The brains trust at Amazon are likely to be scratching their heads wondering how that happened. After spending hundreds of millions of dollars and 14 years to wrestle market share from the almighty Alibaba and JD-Tencent-Walmart syndicate, they have managed just a meagre 0.7% share of ecommerce retail in China. Ebay suffered an even worse fate after throwing hundreds of millions at China before effectively giving up on the market in 2006.
Yet in less than three years, ex-Google engineer Colin (Zheng) Huang has managed to defy all odds with his ecommerce platform Pinduoduo. Not only has he blindsided Alibaba’s rural operations, he has also surpassed JD’s daily user count by cleverly targeting China’s underserved smaller cities. 65% of his 343.6 million active buyers live in third tier cities or lower.
“The new consumer economy isn’t about giving Shanghainese the life of Parisians. It’s about providing paper towels and good fruit to people in Anhui province,” says Huang. The strategy has paid off. Pinduoduo’s IPO last week valued the company at $23.8 billion, catapulting him to become China’s twelfth richest person.
Pinduoduo has also changed the online shopping experience into a social one where users are constantly reminded of other shoppers and their friends incentivised to join – something that has a struck a chord with lower tier shoppers who have traditionally been less forthcoming about buying online. Every Chinese consumer loves a deal, but those in smaller cities are the most price sensitive, unable to resist ten boxes of tissues for $1.90, bed sheets for $1.50, umbrellas for $1.51 and PCs for $150, even if there’s a good chance of fakes. Unlike the search-focused interfaces of Taobao and JD which deliver thousands of results, Pinduoduo displays products more like a news feed with a few hero products, making the whole experience less overwhelming and more fun for many.
There are countless takeaways that we can learn from the success of Pinduoduo; here are four that we found particularly interesting:
The power of social advocacy shouldn’t be underestimated in China. Pinduoduo has done a remarkable job of tapping into shoppers’ WeChat contacts and taking them along for the ride by incentivising them with discounts, prizes and even free goods;
And lastly, much like we saw with Luckin Coffee a few weeks ago, even markets like ecommerce that appear to be sewn up by the giants can still be ripe for the picking. The speed, complexity and fragmentation of China’s growth is constantly opening up gaps and new opportunities, some which may turn into $23.8 billion operations giving the gorillas a run for their money.
But don’t go flipping the birdie to Alibaba and JD just yet – they may be expensive, hyper-competitive and in many cases unprofitable, but Pinduoduo is unlikely to be a white knight for many foreign brands at this point in time. The average order value is just $6, compared to $60 on JD and $30 on Alibaba’s platforms. Discounts as much as 90% are not a sustainable strategy we’d recommend for the guardians of premium products that form the faithful Skinny readership. But take the opportunity to learn some good lessons from Pinduoduo’s success, keep abreast of how it evolves and give China Skinny a call to ensure you have the optimal ecommerce and marketing strategy for China. Go to Page 2 to see this week’s China news and highlights.