How Can Businesses Find New Growth Opportunities Under the Heavy Burden of Traffic Costs?”

Many brand owners have shared similar views with Yilan Business: In recent years, e-commerce traffic has become unaffordable! “Last year, we cut our advertising budget for two e-commerce platforms by half. If the ROI remains at this level, we will consider focusing only on the platform that performs better,” said a cosmetics brand representative. “Every once in a while, the cost of online traffic jumps up — whether it’s from search ads, pay-per-click, or commission-based ads.”Over the past two decades of e-commerce, the cost of traffic has grown exponentially. From the rapid growth during the mobile internet era, to the rise of live-streaming commerce, and now, the disappearance of the internet user dividend, major platforms have engaged in fierce competition on pricing and business models. There is no doubt that natural traffic is decreasing, and e-commerce is entering an era where “no traffic without spending money.”So, is there any cheap traffic left? Where can it be found? The supply of affordable traffic is shrinking. Ahead of this year’s Double 11 (Singles’ Day), Yilan Business observed that nearly all e-commerce platforms’ training materials for merchants during the major promotion period revolved around one theme: How to use traffic to boost sales of individual products.

Even though the Double 11 promotion period has been extended to a full month, merchants still have to meticulously plan for each of the consumer’s purchasing decisions.”During the daily sales period, we need to build up the water pool for target groups and set up cyclical promotions to ensure a smooth flow. During the promotional period, we need to use tools to maximize traffic acquisition and strengthen the traffic burst…” Platforms have provided increasingly complex traffic strategies while simultaneously iterating smarter promotional tools.”I did the math. In 2015, my customer acquisition cost on a traditional e-commerce channel was around 80 yuan. By 2018, it skyrocketed to nearly 300 yuan. Later, I switched to short-video platforms, but the traffic costs there have also been very high in the past two years,” said Lili, who has been in the e-commerce business for nearly ten years, lamenting the rise in costs.The reason e-commerce platforms had affordable traffic ten years ago is that during the high-growth phase of mobile internet, the number of online shoppers, purchase frequency, and transaction amounts were all rising. The competition to capture users was not as intense, so customer acquisition costs were relatively low, and almost all e-commerce channels had cheap traffic. By the end of 2016, CNNIC reported that the proportion of Chinese mobile internet users reached 95.1%.

In other words, nearly everyone who could access the internet was doing so via mobile, signaling that mobile internet penetration was nearing its peak and that the traffic dividend was gradually fading.For the next six years, traditional e-commerce merchants had to accept the reality that paid traffic replaced organic traffic as the main source. Meanwhile, short-video e-commerce platforms, such as Douyin (TikTok), began to grow rapidly, with many merchants flocking to the platform to “snatch” cheap traffic.2022 marked another turning point. That year, traditional e-commerce companies saw a significant slowdown in GMV (Gross Merchandise Value) growth, while short-video e-commerce platforms experienced skyrocketing traffic costs. Previously highlighted metrics such as “active buyers” in e-commerce platform financial reports were now replaced by vague “year-on-year growth” figures.The past decade of e-commerce, whether through traditional platform models or short-video and social-commerce channels, saw a batch of brands benefiting from the traffic dividend. However, as the tide of traffic recedes, and traffic becomes a “hard cost item” for brand merchants, those who can keep this cost under control will not be “swimming naked.”Where has cheap traffic gone? How can we have cheap traffic while ensuring merchants get it?Pinduoduo (PDD) is perhaps the platform with the most authority to speak on this matter today.

After all, in terms of perception, Pinduoduo’s products are indeed inexpensive, and merchants get significant traffic. The key to this balance lies in the platform’s underlying design.For example, consider the same product from a brand: if the brand uses POP (Pinduoduo’s Partner program) on a traditional e-commerce platform, traffic is obtained via bidding rankings. In today’s market, where consumer purchasing power is stable, products are highly segmented, and competition is fierce, traffic costs will only continue to rise. However, on a self-operated e-commerce platform, the platform must raise prices by at least 10% to make a profit. If the overall market price is consistent, the brand’s gross margin is naturally compressed by over 10%.In contrast, short-video and live-streaming e-commerce platforms heavily rely on continuous content creation, advertising, and influencer collaboration. The process from product discovery to conversion and repeat purchase is long, and each stage incurs a cost, thus adding significant marketing expenses.Pinduoduo, on the other hand, operates a more “straightforward” model. On Pinduoduo, the display ranking follows a low-price-first principle, meaning merchants with a price advantage are more likely to be seen. Additionally, Pinduoduo’s service fee is just 0.6%, which, compared to the 3% to 6% fees on other e-commerce platforms, makes merchant operating costs significantly lower.

