This was Pinduoduo’s first ever annual operating profit since becoming a public company. Similar to most other early-stage e-commerce stocks, Pinduoduo was unprofitable for around 5 years after launching. The company’s first ever quarterly net profit was recorded in the second quarter of 2021. Many also questioned the validity of entertaining features in Pinduoduo’s value proposition.
Key takeaways from Pingduoduo Success Case
- JD.com and Alibaba appear to dominate in the so-called tier 1 cities in China.
- Customers could pass the time by playing video games or earn money by logging in daily to browse the app.
- In many ways, Pinduoduo represents the most successful example of how a mobile commerce app can be designed from the ground up to engineer social sharing, viral engagement and repeat buying as part of the user experience.
- From a single service to a full suite of marketing-centric operations, we raise the profile of brands on online media in China.
PDD is known to be minimally communicative as far as the business is concerned. They’ve yet to break out any kind of financial detail on, for example, Temu versus the domestic business. And generally, it is a very secretive business by nature, by culture. I mean, the reason why FT readers are so intrigued by Temu is because just suddenly, they’ve seen their children, their friends, changing their shopping habits almost overnight. And now they’ve expanded into almost 50 countries globally, essentially leveraging domestic light manufacturing to sell all sorts of things to the rest of the world. Pinduoduo has come into focus now with the launch of its overseas app, Temu.
Pinduoduo’s global ambitions
Pinduoduo made a statement saying that it disagreed with the move and had taken steps to remove counterfeit products from its platform. While cheap products are only one prong of Pinduoduo’s success alongside its effective use of social connections and catering to an under-served market, its pricing has undeniably been an advantage as Chinese shoppers spend more cautiously. These efforts were particularly valuable for farmers during the Covid-19 lockdowns, when they struggled to find buyers for their produce. Pinduoduo launched an initiative called “Help the Farmers” in February luno exchange review 2020 to address this problem, visiting rural areas to teach farmers how to sell on Pinduoduo, and many of these sellers have stayed with the platform long-term. For consumers in China’s rural, ‘lower tier’ (i.e. smaller) cities, WeChat is a place of information and connection, and so this combined with Pinduoduo’s low prices allowed Pinduoduo to take hold within rural communities in a major way. In March, Alibaba launched a special version of its Taobao app that focuses on the so-called customer-to-manufacturer (C2M) model, which has been behind the rise of PDD.
How Does Pinduoduo Attract Millions of Users?
Analysts tracking the stock expect the company will grow its sales to $22.5 billion in 2022. Further, the total number of active buyers on Pinduoduo in 2021 (users who placed one or more orders throughout the year) hit a record of 868.7 million, up 10% compared to 2020. Want to have a first free consultation session about e-commerce and digital marketing in China? Pinduoduo is literally recognized as a consumer-to-manufacturer (C2M) model, consumers create value for manufacturers and provide merchants ideas for the production according to the consumer demands. Duo Duo Orchard was the first popular game on the platform, users can grow virtual fruit trees, collecting water droplets to water their tree by shopping, browsing, and interacting with other users on the platform. The Mini game is an in-app games to allow users enjoy playing the online game beyond purchasing.
Former CEO Dr. Nick Beighton – an ecommerce veteran who previously headed up ASOS – reflected on the luxury brand’s struggles in a keynote at the Retail Technology Show in Olympia London. JD.com has reportedly also put billions of yuan behind a subsidy programme for merchants – a move that Pinduoduo itself used in 2019 as it fought to gain headway against incumbents Alibaba and JD.com. In 2021, Pinduoduo unveiled a 10 billion yuan ‘agriculture initiative’ to “face and address critical needs in the agricultural sector and rural areas”, pledging to put its profits from Q onwards into the initiative. How did Pinduoduo succeed at becoming such a dominant force in a short space of time?
Driven by sharing on WeChat, Pinduoduo’s average customer acquisition cost is only $2, compared to $39 and $41 for primary rivals JD.com and Taobao. But even more impressive is its 7-day retention rate of 77%, the highest of any e-commerce platform in China. This retention comes from the continuous re-engagement at the prospect of winning deep discounts. It’s the combination of the viral acquisition loop and the addictive shopping experience that has caused Pinduoduo to become bigger than eBay in just four short years. The combination of featuring both e-commerce and social sharing creates a new social life for Chinese users that they can purchase online items by engaging with the social groups and team purchasing. Therefore, a social chat platform like WeChat acts as a crucial weapon for Pinduoduo to build a good “word-of-mouth” and ultimately facilitate the social sharing function.
But the lessons of building a socially shared, dynamic experience where the use of app itself drives consistent re-engagement are more important than ever. If Huang could find a way to make buying the most mundane everyday household items exciting and fun, then app developers everywhere can try to find ways to do the same with their apps. Cost performance is still the most important factor to consider for consumers. A higher price tag does not necessarily represent the better quality or vice versa. The huge potential in this often-overlooked market is luring more competitors.
And on Sunday, PDD announced it would invest in convertible bonds issued by Hong Kong-listed GOME Retail. The investment will see GOME’s product range, logistics and after-sales customer support integrated with PDD. Like TikTok, Temu is the foreign version of a highly successful Chinese company. As its popularity has grown in the United States, its business practices have also come under scrutiny.
One of the more visible things is the de minimis provision in the US, which allows parcels to go into the US without paying tax if it’s under $800 of value. This year, 2023, we think the domestic business is probably on track to generate something like $25bn of free cash flow. And that, on some level, is funding the growth of Temu, at least in the first instance.
