Pinduoduo's counterattack: the secret weapon to catch up with Taobao and the future of its overseas expansion

In 2015, the year when Pinduoduo was founded, Alibaba’s GMV reached 3 trillion yuan, and the number of buyers exceeded 400 million. JD.com, the second largest online shopping website, was also under pressure from Alibaba. At that time, some people were wondering whether the growth of China’s e-commerce would slow down, and Alibaba itself obviously felt that the growth would not be as fast as in the past, so it began to lay out a rural strategy and launched the Rural Taobao project. However, the sudden emergence of Pinduoduo and its rapid rise in the following years slapped the faces of the management and analysts at the time.

Looking back on Pinduoduo's growth process today, it feels a bit like hindsight, but looking back a little can still help us sort out the logic of business and the company and help us make future judgments, so I'll write a few words.

God opened a window: The elderly in the village used their smartphones to grab WeChat red envelopes

To achieve great things, you need to take advantage of the momentum. Pinduoduo took advantage of the rapid growth of mobile Internet and mobile payment:

• Smartphones are rapidly becoming popular among the general public: With the rise of the Android phone camp in China in 2011/2012, smartphones began to quickly become popular among the general public.
• The rise of mobile payments, especially WeChat payments: WeChat launched WeChat red envelopes in 2014, which accelerated the popularization of mobile payments and enabled people to have a means to spend money.
• Tencent and Alibaba continue to be sworn enemies: Taobao blocks WeChat, WeChat blocks Taobao, Alibaba misses the most important marketing position, and WeChat becomes Pinduoduo's marketing position.

Using WeChat as its marketing base, Pinduoduo began to gain the support of this group of mobile Internet newbies and people with insufficient online shopping experience.

Gameplay and supply chain: WeChat’s natural social/entertainment attributes + cheap and popular products that users want

On the marketing platform of WeChat, Pinduoduo's marketing tactics naturally derive social and entertainment attributes. Cheapness is lethal, but cheapness requires group buying; a price cut and continuous drop will make people secrete dopamine; and the temptation of receiving a 100-yuan red envelope with only 1 cent away from the final push is even more irresistible.

In addition to these marketing tricks, Pinduoduo also launched small games such as Duoduo Orchard to target the time-consuming and bored characteristics of low-end users. The incentive of sending real fruits brought good public reputation and triggered self-propagation, so that this method was later adopted by almost all platforms.

In the early days, most of Pinduoduo's users were "low-end users" who pursued cost-effectiveness and cheap things. In order to meet the needs of target users, it is necessary to have an ultimate cost-effective experience. However, as a newly emerging platform, it is impossible to be comprehensive in terms of products, so hot products are very important for Pinduoduo's growth. Hot products need to meet three conditions: cheap, common, and rigid demand.

Pinduoduo has stocked up a lot of zero-yuan and low-priced hot-selling products through the supply chain to attract users, and even called it an original C2M model. For example, it collects customer needs through a group of 10,000 people and allows merchants to customize and produce high-cost-effective products.

In addition to the so-called C2M, low-end industries and products have also found an outlet on Pinduoduo. Although these products labeled as "copycat" are despised by the wealthy class, ordinary people are happy to buy them because they are cheap!

In the early days, Pinduoduo's users were mainly attracted to its platform through social networking, and the platform's own traffic generation ability was still weak. Later, the platform's brand was gradually formed, and users began to "browse" to find affordable deals. In this way, Pinduoduo gradually built up the ability to recommend products through information flow, which is different from Taobao's early product search as an important entrance.

Public opinion war and 10 billion yuan subsidy: Pinduoduo's counterattack + entering the high-end market and changing user mindsets

Pinduoduo went public in the United States in July 2018, but it was at that time that Pinduoduo was caught in the spotlight and suffered from the "fake goods" public opinion attack on the entire network. Pinduoduo hinted that someone was maliciously attacking them. Huang Zheng said in an internal letter, "Even if it is a malicious attack, it should be interpreted in good faith." The official response said that "fake goods are a social problem, and it is unfair to let the three-year-old Pinduoduo bear it." But no matter what, Pinduoduo finally successfully resolved this wave of fake goods public opinion attacks.

Pinduoduo, which was hit by the fake goods storm, thought of a big move and started to offer "10 billion subsidies" in June 2019. The intention of launching the 10 billion subsidies is obvious. Since competitors say that Pinduoduo is cheap but has many fakes, the 10 billion subsidies are to tell users that Pinduoduo is not only cheap, but also authentic.

Starting with a small trial on June 18 in the second quarter of 2019, the 10 billion yuan subsidy has become a continuous project, which is officially called "June 18 every day, Double 11 every day". Pinduoduo's 10 billion yuan subsidy is a real subsidy, which can be seen from the growth of marketing expenses.

At the beginning, users were skeptical because the products were brand-name products but the prices were extremely cheap. However, as more and more users tried the 10 billion subsidies, they found that what they bought were genuine products and not "failures". This huge contrast of surprises made them share and spread the message. Pinduoduo also took the opportunity to make many similar advertisements, and successfully made the 10 billion subsidies a project as well-known as Double 11.

The 10 billion yuan subsidy successfully changed the minds of Pinduoduo users, allowing Pinduoduo to acquire more and more high-end customers and establish its high-end brand image. Thanks to the 10 billion yuan subsidy, the per capita consumption of Pinduoduo customers has also increased rapidly quarter by quarter.

