Pinduoduo: How It Became the #2 Online Shopping App in China
When you think of Chinese online shopping sites, the first things that likely come to mind are Taobao, Alibaba and JD.com. However, there is now one other e-commerce platform you shouldn’t forget about. It is one of the most popular online shopping sites for group shopping with 385.5 million monthly active users in China and it is called “Pinduoduo”(拼多多).
A quick glance at Pinduoduo’s history and milestones
Founded in September 2015 by Colin Huang and his company The Shanghai Dream Information Technology Co., they exceeded RMB$100 Billion GMV in 2 years and 3 months’ time, while JingDong and Taobao took 4 times and 2 times that respectively.
In July 2018, it was listed on the Nasdaq stock market with an IPO price of USD $19 and raising USD $1.63 billion. (Check out more on Bloomberg here!) In the 3 years’ time since Pinduoduo was founded, their total market value has increased to over USD $24 billion.
In addition to that, according to Bloomberg’s billionaire index, its founder, Colin Huang, is now the youngest self-made billionaire and the 13th richest person in China with a net worth of USD$9.89 billion.
Just like other well-known Chinese e-commerce platforms, it is not surprising to hear that the founder of Pinduoduo is one of the richest people in the world. What makes Pinduoduo really stand out from all the other online shopping sites, is their rapid growth rate over this short period of time. This has led them to be ranked as the second most popular e-commerce platform after Taobao.
Let’s take a closer look at the characteristics of Pinduoduo first.
Capturing a different market
Pinduoduo has a strategic positioning in their geographic market, instead of the customers from tier 1 and 2 cities where the e-commerce industry is already mature, the target market of Pinduoduo is those living in tier 3 and 4 cities and in China’s rural areas.
People from these areas are gaining greater access to the internet as well as higher disposable incomes, making it a logical choice. Pinduoduo puts their focus in these areas to avoid direct competition with JingDong and Taobao allowing them to claim their own market share.
They cater to those who are not located in major cities and look for those households with lower income and lower educational levels who focus on bargains. As of February 2018, the market penetration of Pinduoduo in tier 3 and 4 cities was 21.38% and 35.34% respectively, which exceeds Taobao by 1.07% and 3.84% respectively.
Making use of China’s social e-commerce
Speaking of their selling strategies, they integrate and make use of the largest social media network in China, Wechat. For those who are not familiar with Wechat, it is one of the world’s largest standalone mobile apps which offers an entire suite of functions on top of its messenger functions. (Here’s our Ultimate Beginner’s Guide to WeChat for Business!)
When customers share the product to their Wechat account and group enough people to buy a certain product, they can get a cheaper price for their purchase. The more the users share, the higher the discount the users can get, they can even get the product for free if they gather enough people to buy the product.
This makes it a powerful and free marketing tool for the sellers, as the users themselves are already acting as an intermediary between the sellers and other potential buyers.
Similar to other online shopping sites, Pinduoduo also offers red pockets and coupons together with flash sales.
They offer everyday cash bonus to their users when they sign in the app, this can attract the users to click into the app and browse the daily deals even if the users do not have the intent to shop.
As researched, rather than buying the items the users really need, the users tend to buy heavily-discounted products with an eye-catching price which makes them click the purchase button without even hesitating.
For newcomers, plenty of RMB $1 deals are waiting for them to choose.
They also offer flash sales every hour. It is not hard to notice one similarity among all these features, that is the limited time of the offers.
This helps to shorten the buyer’s journey and speed up their decision-making process to purchase.
Starting up a business on Pinduoduo
It is a piece of cake to start your business on Pinduoduo, there are five things you need to acquire before applying, a Chinese Business License, an Organization Code Certificate, a Tax Registration Certificate, an Account Opening Certificate and a Chinese phone number.
The next thing you will be needing to do is to directly apply on their official website and to download their app for free to manage your own ‘shop’ within the app.
