The JD.com Story: An e-commerce phenomenon

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Icome from a village in Hubei Province. When I was growing up, shopping in my hometown was typically inconvenient. At the small stores, more often than not what we bought were counterfeits of brand-name beverages and instant noodles. If we wanted to buy home appliances, we had to travel 20 kilometres to a county where the distributors had stores. Even there, the choice of brands and models was far more limited than in China’s first-tier cities. Later, my parents moved to a town. When I wanted to send things home, China Post was the only choice, because general express delivery companies did not yet deliver to small towns.

For a long time, retail development in China was unbalanced. Even China’s largest retail chain, Suning, found it cost-prohibitive to set up stores in small county-level towns. In constructing a cross-country retail network, Chinese manufacturers relied on a distribution system that placed general national agencies at the top, followed by regional agencies at provincial, city, county, and town levels to cover the whole Chinese market.

In this distribution system, the flow of information, goods and capital was inefficient and quite unfair to consumers. Lack of information led to significant price-range differences in home appliances. For example, an electric rice cooker that sold for 99 yuan in first-tier cities was 119 on the outskirts, and 139 in village stores. For home appliances, the turnover period for major agents might be two or three months, but a year or more for smaller dealers, so the profit margins had to be high enough to sustain their existence.

Over the past few years, this seemingly solid distribution system, built over three decades, faced unprecedented challenges from e-commerce. JD built its position as an e-commerce company over 12 years of development. The company purchased directly from manufacturers and stocked the goods in JD warehouses. After consumers placed their orders via the JD website or mobile terminals, JD delivered to their door.

JD’s 2014 annual report showed net income reached 115 billion yuan, representing year-on-year growth of 66%; Suning’s turnover was 109.116 billion yuan, with year-on-year growth of 3.63%. This was the first time that JD bested Suning, and that milestone deserves to be recorded in the history of the Chinese retail industry.

It seems that the scent of gunpowder still lingers from 2012’s August 15 Price War. That year, Richard Liu launched a lightning raid using the Weibo social media platform and provoked a competitive skirmish in home appliance categories that targeted Suning and Gome. Subsequently, JD’s competitors in e-commerce joined in and the price war turned into an all-out brawl.

JD was pushed into a tight corner for some time, but from a longterm strategic view, the company benefited. The price war attracted public attention to the e-commerce industry and many consumers became aware for the first time of the price differences in major appliances online and offline. Since then, sales of JD’s major appliances experienced sustained growth, year after year. These events also marked the beginning of fierce confrontation between online and offline retailing formats. For China’s traditional retail industry, the wolf had finally come to the door.

This is why I wanted to write this book. In my eyes, JD is a prime example of this business revolution.

First, it shook up a decades-old distribution system as well as the retail chains, and helped lift Chinese retailing formats from low- to high-efficiency mode.

Second, it enabled a fairer and more efficient information flow in society.

There will be detailed discussions of these two points in the book. Unlike other startup companies that subverted existing business models or patterns, the JD.com story is special because it embodies a brash upstart’s counter-attack on a traditional industry. Liu started his business as an offline wholesaler. Later, he turned to retail chains. He delved into e-commerce almost accidentally; the internet and venture capital helped propel JD into the ranks of the world’s top 10 internet enterprises.

Over the past 30 years or more, demographic changes, capital investment, and open markets created a golden age for Chinese manufacturing, foreign trade and export, real estate development and other businesses. However, the demographic bonus has been disappearing, overseas market demand has shrunk, and return on capital investment has fallen, forcing China to find or develop new drivers of economic growth. In Wenzhou, a shop owner told me a vivid story: a factory owner who lived across the street from him one day jumped from his balcony to his death. It was a day the shop owner would never forget; he even marked it on his calendar. That factory owner who committed suicide in Wenzhou symbolized the pain of economic transformation in China.

