As Singles’ Day approaches, FTCR data highlight a key factor in the battle between online retailers Alibaba and JD.com: the advantage of cost over speed in China’s smaller cities. Our data show the latter may not be enough.

Our consumer brand survey has consistently found JD.com is significantly less popular among third-tier-city residents than with those living in China’s richest urban centres. This difference in popularity has averaged 12 percentage points over the past two years, with an average 36.7 per cent of consumers in first-tier cities regularly using JD.com, compared with 24.6 per cent in third-tier cities.

This is despite JD.com’s efforts since 2016 to boost its share in these markets. Backed by an in-house logistics network, JD.com prides itself on its ability to deliver to consumers faster than the competition. It is a formula that has worked well in developed urban markets, such as Beijing and Shanghai, where JD.com is a formidable rival to Alibaba’s Taobao Marketplace and Tmall.

But that edge appears to be lost on residents of smaller Chinese cities, where JD.com is seen as the pricier alternative to Taobao, Alibaba’s scrappier offering. In these markets, Taobao’s lower prices win out. It is an online marketplace where millions of smaller merchants sell to hundreds of millions of shoppers, with Alibaba acting as the middleman.

JD.com, which is closer in its model to Amazon, got its start selling consumer electronics and home appliances, and maintains a reputation for competence in those categories. But consumers in third-tier cities tend to prefer physical stores when it comes to buying these goods.

As its biggest urban markets become saturated, JD.com is moving into smaller cities. Since the opening in August of its warehouse in Tangshan, Hebei province, residents there can access the same-day delivery service that JD.com offers Beijingers and Shanghainese. JD.com has expanded into eight other similarly sized Chinese cities.

But consumers in these markets have lower incomes than those in first-tier cities and our brand data suggest price is still their main consideration, not the speed of delivery.

— Ben Heubl, Data Visualisation Analyst

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.