E-commerce platforms blinded by the competition for traffic are likely to suffer a similar fate as the "choose one from two" situation.

The first 618 shopping festival, during which almost all e-commerce platforms offered the "refund only" service as a standard feature, has passed. However, a storm surrounding merchants, platforms, and consumers has ensued and is showing no signs of abating.

From December 29 last year, when JD.com, one of the leading e-commerce platforms, implemented the "refund only" policy, to the 168 days before this year's 618 shopping festival, the eye of the storm was already forming.

On March 25, Pinduoduo, which was the first to introduce the "refund only" feature in 2021, launched its self-operated store "Duoduo Welfare Society," but it quickly encountered malicious orders from a large number of small and medium-sized merchants within the platform. These merchants, who were well-versed in Pinduoduo's rules, applied for refunds after placing large orders and then berated the official customer service. This series of actions led to the rapid taken down of Pinduoduo's self-operated store within four hours.

Merchants' frustration, which has led to extreme actions such as "store bombing," stems from the implementation of the refund-only service. They believe that the platform is not being fair and is deliberately pandering to consumers, allowing refund-only orders without sufficient evidence to be approved without any bottom line. This has even attracted a swarm of "discount exploiters," resulting in difficulties in store operations.

In the 2023 e-commerce battle, after exhausting the last trump card of "price war," refund only has become a new dimension of competition. In the second half of the year, Douyin E-commerce, Taobao, JD.com, and Kuaishou E-commerce, which arrived late in January this year, have attracted varying degrees of "wool-gathering" attacks.

On one side, users in various content communities are eagerly sharing strategies for "wool-gathering" from different e-commerce platforms, while on the other side, merchants who cannot receive money or retrieve goods have no recourse to the platform and face unstable legal rights protection, forcing them to spontaneously form civil mutual aid organizations and resort to extreme measures to vent their anger.

At the center of the conflict, the platforms only focus on their competitors, oblivious to everything else. However, when the storm passes, both buyers and sellers will have winners and losers, leaving a messy situation that someone will have to clean up.

01 From Online to Offline

Entering the pinyin initials of "Shangjia Huhuzui" (Merchant Mutual Aid Society) in the address bar of any browser will take you to the homepage of a website with the same name. It was established to provide a solution outside the platform for merchants struggling with issues such as refund only.

The mutual aid society has recorded real merchants from across the country who are willing to register their information. When a buyer in a certain region uses the refund-only feature to "wool-gather," the affected merchant can contact local peers through the information, and the latter will personally visit the buyer to negotiate a return or refund.

Although the website is crude, its effectiveness is remarkable. It is reported to have attracted tens of thousands of online store sellers from across the country. Apart from remote areas such as the three northeastern provinces, Yunnan, Guizhou, Xinjiang, and Tibet, most regions have been covered down to the county level. There is also a prominent reminder at the bottom of the homepage that merchants in Shandong and Shanghai can contact the local online court for assistance.

As this type of issue belongs to a newly emerging type of civil dispute in recent years, legal departments across the country cannot handle it uniformly and efficiently. For example, a law firm in Beijing recently issued a reminder that "the Beijing Internet Court has clearly stated that the refund only is due to the platform's reasons and needs to be handled by the platform. Even if the case is filed and approved, the court will not support the payment of the goods."

E-commerce platforms are not completely ignoring the plight of merchants and have set up relevant appeal channels. However, when faced with situations where the buyer and seller each have their own side of the story, the platform tends to favor the latter more obviously.

In the practical operation of consumers, when initiating after-sales service and communicating with merchants, the platform sometimes pops up a window prompting that the refund only can be directly confirmed. However, in the subsequent appeal process on the seller's side, the store's score may be deducted or even fined due to the discovery of other compliance issues.

After comprehensive consideration of the cost-effectiveness of various solutions, directly visiting offline or retaliating against the buyer has become the preferred choice for many e-commerce sellers. The "bombarding stores" mentioned earlier was just a demonstration against the platform. In addition to the communication-based approach of the merchant mutual aid society, merchants will also retaliate against genuine or fake "wool-gathering" groups.

The simplest and most straightforward way to vent their anger is through phone harassment. Personal attacks are just the tip of the iceberg; some merchants even purchase software to set up timed and continuous text message harassment. It's not difficult to find the buyer's delivery address through logistics information, and some merchants choose to broadcast the buyer's information and actions through loudspeakers at the entrance of their residential area, forcing them to submit out of fear of "social death."

Some of the above behaviors have obviously exceeded the prohibited scope of the law. However, according to the current legal provisions, the buying and selling behavior between consumers and merchants actually constitutes a sales contract. After the contract is terminated, both parties have obligations to refund or return the goods. If there is a non-qualified refund without returning the goods, the consumer also infringes on the legitimate rights and interests of the merchant, constituting unjust enrichment.

It is these vague and unclear accounts that have plunged buyers and sellers into an endless war of words. Meanwhile, the platforms that proposed and implemented this policy seem to have disappeared into thin air, even as they endure "online violence."

02 Invisible Platforms

The rise of e-commerce platforms is inseparable from the support of millions of merchants, especially small and medium-sized sellers. However, the love-hate relationship between platforms and merchants has also pervaded the entire industry's development history.

On the evening of October 11, 2011, the largest group incident in the history of China's retail e-commerce erupted. Taobao Mall, the predecessor of Tmall, triggered collective protests from small and medium-sized sellers due to adjustments in merchant service fees and deposit rules.