The key to China’s economic growth lies in innovation, in enabling entrepreneurs to use new technologies and new models to achieve business transformation through equity financing – the most important catalyst for innovation. Over the past two years, I’ve talked or written about China’s internet-driven business transformation on many occasions, and it is an extremely popular subject these days. Just like e-commerce in the retail industry, new technologies and new business models will subvert existing patterns in finance, healthcare, education, entertainment, energy, and other fields. Those who fail to meet customer demand, who stick with low efficiency, high transaction costs and over-regulation, risk being subsumed by innovation in the future.

Pioneering entrepreneurs – the visionaries behind today’s business transformation – are digging the grave of traditional industries and blazing the trail toward a new order. They start by asking how to help users get better service and higher quality products at a lower cost. They stand ready to disrupt and reform anything that reduces efficiency in the traditional industries.

Three strategic decisions have played a decisive role in the development of JD. The first was to transition to e-commerce in 2004, when JD seized upon longterm consumer trends; the second was to expand to a full-category product portfolio by moving beyond a limited 3C products platform to a one-stop consumer superstore; the third was to build a logistics system, integrating warehousing and distribution into one. The latter two strategic decisions were made in 2007 and were ideas that Richard Liu fought for despite strong opposition from investors and management.

From 2007 to 2013, JD zeroed in on two imperatives: increasing the variety of online product offerings and making its own delivery capability broader and faster. JD gave customers nationwide a uniform price. E-commerce meant fairness in price, quality and information. For a long time, a brand that could be bought in a Beijing store was simply unavailable in a small county town in Sichuan. But through e-commerce, a person anywhere in the country could click the buy button and have that brand-name product quickly delivered to his or her home. The more remote the area, the more expensive the commodity, and the greater the value of JD, because it had upended the distribution system that raised prices at each stop along the path.

This process was like a game between JD and its suppliers, but it mapped to the general trend. A more efficient retail model was bound to replace a less efficient one. Manufacturers shipped their products to a JD warehouse and then to the customers with only JD in between. Links were cut and efficiencies enhanced.

Liu realized that all innovation modes of the last ten or 20 years are related to transaction cost reduction and efficiency improvement. Only by lowering transaction costs or by making transactions more efficient can the new mode survive and develop. If the innovation mode fails to do so, then the innovation is meaningless.

Behind its improved transaction efficiency and reduced transaction costs was JD’s powerful, sophisticated control over the supply chain.

It was easy for people to ignore the technical strength of JD, although research and development was its third-largest area of investment, behind only logistics and marketing. JD’s innovative technology could be likened to a spring rain that moistens things silently. It covered everything, from the sales forecasting system, to the automatic replenishment systems that the buying and merchandising departments used, to the management system, and to maintaining the normal operations of warehousing and delivery.

The crux of an efficient retail business comes down to understanding what the consumer needs and reducing inventory costs by making good predictions of future sales. In traditional retail, operational efficiency was relatively difficult to control, mainly because it was hard to accurately predict fluctuating sales volumes. In 2001, when JD first engaged in retail, it tried to predict how many computer mice could be sold every year. Its forecasting proved to be sketchy at best. But by applying technology to the challenge, the company could record every aspect of consumer behaviour for data analysis. Big data drove JD’s entire supply chain and distribution system. The accuracy of sales forecasting directly affected automatic procurement and vendor shipment as well as the inventory system downstream in the supply chain. Predictive sales tools also helped address the problems that plagued traditional retail: how to obtain the correct number of products to meet consumer needs via the right suppliers at a lower price, in real time, while maintaining product quality.

While it was possible to track and reflect the number of customers and their degree of activity and preferences online, it was difficult to do offline. A Chinese retail chain once installed recording devices at its stores’ front doors to record foot traffic. However, the data obtained was far from relevant because it could only record how many people had entered the store, not whether or what they bought. As it happened, the foot traffic count was tied to employee performance evaluations, which led to fraud in some stores.

As JD’s network connected suppliers, consumers, and entrepreneurs across the country through information, logistics and finance, it evolved into something more than a retail operation. It had become a technology-driven open platform that supported a rich diversity of consumer-facing businesses.

Parked next to Hualian supermarket near my home in Beijing, there was always a red Iveco van, painted with a white smiling dog and customized for a special purpose. The red-uniformed employees there were as busy as bees, handing one package after another to young customers emerging from the subway. The rush hour after work was the peak period for collecting packages. The van served as JD.com’s product pick-up site.