“The retention rate is a big challenge of Pinduoduo, implying potential GMV slow down. Pinduoduo will have difficulty in upgrading to a marketplace of premium products because of its user demographics and brand image,” according to 86 Research. But tightening regulation is causing more friction between Pinduoduo and its merchants on the platform. In June, fourteen store owners who sell products on Pinduoduo protested under the company’s office building claiming that Pinduoduo conducted improper product-quality checks which damaged the owners’ rights. Company founder Huang insisted Pinduoduo’s decision and punishment of the owners is just and fair.
That’s where consumers can interact and buy direct from the manufacturer rather than going through a third-party seller. And that’s served one purpose, which is to allow Temu to sell more expensive items, to sell heavier items, which if you’re sending things via brown-paper envelope, via air, is more difficult. Shein is a Chinese-founded fast fashion company that shipped cheap clothes directly from Chinese factories to shoppers in the west. 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.
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.
But now Alibaba and JD have put a larger focus on gaining ground in these lower tier cities and have released products to compete with PDD. A large part of PDD’s growth has been driven by the fact that it can be accessed on Tencent-owned messaging service WeChat, which has over a billion monthly users. WeChat is a key part of daily life in China and allows people to make payments within the app.
Pinduoduo became especially popular in second- and third-tier Chinese cities where consumers were more budget conscious, and nearly doubled its revenues in 2020 amid pandemic-inflicted lockdowns. Pinduoduo claims 882 million active buyers in China, nearly equal to Alibaba’s 903 million. We’re in an age where it’s become very obvious https://forex-reviews.org/ that there is an environmental cost to fast fashion and to overconsumption. Sekkei Digital Group is an agency of digital hustlers, marketers, developers, and brand builders working between France and China. From a single service to a full suite of marketing-centric operations, we raise the profile of brands on online media in China.
Pinduoduo’s stock price on Nasdaq has dropped over 75% since its peak in February of last year. That drop has wiped $181 billion off Pinduoduo’s market capitalization; the firm was valued at $241 billion in February 2021 compared with $60 billion today. Huang himself has lost over $53 billion amid the decline in value of Pinduoduo’s stock. But the firm has been caught in the crosshairs of the Chinese government’s crackdown on consumer-facing digital platform companies, which began in late 2020. Chinese media outlet LatePost first reported the news last week and said that Pinduoduo plans to follow the model set by Chinese fast-fashion firm Shein to attract American consumers.
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.
We speak to different industry contacts that are in the e-commerce trade, both domestically and cross-border. And we do get some management access on top of that, where they can talk in qualitative terms and give you some idea of what they’re trying to achieve high level. So it’s not completely opaque, but yes, it’s less hands on when it comes to investors than, for example, some of my other companies that guide quarterly revenues and earnings and so on. When we do our work on PDD and Temu the job is essentially an exercise of triangulation between different data points. We talk to a lot of the logistical providers that help both PDD and Temu in the international market.
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.
Taobao launched Taobao Tejia, a dedicated app for China’s low-end users. JD.com, which has historically invested in logistics infrastructure to keep overheads low rather than specifically lowering prices, has also begun throwing its weight behind discounting. In 2023, it announced an initiative to bring more competitively-priced products to consumers through welcoming smaller merchants onto its platform, which had previously been home to a tightly-controlled list of established brands.
Through this, brands can remove the hassle and additional costs of using a middleman. It also enhances the consumer journey by adding gaming elements and giving out coupons and rewards. Temu marks Pinduoduo’s biggest push overseas yet as the domestic Chinese economy faces a number of challenges from a resurgence of Covid-19 to an energy crunch. https://broker-review.org/fp-markets/ That has hurt economic growth in China and dampened consumer sentiment. Comparatively, the forward price to sales multiple for peer e-commerce companies such as Etsy and Hello Fresh stand at 30x and 29x respectively. Analysts tracking Pinduoduo have an average target price of $70.55, which is around 10% above its current trading price.
Pinduoduo started by targeting price-conscious (as opposed to brand-conscious) buyers in third and fourth tier Chinese cities – an underserved market. It enables these buyers, often women in charge of household purchases, to obtain deep discounts by getting their friends to participate in group buys of items ranging from produce to diapers. The most typical Pinduoduo users are price sensitive women that reside in low tier cities. But how to maintain these users and its growth momentum is a big challenge for Pinduoduo now given rising product quality complaints. Temu might be hoping to draw in shoppers initially with low prices, but it wants to use gamification and social sharing to keep them coming back.
The user even has the chance to receive a free product if enough friends register for the bargain. Pinduoduo removes the middle-man from the supply chain and provides an opportunity for farmers to interact directly with consumers, thus helping them get a better price for their produce. Pinduoduo’s growth came from an existed crowded Chinese ecommerce environment, dominated by Alibaba and JD.com. Users will get one Brand Card after they purchased a branded item, and they can alternatively share with their friends to attract them browsing and ultimately purchasing the branded products. This is an effective incentive for the platform to promote its branded products.
Today Pinduoduo’s $40+ billion market cap is the equal of JD.com and its 366 million monthly users and 536 annual active buyers are both second in China only to Alibaba. As Pinduoduo gets into life as a public company, the firm is following the e-commerce giants in cleaning up the platform. The company set up an RMB 150 million ($22 million) fund to deal with after-sales disputes. In 2015, Huang launched Pinhaohuo, a social commerce platform for fruits, with the team from his second startup Leqi. But it is succeeding thanks to a new ecosystem consisting of super app WeChat, mobile payment infrastructure, and mobile-first users.