The barefoot are not afraid of the shod. While Pinduoduo used billions of subsidies to attract a large number of users, Alibaba and JD.com did not dare to follow suit. In addition to e-commerce, Alibaba has many other businesses that require high e-commerce profits, and it did not dare to affect its stock price. It did not follow up in time, and even if it did, it was just a small matter. As a self-operated business, JD.com's logistics was still losing a lot of money at the time, and it could not afford large subsidies.

Sniping and benchmarking: Replicating Pinduoduo’s Taobao Special Price Edition and Jingxi

Pinduoduo has risen to become a heavyweight e-commerce player by relying on its low-end users, which has made Alibaba and JD.com unable to sit still. In desperation, the two companies simply copied their competitors' gameplay, including C2M, hundreds of billions of subsidies, and even created independent apps, Taobao Special Edition and Jingxi.

Taute went online in March 2018, but it was not until the third and fourth quarters of 2019 that resources for promotion began. However, copying competitors' things often does not defeat competitors. Moreover, the battle for sinking users was nearing its end at that time, and Pinduoduo had begun to surround the cities from the countryside.

Jingxi was only launched in May 2019 and has no resources to support it. For company bosses and employees, to cope with competition, no matter whether Jingxi is useful or not, they have to do something.

The data of these two products today have proved that it is no longer feasible to create an independent APP to compete with Pinduoduo. Throughout history, although there are countless similar failure cases, people always have to do something.

Foundation: Brand merchants, Alibaba's last guarantor, self-operated, JD's biggest advantage

Today, Pinduoduo has nearly 900 million annual buyers, 730 million monthly active users, and an annual GMV of more than 2.4 trillion yuan, while Alibaba has about 900 million annual buyers and a GMV of around 8 trillion yuan in the Chinese market. The user gap between the two has become very small and is still narrowing, but the per capita consumption is quite different.

The difference in per capita spending is due to both the purchasing power of users and the insufficient supply of branded goods. Despite the 10 billion yuan subsidy, the richness of branded goods on the Pinduoduo platform is still far less than that of Taobao and Tmall. This is due to both the brand's prejudice against Pinduoduo customers and Taobao/Tmall's past attacks on Pinduoduo and JD.com through explicit or implicit "choose one of two" means. After all, branded merchants are Alibaba's last defenders.

Now that it has high-end users, Pinduoduo has been working hard to attract brand merchants to join its platform. In order to meet customer needs and attract brands to join, Pinduoduo started its "self-operated" business in the third and fourth quarters of 2020. This part of the self-operated business is that Pinduoduo purchases goods to meet customer needs based on the gap in user demand for goods on the platform. The goods are basically branded goods. Pinduoduo has no intention of expanding this business. It is more like a benchmark to sell to brand customers, so as to attract brands to open stores on the platform themselves.

This can also be seen from the data. In 4Q20 and 1Q21, the revenue brought by this part of the products was more than 5 billion yuan, but in 2Q21 it began to decline rapidly. Pinduoduo explained that because brand merchants came to open stores, the official stopped selling them.

Increasing the proportion of brand merchants is not only to meet the needs of high-end customers, but also a key means for Pinduoduo to achieve GMV and revenue growth. Pinduoduo's revenue growth in 3Q22 was strong, and the advertising and marketing contribution of brand merchants was indispensable.

The growth of Pinduoduo's brand merchants is bad news for Alibaba, but Alibaba is a large company after all, and it won't be taken over by Pinduoduo so quickly. As long as Alibaba protects its brand merchants and provides them with services that meet the needs of the times, it will be able to maintain its foundation.

JD.com has been sticking to its advantages in self-operation and logistics, and has remained quite stable. Especially during the epidemic, its advantages were still very obvious and it has extended its vitality.

Future changes: live video e-commerce + internationalization

The grocery shopping business was once seen as the next hot spot for e-commerce, but under the heavy blow, the grocery shopping market has returned to rationality and is slowly developing as part of user demand. In contrast, live video e-commerce has been an important hot spot and trend in recent years, with Douyin and Kuaishou leading the trend. The market generally expects that the GMV of Douyin e-commerce has exceeded one trillion yuan, and the payment GMV of Kuaishou e-commerce is expected to reach more than 400 billion yuan in 22 years.

On PDD's APP, we can see how much the company values ​​video and live streaming e-commerce. The short video entrance is currently in the middle of the bottom of the Pinduoduo APP. Obviously, this is a defensive strategy. PDD regards the short video and live streaming functions as the past Duoduo Orchard, which is both a means to retain users and to cultivate video e-commerce business. However, it can be judged that this is somewhat futile.

Therefore, Temu's international expansion is more exciting. Shein has already successfully explored the apparel field, and Shopee under Sea has also successfully captured the Brazilian market. There is no reason why Temu cannot make some achievements. Amazon should be careful.

The relatively relaxed competition environment in the European and American markets, coupled with the recent inflationary pressure on people's lives, are good times for Temu to enter the European and American markets. Temu, who is well versed in marketing, combined with the advantages of China's supply chain, will undoubtedly have the opportunity to create a new world.

Pinduoduo has seized the opportunity of the times. Smart strategies and efficient execution are the key to its success. High-paying recruitment of excellent talents and rapid organizational capabilities have enabled Pinduoduo to quickly gain territory. This organizational strength is undoubtedly very important in overtaking leaders and creating new businesses. Therefore, Pinduoduo can still be optimistic in the long run. Once Temu succeeds, it will unlock a new round of valuation for Pinduoduo.