Free Learning Courses
Apart from free analysis for your customer base and marketing effects, Pinduoduo also offers ‘Duoduo Campus’ which provides different lessons for the users, such as marketing, design and photography courses, as well as useful fundamental skills for novices getting started on the platform.
“Zero-cost” Start up
After getting all your documents together and submitting them on the platform, you’ll have to wait for approval. Pinduoduo claims that the approval process will be completed within 2 working days after receiving your application. You can also open more than one shop on the platform with the same business and tax license.
A deposit is not necessary both for opening shops and launching new products. Keep in mind that this condition only applies when the total value and total number of your new products is under RMB$2,500 and does not exceed 20 products, inventory for one product cannot exceed 100 as well.
Learning from Pinduoduo’s Success
As mentioned, Pinduoduo targets a different market from that of the tier 1 and 2 cities. It is due to the fact that these markets are saturated and highly competitive for those in the e-commerce industry. Pinduoduo has firmly committed itself to those outside of tier 1 and 2 cities.
This can be seen in its investment of RMB$3.4 billion to help the sellers outside these cities in these areas selling their perishable agricultural goods on the network.
Transforming the old way for grocery shopping
As the transport network in China is getting more mature, it allows more efficient connections between different cities. This has also attracted some users from more developed cities by allowing them to purchase cheaper and fresher agricultural products in a more modern and stylish way.
What Pinduoduo has been doing is to expand a market that has been overlooked, and to invite the sellers to sell their harvest online.
Selling fake products?
Almost all Chinese e-commerce platforms face one similar issue, and that is the persistence of counterfeits being sold on their platforms. Nearly all of the e-commerce platforms in China have had to deal with this issue and been affected negatively by it at some point in their operations.
On August 1st 2018, Pinduoduo found itself in hot water with regulators in both the USA and China for listing counterfeit goods on the platform.
This resulted in their share price plunging nearly 30%, erasing nearly all the gains it had made since its IPO. In the following week, they forced 1,128 shops to shut down and delisted approximately 4.3 million items.
Increasing consumer confidence
In order to regain consumers, trust and rebuild its reputation, Pinduoduo launched a project and “Pin Factories” to support about 1,000 Chinese original equipment manufacturers (OEMs) right after the counterfeit issue.
Pinduoduo also required the manufacturers to upload their production diaries, monitor reports etc., they even installed surveillance cameras inside their factories to keep an eye on the production which brought further controversies.
Undoubtedly, this model did help the OEMs to establish their own sales channel and brands while consumers felt confident that they were purchasing quality goods with lower prices. It also helped by increasing the transparency of the production process in the eyes of consumers on the platform, resulting in higher consumer confidence in both the platform and the products.
Overall, the campaign to rectify the counterfeit issue seemed to be a success. Meanwhile, they also aligned with 494 international brands to enhance their brand image, such as Apple, Huawei, Xiaomi etc. Some of the brands even launched their “flagship stores” on Pinduoduo, further establishing the credibility of the platform.
Further expanding their market
The majority of the products from these brands are pricier as compared with others on the platform. Together with their ‘group-buying’ and social e-commerce strategy, new customers from tier 1 and 2 cities can also be attracted as these customers may find a better deal on Pinduoduo when compared to other online shopping sites.
In the other words, Pinduoduo is now trying to expand and further expand their market to the more developed cities in China.
New Pathways for Growth
Recalling that the target market of Pinduoduo is mostly the low-income households with comparatively lower education levels, there is surely still a big room for Pinduoduo to grow.
Given that China is still considered as a “developing nation” by the World Trade Organization, the full potential of China is yet to be realized.
In 3 years’ time, together with social e-commerce strategies, Pinduoduo has unlocked one of the markets in China with the greatest potential and has made itself stand out among all the other platforms. For the time being, they are still searching for new ways to advance and upgrade in order to maintain their growth in the industry. Undeniably, this “dragon” is still rising.