Pinduoduo (PDD) was founded in 2015. After only 4 years, it became fourth largest internet company and the largest social e-commerce platform in China. Zheng Huang (Colin Huang), the founder of Pinduoduo, described it as a mixture of Costco and Disneyland, a combination of value-for-money and entertainment, in his 2018 letter to shareholders. Pinduoduo is not only a social-commerce platform, but also a consumer to manufacturer (C2M) platform.
Fun, unity and savings are key marketing messages of the platform. Pinduoduo’s name can be translated to “Together, more saving, more fun”. On top of this, the adverting slogan is “300 million people are using Pinduoduo” (三亿人都在用的拼多多). Targeting China’s low-tier city consumers, the C2M platform boasts 600 million active users and reached over RMB 1 trillion GMV (gross merchandise value), by March 2020. With the rapid development of lower-tier cities in China, more and more brands hope to establish their presence in this potential market through this rising Chinese C2M platform.
Driven by social networks, team purchasing is a core force of Pinduoduo
From groceries to automobiles, Pinduoduo offers a wide range of products on the small screen of your cellphones, which just like any other Chinese e-commerce platform, Alibaba Taobao or JD.com. However, customers have a different shopping experience on the platform, which many people call “Tuangou” (团购) meaning “Team purchasing” or “Groups Buying”.
In 2015, the sharing economy became the hottest buzzword around Chinese companies. Like bicycle sharing, car sharing, mobile power sharing, and so on, the Chinese group buying platform found its own way of “sharing”. By sharing Pinduoduo’s product page on social media platforms like WeChat and QQ, customers can invite their friends who also want to buy this product. The range of invitation extends to strangers on Weibo and any social platform after then. If shoppers invite enough people to form a team, normally at least 5 people within 24 hours, all members can get the product at a lower price. The more people in the team, the higher the discount.
Compared to traditional e-commerce platforms which use “selection-decision-payment”, Pinduoduo invites users to participate in “social games”. This social interaction is designed as leisure activities. Rather than individual purchasing, team purchasing meets the human need of connecting with others. According to Pinduoduo’s 2019 F-1 filing, regarding their team purchasing feature, the company said “our buyers share their purchase information with their friends, family and other social contacts… and new buyers in turn refer our platform to their broader networks of friends and family. This interactive feature also transforms online shopping into a fun and interactive experience.”
Depending on the high stickiness of social media, consumers bring Pinduoduo the exponential growth of traffic, with a shopping atmosphere of entertainment. Instead of high expense in advertising channels, the C2M platform acquires users by buyers themselves at a very low cost. This social interaction is the core driving force of Pinduoduo’s operation.
Most Pinduoduo users come from lower-tier cities in China
Most of the users of Pinduoduo are over 30 years old (61%), female (70%), and live in tier-3 or lower cities (58%). From its launch, Pinduoduo focused on this group, which is largely ignored by China’s e-commerce industry. In 2015, Taobao and JD.com gave up the low-quality products and enacted a strict policy against counterfeit goods, not only thousands of sellers were dislodged from the e-commerce market, but the millions of China’s low-tier city consumers were abandoned by online shopping.
China’s low-tier city consumers have relatively lower incomes and less technical skills. Although, they do not have as strong purchasing power as the first tier-cities, their living expenses are much lower, and they enjoy much more time for leisure and social life. As the chart of Internet APPs preferences in all-tier cities, shows users of the low-tier cities tend to use less functional APPs (Office software, Transportation) in daily life. In contrast, they are more inclined to purchase goods in APPs like Pinduoduo and spend more time chatting with friends and family over APPs like WeChat and QQ.
Source: Secoo-Deloitte Analysis, how China’s low-tier city consumers spend their time on APPs
Pinduoduo fully understands the psychological profiles of its users – price-sensitive, middle-aged female living in lower-tier cities. They care about the quality-price ratio and purchase for the whole family. Take the best-selling product on Pinduoduo as an example – a box of 300 sheets of tissues, 10 packs, only RMB 9.9 yuan. On top of allowing consumers to save money while purchasing household necessities, Pinduoduo also lets consumers spend less time on price matching. Additionally, they would like to share this information with friends and relatives, not only in order to reach lower prices, but in doing so, they feel they are doing a favor for their peers, which is beneficial to their relationships.
Source: Pinduoduo, Yi Mian Home
This kind of psychology makes Pinduoduo gain a lot of customers who have repeated buying behavior.
What brands should know about Pinduoduo
While wealth is rising lower-tier cities, consumers are more brand conscious and looking for better quality and brand products. However, brands should be aware that many shoppers are mostly motivated by price and are willing to purchase fake brands over generic brands. This trend gave Pinduoduo an image of being for counterfeits. So Pinduoduo has taken measures to reverse this reputation, while giving the authentic brands a new channel to get in touch with more Chinese customers. This new initiative is the “Branded Goods Pavilion”.
Source: Pinduoduo, Swiseee Official Page and Chanel Official Page
Pinduoduo’s Branded Goods Pavilion separates brands from counterfeits
Pinduoduo launched “Branded Goods Pavilion” in 2018, which included more than 700 brands, including some international companies, Chanel, Biostime, and Swisse in all kinds of product markets. On the one hand, Pinduoduo provides technical and e-commerce support on these brands, helping branded companies set up their merchants quickly and expand sales. On the other hand, in order to attract customers, Pinduoduo announces a series of subsidy campaigns, like “CNY 10 billion subsidy”, for customers who buy famous brands on Pinduoduo.
This way, not only brand merchants maintain the profit but shoppers also get discounts. Foreign brands on Pinduoduo have the chance to get in touch with China’s low-tier city consumers. Pinduoduo still allows low-end product lines, but separates them from its high-end products. It helps brands to establish a parallel with its higher market position, which is more suitable for most mass-market brands, like Nike, Adidas, and Samsung.
Pinduoduo’s low price is problematic for some brands
However, some companies, like Tesla, decided against any selling on Pinduoduo. Some brands have deep concerns that low prices would break the current value system; also, the earlier brand image of Pinduoduo would affect their image.
Although Pinduoduo welcomes these brands, the low price on Pinduoduo seems to be a crucial problem that cannot reach an agreement.
Livestreaming on Pinduoduo reaches more tier-1 and 2 city consumers
For brands, live-streaming is also a great opportunity to increase brand awareness and understand China’s low-tier city consumers’ needs directly. Pinduoduo launched its live-streaming tool – Duoduo Live-streaming on its APP. During the live streaming, the host could answer customers’ questions and give tours of warehouses, and show product demonstrations. This enhances customers’ confidence that Pinduoduo sells real and quality brand products. With the development of live streaming e-commence, more and more people in the first and second-tiers cities engage in Pinduoduo’s social online shopping.
There is still an undeniable opportunity to build a new relationships between brands and consumers through Pinduoduo. To craft your Pinduoduo or e-commerce strategy in China, contact our project leaders at dx@daxueconsulting.com
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