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The rise of Pinduoduo: How a group buying app grew to rival Alibaba

what is pinduoduo

Since I started following Pinduoduo, the question for me has been, why do they operate the way they do with this extreme secretiveness? At least within China, Pinduoduo has really proven that their business model does work, according to their financial statements. The question is whether they’re going to be able to recreate this with Temu abroad. The story of Temu is really a story of how dominant Chinese manufacturing continues to be.

Company profile

This demographic data clearly shows that Pinduoduo’s user base comes from rural areas with moderate to low cost of living. According to 2022 market data, Pinduoduo surpassed as the second-largest Chinese e-commerce platform. With over 751.3 million monthly active users engaged in online shopping, it’s only natural for global product managers like you to develop an interest in the app. The big data and AI of the platform enables manufacturers to pinpoint the customer needs and preferences which ultimately to produce in a reasonable quantities of end products. Pinduoduo is a Chinese e-commerce channel where users can participate in group buying, which typically involves pooling with others to purchase items at lower prices. It integrates social mechanisms that encourage shoppers to share deals with contacts, leveraging their social networks to drive down costs through bulk purchase discounts.

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Newer competitors are also looking for a slice of the discount pie, with Douyin opening an online store called “super cheap little shop” on its ecommerce platform, Douyin Mall, in 2023. Douyin also operates an agricultural store – further encroaching on Pinduoduo’s territory. Meanwhile, Cheng Yixiao, CEO of Kuaishou, has said that the company will focus on providing low-price, good products. LatePost reports that Pinduoduo hopes to mimic Shein’s model of having customers engage directly with Pinduoduo’s platform instead of sellers’ platforms when buying products.

Key takeaways from Pingduoduo Success Case

Pinduoduo now claims more than 343.6 million active buyers with an annual GMV of RMB 262.1 billion, or $38.5 billion. Online formats such as search, display (including social media) and BVOD drove ad spend growth in 2023, with out-of-home the only other medium to see increased expenditure. The connected car requires a big transition at OEMs, including new commerce capability to be able to engage seamlessly with customers through sales, after-sales, and in-car commerce. Alibaba originally launched its discount app, Taobao Special Value, in 2018 as Pinduoduo’s rise was truly starting to take hold.

Doing this also ensures that you’re tapping into the right target audience for your business. Always remember that your brand is a foreign company in a local platform. So, if you want Chinese consumers to purchase at your PDD virtual storefront, transforming your branding communication into local nuances and languages is of utmost importance. If you look at the data in the graph below, it’s easy to see that the users have evened out between the two genders. In 2022, the male demographic has covered 51.8% of overall users in the platform, while the female user base gets 48.2%.

After 2-4 reviews completion by a user, the Brand Black Card will be granted. Digital economy observers outside of China can be forgiven for missing the meteoric rise of Pinduoduo. Founded in September 2015, Pinduoduo is the fastest growing e-commerce startup in the history of China, attaining a GMV of $15 billion only two years from launch, a milestone that took incumbents Alibaba and 5 and 10 years to achieve.

The in-app game is aiming to mimic a real shopping experience for the users in order to maintain as longer as the user retention. The Free Pass Card enables users to enjoy the group-buying discount without having to form a team. Users usually get one Free Pass Card after completing two purchases on Pinduoduo. But the growth of Pinduoduo has sparked an argument focusing on whether the platform represents consumption downgrading. It is just one more piece of evidence for how big and segmented the Chinese market can be.

The overall value of goods sold there has already reached around $154 million. Before you launch any campaigns to advertise your PDD shop, conducting a market study is a crucial step if you want a successful venture. This procedure allows new marketers to grasp the current trends and customer behavior within their industry.

The bold business decision of the company has led China to quicken the transition of the country’s commerce sector from offline to online. Pinduoduo’s active buyer numbers make it one of the largest e-commerce platforms in the world. This active user base also attracts merchants to Pinduoduo and the scale of its sales volume allows the latter to offer competitive prices thereby creating a virtuous cycle. The unique value of Pinduoduo mostly lies in its strong user engagement which differentiate itself and Groupon. The group buying model though is not just financial stimuli, besides, Pinduoduo utilizes the group buying model as its social incentives to encourage consumers to help them expand the user base through social platform sharing.

Additionally, females account for 70 percent of Pinduoduo’s user base. Like Alibaba’s Taobao and rival, Pinduoduo is an e-commerce platform that offers a wide range of products from daily groceries to home appliances. Pinduoduo’s twist lies in its integration of social components into the traditional online shopping process, which the company describes as the “team purchase” model. As previously stated, PDD smartly integrated the app with ways to form a buying team so consumers will be enticed to spend on bulk items. This model is not only cost-effective for the buyers but also eliminates the needed advertising and marketing expenses for brands.

I followed the address on business documents to the home of one of these shareholders, and he was a 65-year-old man. And then there was the company that became Pinduoduo, that was similarly held by this woman who was in her late 60s who owned 90 per cent of the company. But when Pinduoduo later listed on NASDAQ they told investors that Colin had controlled the company since its establishment. PDD has over 5.1 million merchants on its system marketing their products.

