photo: Alibaba

The likes of Alibaba make money from these huge sales events through brands paying for preferential advertising on the site, renting warehouse space, and through their logistics network. Therefore the bigger the promotion, the more customers visit the site, and the more that brands and third-party merchants will pay for Alibaba’s services.  Alibaba also benefits from consumers using its AliPay payment system to make transactions during the event.

As with Single’s Day, I expect that social media will be used to promote the latest 12.12 deals. Alibaba-backed Weibo will be a major focus because it provides the best method of informing customers about promotions in China’s social media industry, particularly when compared to Tencent’s WeChat. 

However, just recently, the rivalry between the two social media platforms has intensified as Weibo has begun banning posts that contain links to any WeChat promoted pages. While Weibo is a Twitter-like microblogging platform and WeChat is a Whatsapp-like mobile messaging platform, Alibaba has also invested in Momo, which is a genuine rival to WeChat. I expect that Alibaba will utilise this on 12.12 to both advertise the event and to inform users of promotions.

Creating events that rivals must follow

An understandable observation would be that if Alibaba could have success with its Single’s Day (11.11) and 12.12 festivals, surely it's only a matter of time until the 1.1, 2.2 3.3 etc. shopping events are a regular occurrence. 

Without getting ahead of ourselves, it’s not an unreasonable assumption, because it would help Alibaba maintain its dominant control over the online shopping market in China. Prior to Single’s Day, consumers delay purchases of goods because they know that they can buy them cheaper in the Single’s Day promotions. 

If the 12.12 event grows in popularity, as it is showing signs of doing, then it’s reasonable to assume that consumers will delay their post-Single’s Day purchases until the 12.12 event. So if this trend continues and Alibaba holds a big sales event every month, consumers will likely delay their monthly purchases until the big sales event. This will affect all of Alibaba’s rivals, as consumers who usually shop on the likes of Jumei and JD.com would wait until 12.12 to buy their products on Alibaba for a cheaper price.

It is no surprise then that Alibaba isn’t the only online store that is participating in the 12.12 event because rivals such as JD.com have been forced to hold a big promotion.

This event is the perfect example of Alibaba’s power in the industry. It is able to create a shopping event from nothing, and given its size and scope, its rivals are forced to participate out of fear that they will lose sales for the whole of the month. 

In the long run, I don’t expect 12.12 to ever be equivalent to Single’s Day. But I do expect the sales event to be big enough to affect consumers' spending decisions in November and December.

– Edited by Gayle Bryant

Neil Flynn is head equity analyst at Chinese Investors. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.
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