In many Chinese cities, JD was already a household name. On its website one could order goods at a cheaper price than offline and have them delivered via its own logistics system. In addition to door-to-door delivery, JD also gave customers the choice of self-collection, at a time that was convenient to them. JD had become an enterprise with an annual turnover of 260.2 billion yuan, with nearly 70,000 employees and logistics covering 1,862 districts and counties across the country. (There are 2,860 districts and counties in China.) In the spring of 2012 I visited an e-commerce investor. JD wants to become Amazon plus UPS, he said. It’s chasing a rainbow. It just goes to show that there are times when you can make the impossible possible and reap unimagined rewards.

In 2014, Amazon started to build its own distribution system and, like JD, attempted to control the crucial last mile to the customer’s doorstep.

Liu accomplished many things that others said were impossible. If everybody thought a thing could be easily done, then what was the value of it? JD was a company engaged in some of the world’s most toilsome work, and it eked out razor-thin profits.

In recent years, as the business landscape has been reshaped, there have been both fierce clashes and unprecedented cooperation within traditional industries. Companies with new technologies and new models became more deeply involved in the supply chain. For example, competition among video websites had been limited to online content purchase and broadcasting. Before long, those sites not only participated in content production upstream, but also stretched themselves downstream to the production and sale of player devices, like internet television hardware.

Companies became heavier and heavier by stretching in this way. Investors began funding emerging companies that were taking this path.

For young entrepreneurs, this meant more challenges. In the past, they just needed to know about the internet, how to write code, how to manage engineers and product managers. But now they needed to develop expertise in disciplines like supply-chain management and offline team management. For those geeks immersed in the 0 and 1 binary world, an offline team was like another world. Put another way, the engineering team and the ground labor force were like China’s urban-rural binary opposition structure, and skillful managers had to bridge the gap. That’s what entrepreneurs could learn from Liu. Faced with such conflicts, how did JD integrate people with different ways of thinking into a whole? That is also what this book is about.

In the pages that follow, I’ve divided JD’s history into three broad, evolutionary stages.

The first stage stretched from 1998 to 2006. During this period, Liu put in place the basic structure to attract users, acquire capital and build the teams he needed to transition from offline to online retail, and gain a foothold in the e-commerce space.

The second stage was from 2007 to 2010. It was during this time that JD secured its first venture capital. This investment provided JD a doorway through to the internet and propelled it into a period of rapid growth. The first batch of professional managers started to join the company, and two major strategies were pursued: expansion to a full-category catalogue and creation of a logistics system that integrated warehousing and last-mile distribution.

The third stage extended from 2011 to the present day. This period saw JD continue its rapid expansion. New levels of capitalization not only supported JD’s enormous logistics investment, but also broadened Liu’s horizons. He became determined to move beyond China and embrace the global marketplace. JD’s businesses diversified. Opening up became the new theme. Meanwhile, JD continued to strengthen its internal organization by hiring more experienced executives, optimizing organizational structures, and crafting a culture that rallied the workforce into a team with a common vision. JD had undeniably become a large corporation.

This entire process requires updating and upgrading the team, said Liu. That can be difficult for entrepreneurial types. An entrepreneurial team is unlikely to find the very best talent at the outset. But with entrepreneurs that’s almost unnecessary. If there is an opportunity and a mutual recognition between team members, they will just do it.

However, once the company began to mature, expand and add new personnel, it faced the inevitable problem of weak management. The ability to learn quickly was essential in this era, but not everyone had the ability to keep up. What was to be done when veteran team members could no longer match the pace of this energetic, hard-charging company?

I found that some start-up companies remained in the hands of founding-stage veterans, even though their management shortcomings had become a bottleneck. I also found that some start-up companies aggressively introduced professional managers but failed to properly manage the older veteran workers. New culture conflicted with the old culture, producing internal friction. Management was never about feelings, and rationality had its cruel side. The process of building and upgrading the team tested every entrepreneur’s management skills. JD started from a sales counter, a stall in Beijing’s bustling Zhongguancun market. Very few internet companies had such a modest beginning. But this company faced the test of dramatically upgrading its team, and it passed with flying colours.