The first wave of online attacks resulted in the removal of 2000 SPUs from stores, and subsequently, hundreds of merchant representatives gathered at the headquarters of Alibaba offline, with some even setting up a mourning hall for Jack Ma in Hong Kong as a threat. This "siege of October" was ultimately resolved when Zhang Yong, then President of Taobao Mall, firmly refused to compromise, while Jack Ma personally appeased the situation by halving the new regulations.

The new regulations aimed to address Alibaba's public supervision and reputational risks after its listing, determined to combat counterfeit and shoddy goods and improve the platform's quality, indirectly raising the threshold for "making business easier for everyone."

The subsequent success of both Taobao and Tmall proved Zhang Yong's wise decision-making, but it also left space for Pinduoduo to exploit. The low-quality merchants once abandoned by Alibaba transformed into unbranded stores on Pinduoduo, targeting markets beyond the fifth ring. This helped Pinduoduo achieve a rapid overtake in the competition.

As Pinduoduo grew stronger, it could not ignore the poor experience brought by these "heroes" to consumers on the consumer side, leading to the emergence of the refund-only policy. Initially, Pinduoduo only applied the refund-only model to the fresh produce sector during the community group buying battle. Since fresh produce is severely affected by timeliness, even returning the goods to merchants has little value and brings higher inventory and handling costs. Therefore, this model was welcomed by both buyers and sellers on the platform at that time.

The successful pilot and intensified competition for users between platforms prompted Pinduoduo to aggressively promote refund only. Returning goods on e-commerce platforms is not a simple issue that can be solved by shipping insurance alone. Refund only can further eliminate consumers' concerns about placing orders and stimulate consumption potential. More users coming to the platform cannot be a bad thing for merchants, and theoretically, quality merchants will not be affected by refund only, which can also serve as an effective elimination mechanism to drive out inferior coins. Why not?

What seemed like a win-win move has now evolved into an irreconcilable conflict storm. The problem lies in the opposing interests pursued by the platform. Those who stir up trouble in the perfect theoretical environment of refund only are actually a small group of "wool-gathering" groups and low-quality merchants, one side wanting to reap without sowing and pride in getting a bargain, and the other side wanting to profit from counterfeit and shoddy goods at low costs.

As the platform, it should deeply despise these two groups. However, the fierce competition between platforms has left them no time to distinguish between good and bad traffic and must first embrace it all. The platform could have set thresholds for merchant entry but dare not easily miss any opportunity to increase GMV. The platform could also raise the threshold for the effectiveness of refund only based on user behavior, but a failed application may cause users to switch to other e-commerce platforms.

At least before the end of the traffic competition, staying invisible and pretending to be dead may be the platform's only choice.

03 Hurt but Cannot Stop

The war of words and conflicts continue, with a significant increase in judicial burden, and calls to stop the refund-only policy are becoming more frequent. Some merchants refer to refund only as the Chinese version of "0 yuan purchase," which is obviously exaggerated and overreacting.

From a short-term perspective, the refund-only policy is certainly a protection and preference towards consumers on the e-commerce platform. However, due to inappropriate levels of preference or lenient judgment criteria, resulting in losses for merchants, the issue that needs to be addressed is the platform's judgment criteria.

After all, from a long-term perspective, the refund-only policy will attract more users to consume on the platform, which represents a brighter future for stores that sell goods and platforms that earn commissions from merchants.

According to a Happy Returns report released by PayPal last year, 81% of US digital shoppers will check the return policy before making their first purchase from a merchant; over 55% said they abandoned a purchase because the return policy did not provide convenient return options. A survey by Wunderman Thompson in April 2023 also found that 36% of global shoppers said free returns would encourage them to shop directly from merchants.

In fact, Amazon, the largest e-commerce platform in the US, is the originator of the refund-only policy. As early as October 2017, Amazon added a refund without return service to its after-sales policy and explained to sellers on the platform, "Sellers require this because, in many cases, it can save you on return shipping costs and handling costs, reduce customer dissatisfaction rates, and improve your ratings."

Offline retail has also followed this principle. Costco, a traditional US retail giant, is globally renowned for its unique return policy. Food items can be returned with half eaten, items purchased and used for several years can still be refunded in full, and even prepaid membership fees can be refunded free of charge before the expiration date.

Costco's business model cannot be directly compared to domestic e-commerce platforms. B2C's lenient return policy bears the cost pressure itself, while C2C e-commerce platforms can transfer the losses to the sellers operating the stores, or even make some innocent sellers suffer unjustly due to pandering to consumers.

Since it is the short-term competition among platforms that has led to the current negative consequences, it is the platforms themselves that should make adjustments. The current market trend is no longer the same as the winner-takes-all era of the past, and long-term competition requires more focus on internal capabilities. Nowadays, AI, which has been pushed to the forefront by large model technology, has gradually become a basic capability for leading e-commerce platforms. Wanting to play a fair and impartial referee between buyers and sellers is not a matter of whether it can be done but whether it wants to be done.

The platform's de facto inaction and relentless pursuit of traffic data are also contributing to the expansion of "wool-gathering" groups and low-quality merchants. Once the adverse impact expands to the social level and attracts the intervention of market regulators, the chaos of refund only is likely to return to the right track, just like the "choose one from two" situation in the past.