GROUP PURCHASING THROUGH PINDUODUO
Pinduoduo is an e-commerce platform that taps into the trend of social commerce and entertainment shopping by offering group-buying features. The platform layout and navigation are optimized for browsing, rather than searching, and encourages users to shop together by offering discounts, thereby incentivizing users to bring their friends and family onto the platform as well.
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Launched in 2015, Pinduoduo is the first platform that has been able to challenge Alibaba and JD.com’s hold over e-commerce in China. Recording 788 million annual active users at the end of 2020, Pinduoduo surpassed Alibaba’s annual active user count of 779 million. However, Pinduoduo’s annual revenue still lagged far behind, reaching US$9.1 billion in 2020 compared to Alibaba’s US$72 billion. Nonetheless, Pinduoduo’s 2020 revenue was still a year-on-year growth of more than 200%, demonstrating both the platform’s surging popularity and its future potential.
Pinduoduo was unique to the e-commerce platform landscape as it did not attempt to compete with JD and Alibaba as another search-based platform. Instead, Pinduoduo focused on creating an immersive and interactive user browsing experience that caused users to return when they had something to buy and when they were in search of entertainment.
The platform is designed to provide users with a social, engaging, and gamified shopping experience. They are repeatedly drawn back to the platform to find the next big group discount. The platform also has additional features that encourage and reward consistent user engagement, such as daily check-ins, mini-games, and livestreaming. Rewards include redeemable points that can be spent on products, free items, or additional discounts. Together, these features create a sense of missing out when not on the platform and a feeling of accomplishment when a great discount is achieved.
One of the reasons Pinduoduo was able to amass its large user base in a relatively short period is because of the platform’s focus on community building and its implementation of group purchases. Users on the platform can either pay full price for a product or receive a lower price when making the purchase together with other users. All buyers must complete the group purchase within 24 hours or else get canceled, incentivizing users to invite their friends and family onto the platform immediately. These new members will then also invite additional people as they form their own group purchases, causing a web of new users to get onboarded rapidly. The process for bringing new users onto the platform is streamlined, and the invites can quickly be sent through WeChat, QQ, or by scanning a QR code. As a result of these tactics, Pinduoduo can expand its userbase through word-of-mouth, reducing its cost per acquisition.
In addition to its use of social e-commerce, Pinduoduo operates a customer-to-manufacturer (C2M) model, as it strives to work directly with farmers and manufacturers. This reduces the number of intermediaries in the purchasing process and allows the manufacturers or producers to reach their customers directly and set their profit margins, further reducing the prices. By 2020, the platform had over 12 million farmers who were able to sell directly to users.
Since Pinduoduo’s focus is on discount buying, the platform’s initial growth came from the smaller cities in China instead of Alibaba and JD. They have large userbases within higher-tier cities. Over the past year, Pinduoduo has been expanding by increasing its selection of premium products to rebrand itself as a higher-end e-commerce platform that is more appealing to consumers from higher-tier cities. Examples of more premium product offerings include Tesla cars and Apple products, which Pinduoduo could provide at discounted prices through cash subsidies.
In contrast, Alibaba and JD have increased their competition with Pinduoduo by launching discount buying or group buying features to reach consumers from lower-tier cities.
Selling on the Platform
Currently, Pinduoduo allows both foreign and Chinese merchants to sell on the platform. By onboarding more foreign brands through general trade and cross-border e-commerce, Pinduoduo wants to appeal to customers in higher-tier cities who appreciate imported and more premium goods. With that being said, Pinduoduo does not offer assistance with customs clearance or logistics for foreign brands, so they will need to take care of these processes themselves when opening up stores on the platform.
Less known foreign brands who want to sell on Pinduoduo or any e-commerce platform in China successfully must first build up brand awareness and an online reputation. As a part of the process, brands are encouraged to open up their own Official Accounts on the popular social media platforms in China, such as WeChat, Weibo, Douyin, or Little Red Book/Xiaohongshu.
How Melchers can support foreign businesses entering e-business in China
China’s appetite for foreign brands and the spending power of Chinese shoppers offer an attractive market for foreign businesses. Furthermore, the speed at which China’s e-business is evolving makes it a fertile testing ground for using e-business platforms to export to other markets. However, adapting to local needs and habits is vital.
Creating brand awareness is essential to success. Choosing suitable social media, search engine and sales platforms are only some of the aspects which need to be considered. Especially for small and medium-sized enterprises, the costs and challenges of doing business in China can easily be overwhelming. Choosing the right partner to be successful online will be paramount.
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