From that small counter in Zhongguancun to a company that approached $45 billion in market value, JD’s development could be understood by examining three key elements: strategy, execution and corporate culture.

Strategy: JD was not created by Richard Liu alone. But its core strategies absolutely originated with him. Transforming to e-commerce, expanding to a full-category portfolio, and building independent logistics were JD’s three foundational strategies. These imperatives did not emerge following rigorous calculation, but from focused business insight. The starting point was elevating the customer experience above all else. JD began drilling down into logistics because customers complained about the terrible service provided by third-party carriers. With an overriding goal of satisfying customers, the team stepped back through the ways it could re-balance costs and efficiencies. The desired end-point was, without exception, customer satisfaction.

Execution: JD’s execution was perhaps the strongest and most efficient of all the companies I have seen. And that had everything to do with the fact that JD started in retail, and retail was all about a rigorous organizational chain and resolute execution.

Corporate Culture: The efficient executive force combined with employees’ embrace of the company’s vision to create a cohesive team. The complexity of managing JD was staggering, due in part to its rapid growth from 1,000 to 70,000 employees in just six years. Adding to that complexity was its shift from selling entirely offline to entirely online. As mentioned earlier, JD had to build a bridge spanning China’s urban-rural social and demographic divide. At the heart of JD’s culture, Liu created a fair and just environment in which talented people earned rewards – pay, position and status – based on performance.

When I first approached Liu about this book, he said he was in a transitional period – moving from entrepreneur to business leader – and it was too early to write the JD story. I agreed with him. But I also knew that if I didn’t begin to record this story then and there, many living testimonials would never be heard. Memories would fade with time. Eventually, all that would remain would be dry spreadsheets and boring meeting transcripts. If we start the clock at 2004, then JD had been engaged in e-commerce for 12 years. There must have been some experiences and lessons worth sharing with others. This was my original intention in writing this book. I hoped it would give readers a better understanding of JD, and perhaps even some inspiration.

On 22 May 2014, the NASDAQ Stock Exchange in New York City was covered in scaffolding. The place was a mess. Billboards with a red background and the white letters JD were everywhere.

In a first floor studio, a presenter was broadcasting stock quotes of NASDAQ-listed companies: Apple, Baidu, Cisco, Facebook, Google, Intel, Microsoft, Amazon. Virtually every listed company in science and technology you could think of flashed by, one after the other, before my eyes.

At 9:30 am, Richard Liu, sharply dressed in a suit and in high spirits, rang the opening bell. His company, JD, with $3.1 billion in financing, was officially listed on NASDAQ. Its market value that day hit $28.6 billion.

A huge LED screen in New York’s Times Square displayed Liu’s face. At the same time, across the Pacific Ocean in Beijing, a night-time crowd cheered wildly in an open atrium of North Star Century Center, JD’s corporate headquarters.

Liu began his stock-exchange remarks by addressing JDers, but immediately realized he was now speaking to a broader global audience and changed to, ladies and gentlemen. It amused the hundreds of people assembled before him, including many Chinese investors and business executives.

After the listing, by virtue of the public offering’s structure, Liu retained 83.7% of voting power with his shareholding ratio of 18.8%.

In 2009, Zhou Wei, partner at KPCB China, had considered investing in JD. But at that time, JD experienced a major drop in profits, so he declined. In 2011, when he finally decided to invest, the share price was more than 10 times higher.

Zhou said, half-jokingly: My hand was shaking when I signed the contract. Then came the internal debate over whether JD could grow to the size of Amazon, or even eclipse it. Liu and his team can endure hardship, said Zhou. He can survive with razor-thin profits. This is the value brought from his past experience. E-commerce is an extremely hard job and no one compares with Liu. If it were a pure internet company, he might not have excelled.

Back then, many people had argued with Zhou about ’s prospects. They worried about its gross margin. If JD were a second-tier e-commerce company, Zhou thought, it would have needed to focus on gross margin. But it was already a marketplace leader. The leadership, scale, and potential of the company were evident to him.