Although Pinduoduo claims to have several channels to lower product prices, increasing product quality and counterfeit complaints still raise concerns for a possible low-cost and low-quality association. Complaints mainly target at the problems of poor quality, slow delivery, misleading ads, etc. Since its launch in the United States in September 2022, Temu has expanded aggressively into dozens of other markets, and made waves with its omnipresent marketing and advertising, most recently during Superbowl LVIII this year. Its slogan, “shop like a billionaire”, encourages customers to buy products freely and impulsively, knowing that they can afford the rock-bottom prices.

Further, the increase in the purchasing power of China’s middle class and rising GDP numbers make e-commerce companies like Pinduoduo a good bet for long-term investors. Pinduoduo has leveraged its platform and developed the Internet+ Agriculture initiative to facilitate direct sales between small-scale farmers and consumers. The platform makes recommendations to consumers based on their shopping preferences due to which it is able to aggregate demand and generate large volumes of orders for farmer merchants. This reduces the farmer’s dependence on large distributors which reduces the overall cost and improves the supply chain. Many aspects of Pinduoduo, from the underserved target markets to the unparalleled distribution afforded by WeChat, are singular and cannot be reproduced.

As a company targeting low-tier cities, PDD is adept at handling fluctuating market conditions. It leverages the distinct consumer habits of Chinese consumerism where they’re eager to find package deals on small purchases like diapers and slippers but can readily splurge on luxury items like watches, jewelry, and cosmetics. In response to this demand and to tailor the needs of its user base, the company launched its digital wallet feature called Duoduo. Not only does it make purchases more convenient, but it also provides an added layer of security for consumers. The purchases users can make include apparel, mother and childcare products, food and beverage, cosmetics and other personal care items, sports and fitness items, as well as auto accessories.

ETOC also provide free educational content to help brands understand more about China e-commerce and digital marketing. Pinduoduo has captured this chance which helped boost itself through the rural online sales. As much as 65% of the Pinduoduo’s transactions are completed through its WeChat mini program. Pinduoduo makes it seamless that without having to download its app, users could directly share the items with do not even have to leave the WeChat app throughout their entire ordering process. Later in 2018, Pinduoduo has also started to incentivize users to go to the standalone Pinduoduo app, over 60% of active users have come from and rely on Pinduoduo’s WeChat mini program.

On top of that, all your digital marketing strategies and aesthetics must align with the needs of the local industry. When it was first launched in China, Pinduoduo users were predominantly female. However, over the years, the purchases from the local male demographic have increased. In fact, according to statistical data in 2019, approximately 600,000 merchants shipped fresh produce around China. Pinduoduo’s Temu is a cross-border e-commerce website with most products likely to come from overseas, especially China. Alibaba took a controlling stake in Singapore-based Southeast Asian e-commerce site Lazada in 2016 and has since invested money in the business to expand its presence in the region.

Consumption upgrade, a trend in which affluent Chinese customers are increasingly willing to pay for quality, has dominated China’s e-commerce industry in the past few years. Taobao and JD’s globalization initiatives to bring overseas quality products, the boom of cross-border e-commerce sites like Red and NetEase Yanxuan and Kaola are all based on the consumption-upgrading backdrop. Rest of World profiled one avid gamer in the United States who had drawn friends and colleagues into the game via referral codes in order to get more fish food, even setting up a group chat to exchange gaming tips. Other users, without a network of immediate family and friends to invite, might exchange codes over social networks like Reddit. But neither is Pinduoduo a silver bullet for sellers, as some find it difficult to sell higher-quality items on the platform, or make enough sales margin to earn a profit. Many sellers now hold the philosophy that the only sustainable strategy is to sell across multiple platforms and thus maximise their customer base.

what is pinduoduo

Members of Congress have questioned whether it is providing a U.S. channel for products that are made in China using forced labor. It has encountered criticism for its labor practices and failure to enforce intellectual property laws. When Pinduoduo, the Chinese discount shopping app, debuted nearly a decade ago, the tech giants Alibaba and dominated China’s e-commerce business. Media outlet LatePost last week attributed Pinduoduo’s overseas push to travails in the company’s home market. LatePost said Pinduoduo will assign its top executives to the goal of U.S. expansion.

Pinduoduo has also successfully used gamification to drive engagement and dwell time on the app. Each time a user visits Pinduoduo, they complete a ‘daily check-in’, which gradually earns them points towards a money off voucher. Shoppers are offered lower prices if they can team up with others to buy the same product, which incentivises them to share Pinduoduo and encourage their friends, family and colleagues to buy items. As a result, WeChat, China’s most popular messaging app, has been a major driver of growth for Pinduoduo.

So there’s a lot of mystery around the company with a great deal of secretiveness around how it runs. Depending on your brand’s industry, PDD will require you to pay between 10,000 yuan and 50,000 yuan as a deposit fee. It’s not considered a registration expense because it’ll be used to refund unsatisfied clients. If your offerings don’t have these issues, the money will eventually return to your account.

