Pinduoduo— China’s new force in e-commerce

With the rise of Alibaba’s global reputation, the development of China’s e-commerce has also attracted more and more attention. But “Pinduoduo” as the latest e-commerce power has been ignored by many people. This company, established in September 2015, is the newest-growing e-commerce startup in Chinese history. Total sales value of 100 million US dollars, which is a milestone reached by Alibaba and JD.com in 5 and 10 years. Today, Pinduoduo’s market value of more than 40 billion US dollars is equivalent to JD.com. In addition, 366 million monthly users and 536 annual active buyers are China’s second largest buyer after Alibaba.

In order to better understand why the “Pinduoduo” business model has achieved successful results, analyze it from the following three perspectives: First, positioning. Second, operating model, and third, profit model.

Positioning

The first point of platform positioning is that Pinduoduo is different from Alibaba’s B2B business model. Instead, it focuses on the C2B business model and allows more customers to buy goods through group purchase at low prices. For customer positioning, the basic users of Pinduoduo are concentrated in third-tier cities. Customers with average income levels, compared with customers in first-tier cities, because these people have less disposable money due to income gaps, so ‘Pinduoduo’ Low prices also attract these customers. (Kirk,2019)

The e-commerce platforms represented by Taobao and Jingdong have two prominent problems in their continuous development:
First, the customer acquisition cost of e-commerce platforms is getting higher and higher; Secondly, due to the ever-expanding categories of services, users are lost in the search and selection of a large number of products to a certain extent, and the purchase decision time is extended.
Today, the time that users stay in the APP is getting shorter and shorter, it is the key to minimize the user’s unnecessary operations and continuously guide users to generate unconscious operations. Don’t let users think and make choices. Let them follow your process naturally.

Operating model

The second point is about the operating model. The core idea is the combination of social networks and e-commerce. For example, the original price of a piece of clothing was £ 20, which can be purchased by £ 5 through grouping. The user can send the product link of the group to a friend. If the group is unsuccessful, the product will be returned. Many people in QQ or WeChat groups (similar to the Facebook messenger group) publish links with ‘Pinduoduo’ group purchase, enabling them to achieve fissionable growth through social networks. In this model, anyone can organize group purchases and encourage friends to buy together. The user has a strong sense of participation. At the same time, this model also solves the problem of trust in product quality. Because it is recommended by friends from around you in real life, the product is easy to get the user ’s favor. Pinduoduo further incentivizes social sharing and bulk purchases by rewarding loyal users with free products, cash, and other perks. This often creates “viral” effects that drive up purchasing activity. From the seller’s perspective, unlike Alibaba sellers, Pinduoduo is more willing to invite manufacturers in the supply chain. The company’s bulk sales model can easily create huge orders for sellers and leave them more space for a price reduction.(Emma,2018)

https://www.youtube.com/watch?v=Zbskb0KMBUU

Profit model

Finally about the profit model, The reason why Pinduoduo’s rapid growth also comes from the low prices of supply chain sellers. Because there are no intermediate dealers, the price will be lower than the market price. At the same time, the group purchase initiators and participants can also profit from it, as long as others Join the group purchase through your link, and the corresponding link sharers can get a rebate. The above is the profit of customers, but for the platform itself, advertising, user traffic data and investment financing are still the main profit methods.

Evaluation and questions

From the very beginning, the group used the capital obtained from financing to subsidize merchants to sell at low prices to attract users. However, free is not a business model. When the platform stops subsidizing merchants, the platform still needs low prices, but the sellers in order to maintain gross profit. , So often use defective products instead. Pinduoduo lacks systematic management and cannot guarantee product quality.

Relying on WeChat and a large number of frequent advertisements, it is almost a booming growth of users and merchants. In fact, low prices attract traffic. Low prices lead to low seller profits, low profits lead to the proliferation of defective products, and then lead to user loss and platform reputation worse. Therefore, the entire platform is labeled as low-cost and dumping, and the platform’s supervision plan will likely cause the contradiction between “businessmen and platforms”,

It takes a long-term consideration of the balance between price and quality, how to design healthier and more scientific operating rules, quality control systems and reward- punishment systems, so as to improve the quality of products and services, optimize the user experience, are the most important issues for Pinduoduo.

Reference

· Emma,L. (2018). The incredible rise of Pinduoduo, China’s newest force in e-commerce.[Weblog]. Retrieved from https://techcrunch.com/2018/07/26/the-incredible-rise-of-pinduoduo/

· Kirk,E. (2019). How Pinduoduo Became the #2 eCommerce Marketplace in China.[Weblog]. Retrieved from https://www.applicoinc.com/blog/how-pinduoduo-became-the-2-ecommerce-marketplace-in-china/

· YouTube. (2018, June 28). Top searches on YouTube: Pinduoduo Is Fast Becoming a Formidable Rival to Alibaba. Retrieved from https://www.youtube.com/watch?v=t92L4Co7-_s

· YouTube. (2018, July 29). Top searches on YouTube: How Pinduoduo (PDD) Works. Retrieved fromhttps://www.youtube.com/watch?v=Zbskb0KMBUU