B2C

Focusing on its Users, Pinduoduo Has Become China’s New E-Commerce Giant

Pinduoduo is not the new kid on the block anymore. From lower-tier cities, it has made its way to the largest centers so much so that today, it is officially a viable competitor in China’s e-commerce arena

There is a Chinese app that embraces many of China’s contemporary trends and at the same time, faces the market’s modern challenges with extraordinary success. It is Pinduoduo, the e-commerce platform for group-buying deals, which is threatening Alibaba and JD.com’s duopoly in the Middle Kingdom.

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 the number of users.

Its origins can be traced back to the US Silicon Valley where Pinduoduo’s founder, Colin Huang, started his career as a Google engineer. Mr. Huang, indeed, belongs to that group of Chinese entrepreneurs who, after a working experience abroad, have returned home to launch those hi-tech companies, which are making history today.

In particular, Colin Huang has managed to combine Chinese love for bargaining with the force of recommendation among friends while also targeting and unlocking the most neglected market, that of low-income households. The mission is clear: “The future of the Chinese digital economy is not to give a Shanghai resident the life of a Parisian. The future is to provide handkerchiefs and fresh fruits to those living in the province,” said Huang.

However, Pinduoduo’s history does not stop in the province. The company’s new challenge is to compete with the big ones on the same battlefield. Therefore, the next step is to develop an in-house logistics network and shipping information technology.

Currently, Pinduoduo is the second most used e-commerce platform and the fastest growing app in the history of the Chinese internet. Although it is mostly associated with lower-tier and lower-income buyers, last June, orders from Tier 1 and 2 cities such as Beijing, Shanghai, and Hangzhou accounted for almost half of the platform’s total order value.

Pinduoduo is china's new e-commerce giant - cifnews

© 123rf. Although Taobao and JD.com are still the e-commerce market leaders, Pinduoduo is the app that benefits from the highest loyalty rate.

The startup, whose name is roughly translated as “buy more together”, was launched in Shanghai in 2015. It turned into a Unicorn after just 21 months, reaching $1.5 billion gross market value much faster than its older peers like JD.com and Alibaba’s Taobao.

The explosive growth of Pinduoduo is essentially due to two main factors. The first factor is the significant number of funds received, such as that of Tencent and IDG, which allocated an investment of $110 million in 2016. The second factor is the app’s ability to take hold in smaller cities.

Today, 483.2 million buyers use Pinduoduo for their online purchases and 135 million of them use the app daily. Numerous international brands such as Huawei and Apple have their flagship stores on the platform and the overlap in users between Taobao and Huang’s app has now reached the figure of 109 million people.

In June, Pinduoduo’s average monthly active users were 366 million, an increase of 88% from 195 million in the same quarter of 2018. It represents almost half of monthly active users of the total Alibaba ecosystem.

However, compared to its peers, Pinduoduo works differently, allowing users to participate in group buying deals. More than a simple digital shopping platform, it is a social commerce app, which uses a “team purchase” model and leverages social sharing on Chinese social networks.

The consumer can buy an item at full price or get a discount if he invites other people to join the purchase. This is a model that applies perfectly to the Chinese cashless society as about 583 million people used mobile payment last year. But above all, it makes the most of the sharing-with-friends potential, creating a viral environment.

Therefore, Colin Huang’s experience in the digital landscape together with a forward-looking approach made him build a completely different kind of marketplace, whose appeal is the satisfaction of taking advantage of a great deal instead of the lower price of products. This explains its virality and addiction primarily in lower-tier cities where salaries are still lower compared to first-tier ones.

cross-border e-commerce - pinduoduo - cifnews

© 123rf. Although the average order spending on Pinduoduo is lower than its peers, its users have nearly doubled their annual average spending to $208 in the last 12-month.

Nevertheless, although the competition with China’s e-commerce giants is strong in higher-tier cities, the app is moving away from the frame of a second-level platform for lower-income buyers to finally make its way in the Chinese high-end market. Here, China’s internet titans, Taobao and JD.com, dominate the market, keeping off potential rivals.

To reach its goals and be a viable competitor in the market, the Shanghai-based company thus plans to develop its own logistics network and, therefore, 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.

Pinduoduo aims to answer the demand for fast and reliable delivery, especially since these two claims have overtaken the demand for competitive prices and a wide selection of products.

The plan is, therefore, to invest in advanced technologies like AI-powered routing in order to develop and then improve its logistics network.

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.

Since its launch, the app relied on Alibaba’s logistics arm 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 its customers’ shopping habits. But this is all about to change, especially since the platform launched its own shipping information technology early 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.

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.

Fresh food is conquering e-commerce - pinduoduo - cifnews

© 123rf. The next battlefield for e-commerce dominance will probably be the fresh food e-commerce, of which Pinduoduo is one of the largest players.

Once again, this young company focuses on its users to enhance the platform. It started as a group-buying app for lower-income households and then spread in higher-tier cities through its social nature and a check-out system that allows automatic payment.

Today, Pinduoduo targets the sellers. Although the company has already allocated an over $505-million-investment to help farmers selling their perishable agricultural goods on the platform, it now aims to help all the merchants improve their understanding and participation in the retail supply chain. And by entering the higher-tier market and the logistics sector, it has now officially entered into direct competition with China’s e-commerce giants.

But its strength is still the focus on both the customers and the sellers, which is increasingly developing around the fresh produce market. This is not about “provide handkerchiefs to those living in the province” anymore. Now, it is about building a direct line between farmers in rural areas and consumers in bigger cities.

The next battlefield for e-commerce dominance will probably be the fresh food e-commerce and Pinduoduo is already in the front line.

Categories: B2C, Business, China, Company, ECommerce

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