On 22 May, Liu announced that the first portion of the $3.1 billion obtained through the IPO would be invested in developing business in third- to sixth-tier Chinese cities.

That had Xu Xin, who invested in JD in 2007, smiling from ear to ear. Imagine, returns of 150 times my original investment, Xu said. But what pleases me most is helping an enterprise develop into a great company. JD will become a great company. I still own 7% and I won’t sell it. I want to hold it for the long term. There are not many great companies in the world. I am lucky to have found one. Liu had told her: The current share price is not important, but it will be after 10 years.

Back in 2007, when JD received its first infusion of venture capital, the company hosted a feast to celebrate. Drinks flowed freely. Everyone hoped JD would someday go public and become a great company. At NASDAQ, Sun Jiaming, vice president of JD Group and general manager for the General Merchandise Division, represented the company’s very first employees. He stood in the front row, appearing unexcited. The most exciting moment for him was when he’d had the vision, years earlier, to join a company that was destined for greatness.

Upon listing in the US, JD had received the largest IPO financing of any Chinese company to date. (The record was beaten by Alibaba when it went public in the US later that year.) NYSE and NASDAQ vied for the IPO; JD chose NASDAQ only two months prior to the listing. Robert Greifeld, NASDAQ CEO, and Zheng Hua, NASDAQ’s chief representative for China, had reached out to Liu many times. Richard Liu is a very ambitious man, said Zheng. He devoted himself to the company for more than ten years. He is formidable and persistent. He has great and lasting ambition. He is also very patient. Zheng saw Liu and his achievements as embodying the spirit of the bronze charging bull statue in the heart of New York’s financial district. And who could argue?

At that evening’s IPO reception, Liu spoke in English marked by the accent of Suqian, his home town in Jiangsu province. I walked from the small village of Suqian to Beijing, which took 20 years. Then I took another 20 years to walk from Beijing to New York, he said. Everyone laughed. What is our new target, our new goal? I hope that in the next 20 years, our customers or partners will be found in every city and every country in the world.

On 10 April 2015, JD’s market value reached $45.4 billion, making it the fourth-largest internet company in China.

In 2004, Liu turned to e-commerce from the offline retail chain business, making the most important strategic move in the history of JD. The decision was driven by both accidental and inevitable factors. Liu showed that it was necessary, with the advent of the internet revolution, for a traditional enterprise to be brave enough to abandon a successful past.

N othing is more miserable in the world than boating, blacksmithing and tofu-selling, goes a popular local saying in Suqian City, Jiangsu Province. The Grand Canal from Beijing to Hangzhou runs through Suqian from south to north, and many of the local families survive on boating and shipping.

One night in the spring of 1998, walls of waves crashed into a 40-ton iron freighter. In the cabin, Wang Shaoxia bailed furiously as more and more water rushed in. The ship was sinking, with all Wang’s family belongings in it. Seeing that 20 years of painstaking efforts would be washed away, she felt helpless. She wanted to hold on to the bow and just go down with the ship. At that moment, she suddenly thought of her children and her elderly mother. Out of instinct, she jumped onto an adjacent boat to save her life. Ten seconds later, the bow of her vessel disappeared under the water. Because it was unlucky to cry on someone else’s ship, Wang worked hard to control her tears. She remained on the vessel for three days, silent. Only when she was ashore and saw her sister did she burst into tears.

After the shipwreck, Wang stayed at her mother’s home and kept the news from her son, Richard Liu, who was working far away in Beijing. When Liu called his grandmother’s house, he found it strange that his mother always answered. Mum, why are you at home instead of on the boat? he asked. Our boat … has sunk! Wang replied. And Dad? Liu sounded very anxious. He is all right, Wang replied. We want to borrow money to buy a new boat.

As long as you are alive, everything’s all right, Liu said. Please don’t go boating any more. I will repay the money!

