Something quite remarkable happened in 2018. After hundreds of millions of dollars of investments, and over a dozen years of disappointing attempts from Amazon, eBay, and Walmart, a company little-known outside of China – Pinduoduo (PDD) – finally managed to crack Alibaba and JDs’ ecommerce duopoly in China. Having started just three years earlier, PDD’s 344 million users surpassed JD to make it China’s second-most popular ecommerce platform by users. Yet not all the metrics were rosy – PDD users’ average order value was just $6 at the time, versus $60 on JD and $30 on Alibaba, with two-thirds of sales shipped to tier-3 cities or lower.
Fast-forward two years, and PDD’s momentum doesn’t appear to have faltered. PDD has been one of the biggest beneficiaries of soaring ecommerce usage resulting from COVID, with users in May up 40% in the year to 471 million, fast gaining on Alibaba’s 695 million, which grew 20%. Almost half of PDD’s sales revenue now comes from tier 1 & 2 cities, and the average user spent $34/month over the past year, 47% more than a year ago. This ascension helped see PDD make the top-30 global retail brands in this year’s BrandZ index.
PDD exhibits many of the characteristics that Alibaba did around 2012 and 2013 when Ali felt like more of a challenger brand. Although PDD has a market capitalisation of over $100 billion, its less-polished corporate machine is hungrier, less choosy, less expensive and less contested for foreign brands to list on than Alibaba is today. That could be both a blessing and a curse, but right now it seems to have stuck a chord with many Chinese consumers.
Behind the scenes, PDD is rapidly rolling out many of the strategies which helped drive Alibaba’s success. Last year, the company launched the Taobao University-esque Duo Duo University for merchants to learn step-by-step how to build their digital business.
To help shake off its image of peddling poor quality Chinese-made umbrellas or bed sheets for $1.50 a pop, PDD has enlisted premium foreign brands and products such as iPhones and even Cadillacs to sell at a discount on its platform. Much like Alibaba has done for years, it is now partnering with foreign embassies to promote overseas merchandise to improve its image. With the exception of Denmark and Thailand, the central and eastern European countries that it partnered with in June aren’t origins that are top of mind for many Chinese consumers seeking imported wares, but that may be a smart strategy. Many of these countries haven’t been a focus of Alibaba or JD, they can be lower cost and many are currently seen as more China-friendly than better known origins, which may hold some appeal with consumers. It also plays to Chinese consumers’ thirst for new and novel products.
The initiatives symbolise how PDD is eager to engage foreign brands who are looking to get in front of its 471 million consumers. While brands should be wary that PDD is still considered a discount platform, carefully executed strategies which don’t cheapen your brand and maintain margins could provide another channel to reach a new wave of customers in China.
Although the PDD algorithm is different than Alibaba’s, we found that early adopters on Taobao and Tmall were advantaged as they had a track record of sales and reviews – which consumers like to see – and it was also a lot less contested with lower costs of acquisition in the early days. PDD currently offers a low $1,000 deposit and 0.6% transaction fee to list on the platform. With fewer foreign brands on the platforms, it potentially offers brands an easier pathway to stand out. All considered, it could be a good time to consider listing on Pinduoduo. As always, China Skinny is here to support your strategy development for the platform and everything else in China.
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