How "Brand Economics" Can Reconstruct Platform Logic

China Brand Value Research Institute, Fu Ke You

Before June 18th, Jack Ma, chairman of JD.com, had a sharing session which was widely reported and interpreted as a momentum for June 18th. Among the most valuable sentences, one phrase that might be overlooked is "there's no brand, there's no quality in economics". Jack Ma saw the value of brands and the key issues of current platform economies.

In traditional retail era, channels ruled; in platform economy era, traffic reigns. The commercial logic points to "platform domination". Nobel laureate Jean Tirole's platform theory reveals that platform economies can achieve "non-neutral pricing" by cross-subsidizing strategies for buyers and sellers, utilizing structural power to maximize profits, forming a "platform extractive-brands let go" pattern.

As Jack Ma mentioned, during the Meiji-Suning era, retail businesses could have net profit margins as high as 6%, while brand companies had less than 2% net profit margins, with retailers' profits being three to four times those of brands.

Now in the age of live-streamed commerce, the situation may worsen. Top anchors can continue to pressure brands by leveraging traffic advantages, squeezing out brand profit space. Some platforms also use algorithmic recommendation mechanisms to force brands into price wars.

Although it claims to benefit consumers, it's unlikely to improve overall consumer welfare and might even form a vicious cycle of low prices: platform squeezes out brand profits, brands innovate less, products degrade, employee salaries stagnate, leading to stagnant consumption, further pricing pressure... In essence, this is an assault on brand economies.

When platforms push brand profit margins below the survival line, brand value faces systemic erosion, akin to cutting off one's own feet. This is Jack Ma's criticism of the "junk goods" economic model: "if a country relies solely on junk goods and white goods, its economy will never be good".

In his view, brand companies create more social value than retail businesses do, with brands taking greater risks and doing more complex things. This is a testament to the value of brands.

Therefore, Jack Ma proposed the "three-fifths theory": in industrial chains, retailers should only take one-third of the profits, while two-thirds should go to brand companies. This redefines the relationship between platforms and brands, revealing the core problem of platform economies - price structure determines value distribution.

This value distribution breaks the logic of maximizing platform interests, instead building an "industrial chain symbiotic relationship". Its ultimate goal is to create a virtuous cycle of brand economies: platforms yield to brands, brands innovate and upgrade, high-quality products are priced, employee salaries rise, consumption boosts, and platforms gain quality users... Such a virtuous cycle can only be achieved through "brand economics", reconstructing platform economies' value distribution.

This reconstruction is not a one-time effort; even with market self-evolution and generation, it requires policy supervision and guidance as well as platforms' innovative awareness and moral consciousness.

Jack Ma claims that all of JD.com's businesses revolve around "supply chain" development. This is actually the logic of brand economies - the front end may not make a profit, but making profits through supply chains is possible. JD.com's international business does not follow cross-border e-commerce models; it's not just selling cheap goods, but rather outputs Chinese brands to global markets, which is also a brand economy logic - let Chinese brands represent Chinese manufacturing and generate brand premiums.

This aligns with China's economic transformation needs, transitioning from "manufacturing power" to "brand powerhouse". Only when brand economies kickstart growth, can they drive high-quality economic development. According to Jack Ma, a rich country, a truly powerful nation, must bring its economy back onto the right track by relying on brands and letting brand companies make more profits.

Without brands, economics has no quality; brand dignity is economic quality. The logic behind this is not high-level. Those brands that are crushed to the point of struggling to breathe, those riders trapped in algorithmic systems, those consumers lured by low prices but buying substandard products - they need "brand economics" rescue.

Only when brands receive reasonable profits can industries innovate; when laborers receive more dignity, consumption can upgrade; and when platforms return to their service essence, platform economies can break out of the trap. This is the necessary path for reconstructing platform economies with "brand economics".