Will Coupang’s strategy work this time too? Coupang made a surprise announcement that it would raise the monthly membership fee for its paid membership (Wow Membership) from 4,990 won to 7,890 won. This is a re-impression after 2 years and 4 months since the end of 2021. Coupang, the number one e-commerce company, raised its membership price by a whopping 58.1% at once, causing a stir in distribution prices. Competitors such as Shinsegae (G Market, etc.), Naver, 11th Street, and Curly immediately began serial membership discounts.
There are some who see this as an opportunity for competitors as Coupang has become impatient due to the offensive of Chinese companies, but there are also fears that if the ‘exit from Coupang’ does not increase despite the price increase, the position of ‘non-Coupang’ companies in domestic e-commerce will in fact be further reduced. It is casting a shadow over the industry at the same time.
As profitability was expected to improve, the stock market’s reaction was not bad. On the 12th, when Coupang announced an increase in the monthly WoW membership fee, the stock price of parent company Coupang Inc jumped more than 10% and exceeded $20 on the New York Stock Exchange.
Public opinion is not good, with consumers predicting a ‘membership transfer’ mainly online. It was also pointed out that Coupang started to raise prices as soon as the general election was over. Although he expected some degree of backlash, it is said that even within Coupang, he is nervous due to the more intense(?) reaction than expected.
The biggest reason for Coupang’s ‘surprise increase’ is the threat from Chinese e-commerce companies. This year, Chinese e-commerce companies such as AliExpress and Temu are aggressively expanding their presence in Korea. Coupang’s position in the market has become ambiguous between Chinese companies that promote ‘ultra-low prices’ and existing distributors such as department stores.
Coupang, which was ‘neither high-end nor ultra-low-price,’ became impatient with the situation of being ‘stuck in the middle.’ Although there is now a growing awareness that Chinese companies sell ‘cheap but poor quality’ products, there is a growing sense of crisis that if those with enormous financial power decide to invest, they could easily overtake Coupang’s position in industrial products.
There is also a view that the analysis of ‘a crisis, not an opportunity’ is behind the competitors rushing to cut prices while ‘even Coupang’ is impatient. In any case, since Coupang is showing overwhelming delivery capabilities, other companies may try to reduce the 3,000 won that members have to pay rather than canceling their Coupang membership. If this happens, competitors will have to worry about the departure of their existing customers rather than catching ‘ex-Coupangs’. As competition in e-commerce is fierce in Korea, there are many cases where a single consumer has membership subscriptions from multiple companies.
An official in the distribution industry said, “As Chinese companies began their capital offensive, Coupang also appears to have developed a sense of urgency to protect its customers. From Coupang’s perspective, the most important thing is to maintain the size of ‘loyal customers’ who will not leave even if prices are raised. “The point to watch is how much more innovative services Coupang can come up with for this purpose.”
Coupang’s price increase is ultimately in line with Amazon’s strategy of ‘customer lock-in → market monopoly’. Amazon also grew its business by steadily raising the subscription fee for ‘Amazon Prime’. Prime membership was $79 per year in 2005, but continued to rise to $99 in 2014, $119 in 2018, and $139 in 2022. Concerns about subscriber churn continued to follow, but the number of membership subscribers exceeded 100 million in 2018 and 200 million in 2020.
Both the market and Coupang are nervous about what consequences the price increase will bring. The monthly membership fee of 7,890 won is equivalent to 95,000 won per year. There is a high psychological barrier for consumers to simply spend about 100,000 won per year on ‘membership’. Although the domestic e-commerce market is dominated by Coupang and Naver, it is also considered that competition is so fierce that no single company can exceed 10% of the domestic online and offline distribution market.
Coupang plans to offer ‘more benefits’, but it remains to be seen whether it will be able to capture the hearts of consumers enough to pay more. Coupang recently announced free delivery fees for its food delivery service, Coupang Eats, and has been working hard to strengthen sports content on Coupang Play since last year. Investment money is needed to provide ‘more benefits’, but many consumers say, “Why should I pay more if I don’t eat delivery food or watch OTT?” and “It’s better to separate memberships.”
Depending on whether Coupang’s strategy is successful, the domestic e-commerce landscape is expected to be reorganized. Competitors are fearful that if the gap with Coupang widens further, they will no longer be able to do anything.
For example, Coupang’s logistics system is already dominant, and Coupang is investing to further strengthen it. Coupang previously announced that it would invest 3 trillion won in expanding logistics infrastructure from this year to 2026. We plan to expand free rocket delivery to most areas across the country by 2027. Considering that 6 trillion won was invested in logistics over the 10 years since the launch of ‘Rocket Delivery’ in 2014, the investment of 3 trillion won over 3 years shows the company’s determination to advance logistics at a faster pace and scale than in the past.
Ultimately, the market’s eyes are focused on August. The die has been cast, and the choice is up to the consumer.
Another distribution industry official said, “If Coupang links this price increase to good performance, it will actually become more scary for competitors.” He added, “The most important reason why customers use Coupang membership is ‘fast delivery,’ and Naver has Considering ‘point accumulation’ and Shinsegae’s ‘synergy between affiliates’, ultimately only companies that accurately understand the needs of consumers will be able to survive,” he said.