On 18 June 1998, with 12,000 yuan he had saved, the 24-year-old Liu rented a 4m² stall in Haikai Market in Zhongguancun. He bought a used computer, a second-hand tricycle, and started his entrepreneurial journey. JD Multimedia, the predecessor of JD, was thus founded.

That year, China’s economy was undergoing a period of anxiety and excitement. On one hand, a large number of people in collective-owned units and state-owned enterprises were laid off and the old iron rice bowl guarantee of lifetime security was broken. Many families faced a dense fog of uncertainty. At the same time, private enterprises were flourishing. Three places in China became the most dynamic business zones: Pearl River Delta, Zhejiang Province (represented by Wenzhou), and Zhongguancun in Beijing. Pearl River Delta and Wenzhou were noted for foreign trade and manufacturing businesses. Zhongguancun, sometimes called the Silicon Valley of Beijing, was regarded as the cradle of intellectual heroes working in the IT industry. From 1988 to 1998, Zhongguancun developed at a fast pace, with an average of one new company founded every day.

China’s internet industry was on the rise, with Zhongguancun at its centre. Thanks to a new policy of openness after years of seclusion, the Chinese economy finally caught up with the latest global trends. Charles Zhang, an overseas returnee who founded Sohu, was ranked by Time Digital among the world’s top 50 digital elite in 1998. Yahoo!, founded by Jerry Yang, was a star company. Highly sought after by Wall Street since its listing in 1996, its stock price peaked in 2000.

Google came into being that same year. Baidu made a late appearance in China in 2000. Jack Ma was still working on his Chinese yellow pages and Alibaba had yet to be founded. No one could have predicted that the Chinese internet would be dominated by three giants (Baidu, Tencent, and Alibaba) in the years to come. And no one could have predicted that JD would become China’s fourth-largest internet company.

In 1998, JD Multimedia was engaged in a pedestrian offline business: stocking and selling goods at a rented counter in a large building, first at wholesale, then retail. China’s retail industry developed in a short period of time after the arrival of the open market economy. In its early stages, the market was full of extravagant profits, confusion, chaos, fraud and corruption.

At stores in Zhongguancun, authorized goods and knock-offs were sold side by side. Whether consumers could buy products at the right price depended largely on how savvy they were and their ability to bargain. If buyers didn’t pay close attention, sellers sometimes took advantage of them. JD Multimedia was born in this environment.

Liu’s approach differed from many sellers in Zhongguancun. He had no set purchasing channel, no financial backing, no team. He did his business alone and insisted on selling his products with clearly marked prices. He refused to bargain. Many customers first turned to other counters for better prices, but eventually came back to Liu because they found his prices were more reasonable for genuine products. He made his first sale at 98 yuan. Slowly, through word of mouth, JD Multimedia accumulated a loyal group of customers. Three months after he started his business, Liu was too busy to handle everything alone and hired his first employee.

JD Multimedia originally focused on video-editing hardware and systems for wedding photo studios. With the expansion of the company, Liu moved his stall from Haikai Market to the PKU Resources Building, facing the Silicon Valley Computer City, where he rented three offices in succession. The company began to sell magneto-optical products, CD burners and videotape conversion systems, 70% of which were sold to retail counters – much like the one where he’d first set up his business, at Computer City in Zhongguancun – and 30% to individuals. In 2002, JD Multimedia opened its first counter on the third floor of Silicon Valley Computer City, selling CDs as well. The business turnover rate was as much as 80% higher here, because JD Multimedia employees sold the products and provided additional technical services.

During this period, Liu laid the foundation for the future JD Mall.

Authentic Products

Unlike most of the other sellers, Liu began issuing invoices when he first started his business in Haikai Market. Invoicing meant that proper taxes were being paid and that the transaction was entirely above board. It was a declaration: I sell authorized goods. That gave customers full confidence in their purchases. The Administration for Industry and Commerce at one point audited JD Multimedia for three days and found no tax evasion, no smuggled goods, no fake discs. Copying CDs was a common and easy process; one just silk-screened a logo onto blank discs and created packaging identical to the genuine ones. By doing this, gross margins could be dozens of times higher than for authorized products.

