From the primacy in lower-tier cities, Pinduoduo now looks for competition with China’s e-commerce giants in Tier 1 and 2 cities. Will the development of an in-house logistics network and shipping information technology be a threat to Alibaba?
Thanks to its ability to take hold in smaller cities, the Shanghai-based e-commerce platform Pinduoduo has boomed in China. It went from being a startup for group-buying deals to become the Dragon’s online shopping phenomenon so much so that today, we cannot talk of an app for price-sensitive consumers anymore.
To put an end to the association with lower-tier and lower-income buyers, the app has revealed that most of its recent customers come from China’s most developed cities. According to Pinduoduo’s founder Colin Huang, last June, orders from Tier 1 and 2 cities such as Beijing, Shanghai, and Hangzhou accounted for 48% of the platform’s total order value, up from 37% in January. The company has also reported a 169% leap in revenue for the June quarter, generating a 15% share surge.
Pinduoduo has been China’s third most popular shopping app since July 2017 but its daily active users have outnumbered JD.com’s for at least the past 12 months, turning it into China’s second-biggest e-commerce company by number of users.
Although the competition with China’s e-commerce giants is strong in higher-tier cities, the app seems to have faced the challenge of being framed as a low-quality platform to finally make its way in the Chinese high-end market. Here, China’s internet titans such as Alibaba’s Taobao and JD.com dominate the market, keeping off potential rivals.
© Weibo. Although Taobao and JD.com are still the e-commerce market leaders, Pinduoduo is the app that benefits from the highest loyalty rate.
Pinduoduo was founded in September 2015 by a former Google engineer and his company, the Shanghai Dream Information Technology Co. The Shanghai-based startup managed to become a Unicorn in just 21 months reaching $1.5 billion gross market value much faster than its older peers.
In August 2019, four years after the launch, Pinduoduo’s monthly active users reached the figure of 366 million people, meaning about one in four Chinese people use Pinduoduo every month.
Today, 443.2 million active buyers use this platform for their online purchases and 65% of them live in the Dragon’s third-tier cities or below. The app, in fact, initially found popularity through its group-buying business model, therefore, offering discounts to users who buy items together. At first, this approach has taken hold in lower-tier cities where the population has a lower income compared with first and second-tier cities. However, its users have nearly doubled their annual average spending to $208 in the 12-month period ended on June 30.
According to the latest data, the percentage of Pinduoduo’s users that come from first-tier cities in China rose to 10% in 2018 and it is likely to grow even further.
But a brand-new success among the big spenders is not the only factor that makes Pinduoduo become a viable competitor of Alibaba. The Shanghai app now bets on the logistics sector to rival the e-commerce giant’s Cainiao.
Colin Huang’s platform now plans to develop its own logistics network to speed up its deliveries. According to Pinduoduo, with the use of artificial intelligence (AI) and big data technologies, new services will include route planning, parcel sorting, and the improvement of fresh produce deliveries.
The Vice President of Strategy at Pinduoduo, David Liu, said that the decision to implement the orders’ fulfillment has come after the company received customer complaints about the deliveries. He also explained that many merchants on the platform were using the competitor’s logistics network. Therefore, the app had no control over these shipments.
© Alizila.com. AI technology was fundamental in the success of the Alibaba’s “Single Day” , whose logistics company Cainiao used robots with automated driving to process 1bn orders.
The competitor David Liu was talking about is certainly Alibaba’s logistics arm Cainiao. Currently, Cainiao is at the forefront of the logistics world. The company, in fact, recently opened the biggest automated warehouse in China, in the eastern city of Wuxi, Jiangsu, which is part of the company’s first Future Park, a logistics complex run by the Internet of Things applications, big data, edge computing, AI, and automated guided vehicles (AGVs).
Cainiao Vice President, Ben Wang, said: “Consumers increasingly want faster, better delivery, so that’s what we’re doing.” And Pinduoduo aims to answer the demand for fast and reliable delivery as well, especially since these two claims have overtaken the demand for competitive prices and a wide selection of products.
Since its launch, the Shanghai-based app relied on Cainiao to track and handle about $70 billion of its annual shipments. Over these years, the rival Alibaba has, therefore, had access to Pinduoduo’s activity and to its customers’ shopping habits. But this is all about to change, especially since Colin Huang’s platform launched its own shipping information technologyearly this year.
Since the launch of Pinduoduo’s waybill system, an average of 40 million orders per day has already migrated to the new system, which are almost all orders generated on the platform.
But although Pinduoduo launched its electronic waybill last March, in 2014, Cainiao already pioneered this system that tracks goods via shipping labels, and that shares real-time locations. And this innovation has been then adopted by China’s major couriers such as SF Express and ZTO, making Alibaba’s logistics network operate more efficiently.
Moreover, Cainiao is already ahead with the use of new technologies. It uses AI, it invests regularly in delivery robots and AGVs, its on-demand delivery network covers over 200 cities in China, and it is also planning to open electronic logistics hubs around the world. Therefore, Pinduoduo does not seem to have any chance to overtake Cainiao’s primacy so soon.
David Liu revealed he is well aware that there are many established logistics services in China that Pinduoduo can leverage. He thus pointed out that the Shanghai app will not try to copy its larger rivals. Indeed, contrary to Cainiao and JD.com, Pinduoduo has no plans to operate warehouses or build its own delivery fleet. Pinduoduo aims, instead, to help sellers participating in the supply chain. Being one of China’s largest online retail platforms for fresh products, farmers will thus leverage the platform’s big data analysis to syncronize the harvest and shipments and avoid food waste.
However, although Colin Huang’s app does not plan to build its own warehouses or fleet, the founder has revealed that the company will still invest in advanced technologies like AI-powered routing in order to keep improving its logistics network.
© JD.com. Recently, the Chinese JD.com started to test not only unmanned delivery services but also drones delivery airports.
This online shopping Unicorn has pioneered the concept of group-buying. However, although until now, Pinduoduo’s rise has been driven by users from lower-tier cities, it now aims to satisfy a larger audience. In particular, the company now wants to escape the frame of the cheap-products app to represent a viable competitor for china’s major e-commerce giants.
If Pinduoduo’s migration toward an in-house logistics network might represent a challenge for Alibaba’s logistics unit, the true battlefield for e-commerce dominance will probably be the fresh food e-commerce, of which Pinduoduo is one of the largest players.
Although it is at an early stage, fresh grocery e-commerce has an estimated market size of $28 billion in China and many online players are now expanding into the business of selling fresh produce to consumers.
Therefore, by investing in the logistics sector the Shanghai platform is not only expanding its consumer base but it is also implementing the supply chain of its major business, that of the fresh produce.
Is Pinduoduo challenging the primacy of Jack Ma’s company in China? Asking for its consumers’ data back surely presents a threat to Alibaba’s dominance of Chinese e-commerce shipping data. But is the Shanghai-based platform going further in the competition? And is there any space left on the podium of Chinese e-commerce?
Looking back at Pinduoduo’s incredibly fast growth, we may find the answers as quick as the app’s rise.