The surge in PDD’s revenue and market cap, surpassing Alibaba Group, has generated significant buzz in the last few weeks, but the impressive ascent is based on social commerce incentivised with aggressive discounting, writes WPIC's Jacob Cooke.
Understandably, PDD’s overseas platform Temu is a big focus of Western media because more and more Western consumers are using it.
But PDD’s growth as a company is primarily a story about the China Pinduoduo marketplace and the evolving China’s e-commerce landscape. PDD doesn’t break out the revenue it earns from each platform, but Temu will book around USD 14 billion in sales in 2023—and Pinduoduo will book around US$500 billion.
So what’s behind Pinduoduo’s rapid growth in China—and what does that mean for other platforms and brands?
It’s ultimately about two trends reshaping the e-commerce landscape in China: social commerce and aggressive discounting strategies.
Pinduoduo’s group-buying feature leverages the power of social networks, incentivizing users to encourage their contacts to make purchases to obtain reduced prices. Pinduoduo is integrated into the ubiquitous WeChat ecosystem in China, which has proven to be a highly effective growth tool. There’s no direct competition for this powerful social commerce model in the West.
However, Pinduoduo primarily moves commodity-oriented, functional products. Pinduoduo was founded with a consumer-to-manufacturer (C2M) model that connected suppliers to consumers, with the intent of catering to a lower-spending demographic. (Temu takes this C2M model global, by connecting the same Chinese suppliers to consumers around the world). Pinduoduo then supplemented the C2M model with high platform-level discounts. Pinduoduo has expanded beyond its original target demographic with many higher-spending consumers coming on the platform to seek savings on everyday essentials, as certain segments of the consumer base are price-conscious.
Some brands have gone onto Pinduoduo as a means of reaching new customers and shedding inventory—kind of like a digital outlet mall—but the volume remains low. Pinduoduo presents challenges for vendors, including stringent return policies, less dynamic ad tools, and a consumer perception that the platform is for cheap goods. There is also a prevalence of fake goods on Pinduoduo, so consumers are hesitant to buy expensive products—for example it’s possible to purchase a full set of “new” TaylorMade Golf Company irons for $125 USD.
For premium brands, establishing a presence on Pinduoduo could potentially dilute brand equity.
In general, consumers aren’t yet looking to Pinduoduo to buy brands—and as for brand strategies, we continue to advise that Tmall should remain the cornerstone of a China e-commerce program. Brands should be activating on multiple channels. Douyin is a more brand-friendly social commerce platform than Pinduoduo. Alibaba has invested for over a decade in building consumers’ trust, including a system that guarantees authenticity on Tmall.