But Liu refused to create or sell knock-offs. He sacrificed easy profits to sell only authentic goods at lower prices, which had no competitive advantage compared with the counterfeit CDs that were ubiquitous in Zhongguancun. One customer who worked in data backup for a bank sought 300 to 500 CDs at first, saying he would purchase in bulk if the quality was good. But the customer was dissatisfied after finding JD Multimedia’s price much higher than the other counters’. Gang Jian, later the general manager of operations management for JD’s Home Appliances Business, told the sceptical customer: If you believe that what the others sell are authentic products, then go for them. He showed the customer proof that JD Multimedia’s goods were valid and authorized, and pointed out that, if the CDs were to be used for data backup, then quality mattered and he should be wary of cheap discs that could fail after a few days. This struck a chord with the customer, who continued purchasing from JD. He felt the products had the best cost performance and that JD called a spade a spade, without cheating or swindling.

In 2011, Pacific Digital City in Zhongguancun closed down, causing a stir in the industry. At that time, China’s e-commerce was the rising sun. The company that by then was called JD Mall exceeded 30 billion yuan in sales and became the leader of self-support B2C (business to consumer) e-commerce in China. In contrast, the computer cities in Zhongguancun were the setting sun. A large number of counters closed and the building emptied. Liu remembers an exchange he related to some colleagues after the market closed: Last night I chatted with some friends. A classmate said, ‘Congratulations, you’ve killed Pacific Digital City.’ Astonishing! In fact, you were not beaten by JD, but by yourself! Ask yourself, how many times have you substituted the fake for the genuine? How many smuggled goods and fakes have you sold? How many customers have you cheated? What goes around comes around!

Low Price

Liu believed in small profits but quick turnover, and he knew that the controlling force lay in scale. A company would never dominate if its sales volumes remained 2-3% of the total market. You can’t always count on windfall profits, he said. From the start-up to now, there is no such phrase as ‘windfall profits’ in my dictionary. What is the biggest problem with many businesses in Zhongguancun? They had the idea of windfall profits. They wanted to earn 20 million yuan from an order of 50 million yuan. From the first day of our business to now, we have been planning on a long-term basis, and we have had small profits but fast turnover, with scale as our first priority.

At the peak of the magneto-optical products boom, JD had a 60% market share in China. This was achieved through low prices. Price wars had always been JD’s most direct and productive means of competition. They often involved setting different prices in the morning and afternoon. JD beat other agents with this strategy and, as a result, became an exclusive agent.

JD employees called some of the difficult customers hard nuts and experienced salesmen told Sun Jiaming not to deal with them anymore. Sun discussed it with Liu, who told him to try anyway, that maybe they could be won over by another, more resourceful salesman. Just as newborn calves don’t know enough to be afraid of tigers, Sun actually had the gall to knock on the doors of the toughest customers. But these big buyers remained indifferent to him. Every day, he told Liu about his unsuccessful encounters and Liu taught him to modify his approach.

Liu suggested lowering prices. A price near cost, sometimes even lower, was offered to the customers every day. Whether the customers bought or not, they’d be offered new quotes every day. Sooner or later, they’d find it would be their loss not to buy from JD Multimedia. They bargained with other sellers but were rebuffed. Then, they might place a trial order with Sun. Finally, once an agreement was reached, customers would place new orders with JD Multimedia and continue to do so as long as the price was no higher than elsewhere. In the long run, it was worth it if it secured a steady stream of repeat customers.

Good Service

When JD Multimedia sold wedding photography and video conversion systems in Haikai Market, it faced clients who knew little about IT hardware and technology. So, in addition to providing products, Liu also began offering technical training. Chen Shikuan, later director of planar image production at JD University, joined JD Multimedia in 1998 as a technical engineer. He spent 15 days training a client from northeast China in every aspect of computer use. The customer didn’t even know how to use the mouse at first: he had tried holding it up and gesturing in the air with it. As part of his training, the customer learned how to burn a CD.

Once Chen incorrectly edited a customer’s video, resulting in poor definition. Liu criticized him, saying he must redo the project to the customer’s complete satisfaction.

JD’s concept was simple: