Businessmodel of JD.com

Customer segment

JD.com serves two main customer segments:

• Direct consumers: The company renders an array of consumer products across more than 10 product categories directly through its online retail platform. Some of the consumer products categories offered are computers, home appliances and furniture and households goods. JD.com also created a joint venture marketplace called Yihaodian that is aimed at affluent consumers seeking high-quality imported goods.
• Merchants: JD.com serves third-party vendors by providing them a platform to engage consumers. The company also renders advertising and logistics services such as payments support to these vendors. ### Value proposition

JD.com has grown to become China’s leading online retailer through its ability to simplify shopping experience for everyday consumer. Shoppers on JD.com can access a wide variety of consumer products as the company has continued to expand its offering, including through partnerships with international brands.

The company has also simplified checkout for its shoppers by offering them a variety of payment methods, including cash on delivery. The variety of payment options enable shoppers to close transactions quickly and this also encourages shoppers to buy more from JD.com.

JD.com also renders credit support to its shoppers. For instance, the company has teamed up with ZestFinance to give its customers access to microcredit. With that, it is encouraging the consumers to continue spending on its retail platform.

Channels

JD.com uses direct sales teams to recruit merchants to use its Online Marketplace. The company also uses traditional media and internet advertising to increase awareness about both its Online Retail platform and Online Marketplace for third-party vendors.

JD.com representatives also present at trade shows and industry conferences to pitch to customers, especially those who can use its platform to advertise and sell their products to Chinese consumers.

Customer relationship

JD.com employs web and mobile technology that simplifies discovery of products on its retail site and the marketplace. Among other things, the technology renders personalized product recommendations and a user-friendly interface.

Key activities

JD.com sells electronics, home appliances and general merchandise products such as books through its main online portal. These items sold through its main retail site are acquired from manufacturers and distributors and then offered at competitive consumer prices on the platform.

On the marketplace used by independent merchants and distributors, JD.com renders advertising and logistic services such as shipping and payments support.

Partners

Tencent is a major partner of JD.com as the two companies are working in concert to build a stronger force against their common rival Alibaba Group Holding. In 2014 Tencent announced that it was making a $214.7 million cash investment in JD.com to acquire a 15% stake in the company. Tencent also said that it was ceding operation of its e-commerce businesses Paipai and QQ Wangguo to JD.com. The transfers also included the minority stake in Yixun.

Wal-Mart China, eBay and finance services provider ZestFinance are some of the other JD.com partners.

• The collaboration between JD.com and ZestFinance is to render microloan services to Chinese consumers who have limited access to traditional credit options.
• eBay is one of the international partners using JD.com’s international marketplace called JD Worldwide.
• com and Wal-Mart reached a deal to jointly operate an online marketplace called Yihaodian that caters to affluent consumers. ### Key resources

JD.com operates a network of 210 warehouses across China with total floor space of more than 4-million-quarter meters. The warehouse facilities are helping JD.com to hold more stock and diversify its retail offering. Additionally, they provide a great way for the company to improve order delivery speed.

Because of the large warehouse capacity, JD.com can serve many third-party vendors on its marketplace, thus increasing its opportunities to generate more revenue from the marketplace.

The company has about 108,985 full-time employees whose input in areas ranging from customer acquisition to inventory management keep the JD.com engine roaring.

Cost structure

Maintaining the massive payroll of more than 100,000 employees and a network of more than 210 warehouses are a huge financial burden on the shoulders of JD.com.

You see the burden when you realize that JD.com reported a 54% increase in cost of revenue to $24.2 billion in 2015, with leading cost drivers being direct sales activities and traffic acquisition to its marketplace platform. In the same year, the company said fulfillment expense, marketing expenses and technology expenses rose 73%, 93% and 88%, respectively.

Revenue streams

JD.com’s main source of revenue is the Online Retail business. The company also generates revenue through the advertising and logistic services it renders to third-party vendors on its marketplace. JD.com had about 100,000 third-party merchant accounts on its marketplace at the end of the first quarter of 2016.

JD.com generated net revenue of $28 billion in 2015, an increase of 58% over the previous year. In that year, company’s Marketplace business registered the highest percentage revenue increase at 110% compared to 55% of Online Retail business.