  1. In-app games, like ‘Fishland’, present the potential to win real items by making progress in the game, something that’s often helped along by referring other users.
  2. Since Pinduoduo represents a unique target market of mostly low-income households with lower levels of education, there is still a huge growth potential for the platform to gain even more market share.
  3. IPO this week, which stands out as one of the largest deals of the year.
  4. Many also questioned the validity of entertaining features in Pinduoduo’s value proposition.

And last year, JD rolled out a group buying app called Jingxi, which is also accessible through WeChat. This has led to lower customer acquisition costs, according to analysts. While Alibaba and make most of their money from e-commerce, they both have other emerging businesses such as cloud computing. There is an option to just buy the item directly but the price of that product is higher than that of buying it in a group. Each item has a minimum number of buyers required to complete the purchase. If that number is not met within 24 hours, then the group buy is cancelled and those who have already committed money will be refunded.

So they really went all in on advertising subsidies to learn users, and they’ve proven at least within China, that they can keep those users once that advertising spend starts to decline as a proportion of their business. The question is really, will that same model work with Temu, and will it work with American shoppers and European shoppers. It’s grown by just bringing these cheap prices to consumers that can’t afford branded and other goods. Back in 2020, during the height of the mini internet bubble, they had a market cap of nearly $200bn, which they are at again today. Pinduoduo is essentially an online marketplace, and it’s really pioneered being an online dollar store, having all different types of goods, no brands, all cheap prices.

This dynamic business model has also allowed Pinduoduo to increase customer engagement and ensure repeat purchases. Buyers are encouraged to share product information on social networks and invite their friends and family to form a shopping team and benefit from attractive prices. Hence, buyers actively introduce others to Pinduoduo allowing the company to lower customer acquisition costs and increase organic traffic without too much difficulty. Lesser-known brands were chosen over famous brands to erase any premium that comes from branding. Additionally, the costs for advertising and marketing are also lowered through user sharing to social media.

It’s no coincidence that founder Huang “Colin” Zheng, an ex-Google engineer, had prior startup experience on a consumer electronics e-commerce site as well as a WeChat based role playing game company. He deliberately sought to combine a game-like experience with e-commerce. This is evident in many game-like features that Pinduoduo uses to re-engage users, including special deals and promotions.

Pinduoduo appeals to people seeking deals and “downgraded spending,” as consumer purchasing in China has slowed recently amid economic rockiness. On Temu’s website, they’ve sporadically been updating their founding story. At one point, alvexo review they listed on their website their connection to Pinduoduo, but at the moment, they’ve removed any mention of China and say they were founded in Boston in 2022. There’s obviously the potential for geopolitics to influence the business.

Besides, elderly retirees’ community in China has showed especially loyal to Pinduoduo. They may not have a lot of money to spend, but they want to take part in the national pastime and, on the way, offer their family members discounts as a way to combat loneliness. Member Card are different kinds of the rewarding, aiming to help users save money via vouchers or special discount by sharing amongst their friends. Launched in 2015, Pinduoduo has been now a leading social e-commerce application and one of the fastest growing platforms in China. “They don’t really understand how the other makes money,” Huang said to Bloomberg.

Pinduoduo has grown quickly in its seven-year history to become one of China’s biggest e-commerce firms. The company has tended to focus on lower-income consumers by offering heavily discounted products. And it has been focusing on bringing agricultural products onto its platform to differentiate from rivals. Founded in September 2015, Pinduoduo is the fourth startup of Colin Huang, an ex-Googler who once worked on early search algorithms for e-commerce. His previous startups include consumer electronics e-commerce site, Leqi, e-commerce platform marketing agent service and a WeChat-based role-playing game company. Pinduoduo’s C2B model allows it to ship directly from the manufacturers eliminates layers of distributors, not only reduces the price tag for buyers but also raises the profit of manufacturers.

In this piece, we’ll look at the tactics that have enabled its rise, how competitors are shifting their behaviour to meet the threat of Pinduoduo, and whether Temu can replicate Pinduoduo’s success overseas. Chun also noted that Alibaba and JD are building up relationships with factories for the C2M model of business. And with the Alibaba’s strong cloud computing business, it “may have more to offer to the factories” in terms of digital capabilities, Chun said.

This function also helped Pinduoduo to displace Taobao from the No. 1 position of e-commerce apps in just two years. Its mobile platform provides buyers with a wide selection of merchandise as well as an interactive shopping experience, while enabling sellers to seamlessly connect with customers. Pinduoduo’s growth has been underpinned by the community group buying model which has allowed the company to expand its buyer base at a fast clip and establish strong brand recognition.

It’ll also give your team more insight into resonating with their potential audience. So, if you want to generate visibility for your Pinduoduo shop, platforms like WeChat, Weibo, or Douyin can help you achieve this goal. All products ordered by a certain group are deliverable separately to each member’s address. Pinduoduo has seamlessly integrated its platform with major social networks in China and created a highly engaged social buying ecosystem. It has also partnered with third-party online payment service providers such as QQ Wallet, Alipay, and Apple Pay to facilitate payments. Due to its robust business model, Pinduoduo has managed to increase revenues from just over $2 billion in 2018 to $14.7 billion in 2021.

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