Ahead of this year’s Double 11, Pinduoduo also introduced a series of “billion-yuan subsidies” and officially launched a “New Quality Merchant Support Program.” For refund orders, basic service fees are automatically refunded, expanding from promotional products to all goods. Additionally, the threshold for merchant loan account withdrawals has been further reduced. It is reported that the number of merchants participating in the promotions on Pinduoduo has already surpassed last year.After Double 11 kicked off, some merchants saw sales of new products grow by up to 12 times compared to previous periods, demonstrating the effectiveness of “subsidies + support.” Bull Group, for example, enjoyed the “reduction” benefits this year.”Since the end of August, we’ve received promotional fee rebates totaling around 500,000 to 600,000 yuan. Our internal calculations show that the cost per click from customers has decreased by 11%, which has given us more space to develop new quality products,” said the head of Bull’s Pinduoduo store.A brand owner with four Pinduoduo stores shared with Yilan Business that they had previously operated on other platforms for three years before switching to Pinduoduo. The main reasons were two-fold: “On the one hand, Pinduoduo’s traffic, commission, and other fees are much lower compared to other platforms, allowing merchants to have more resources for new product development. On the other hand, Pinduoduo further helps sellers upgrade and innovate products based on platform logic, allowing them to achieve greater success.”

Only cheap traffic can support healthy low prices. In fact, by comparing some of the brand pricing mechanisms this Double 11, we can see that many brands have implemented both visible price reductions and hidden price increases. For instance, in the cosmetics sector, Yilan Business found that consumers prefer free gifts in a particular order: full-sized products > samples > face masks. However, both in live-streaming and coupon mechanisms, some beauty brands have experienced “shrinkage.” According to data from Qingyan, several major beauty brands, including La Mer, Skinceuticals, Estée Lauder, and Helena Rubinstein, have altered their gift offerings but raised their per milliliter or per gram prices. This paradox arises because, as traffic costs continue to rise, brands face the challenge of maintaining profits while promoting low prices. When brands can’t adjust prices, they must tweak their promotional mechanisms.Of course, large brands can still maintain their business base by relying on pre-existing fanbases, but for small and medium-sized businesses, expensive traffic becomes a “death trap.”A year ago, “lowest price on the internet” was the slogan on many platforms. No matter the product, there was always a cheaper option. From a production perspective, high traffic costs squeeze profit margins, and even if merchants manage to sell, they cannot avoid cutting corners in raw materials and processes. Over time, only inferior products dominate the market.

Now, however, the “lowest price on the internet” slogan is no longer allowed.Beijing’s market regulatory bureau has drafted the “Beijing Live-streaming Compliance Guidelines (Draft for Comments)” and publicly solicited opinions. The draft specifies that when conducting promotional activities through price comparison, live-streaming operators, influencers, and service agencies must clearly indicate or use other methods convenient for consumers to recognize the prices being compared, and cannot mislead consumers with statements like “the lowest price on the internet.”Although the extreme price wars have subsided, it’s undeniable that cost-performance ratio remains the main competition theme in today’s consumer market. To achieve a healthy pricing advantage, the key is to lower traffic costs.Yilan Business also learned that, in addition to struggling with uncontrollable traffic costs, many small and medium-sized merchants face the dilemma of “bamboo basket fetching water” — the issue of platforms lacking organic traffic and heavily relying on purchasing external traffic, which is then resold to merchants at high prices. This “middleman” approach inflates traffic costs and leaves small merchants unable to compete, excluding them from the market.Currently, Pinduoduo’s model offers the most simplified transaction chain. Consumers receive genuinely cost-effective products, and merchants, benefiting from low traffic costs, can earn profits. This model enables small and medium-sized merchants to also compete for traffic, even against large brands. After all, with bidding-based ranking and paid traffic, large brands have a massive marketing budget, which gives them a clear advantage. If bidding and paid traffic become the mainstream method of capturing consumers