Pinduoduo’s Next Strategic Move towards Accelerated Transformation
Pinduoduo seems continuously struggling to further expand its China market according to some Chinese media, but this is not the true story.
Pinduoduo (拼多多) had a pretty bumpy start at the beginning of 2019, breathing through the criticism from some of the Chinese media. Though being challenged by facing stagnation in the expansion, actively searching methodologies to overcome the obstacles, the company had a shining performance last year.
In its third-quarter financial report, from September 30th in 2017 to September 30th, 2018, Pinduoduo's active member number increased 42 million, reaching 385.5 million, registering a 144% of growth. What's more astonishing is the company is not yet 3 years old, but already surpassing the No.2 E-commerce company – JD.com in customer volume of 80 million.
Despite the accusations on Pinduoduo selling fake products, it's undeniable even for a few Chinese media castigating the company that it indeed registered a success, and the major contributing factors behind its triumph are the following two:
1.The magic which lures more customers in without costing a penny
2. Significantly lower price compared to its competitors
The different shopping experience on Pinduoduo
The biggest distinction in user experience between Pinduoduo and JD.com (京东) as well as Tmall (淘宝天猫) is, every time user launches a deal, a message pops out strongly suggesting the user find friends or relatives to launch a group sale, also, adding time pressure to the action. "Time is running out, please find someone to purchase it together, you will get a better deal!". For new users, this message presses them to consider finding someone to get a better deal. After all, the user's friends and relatives may as well need the product, and it is, indeed, a lot cheaper than purchasing through other channels.
This is, in fact, a very smart if not shrewd strategy to get large customer flow, and it almost does not cost a dime. It's more like a psychology trick, yet very ethical. If the company stops there, say, if the customer does not want to make the effort to find another customer for the platform, and the platform hence resists the selling to the customer at low price it promised, she or he might as well feel being fooled by the platform and leave, never come back. What's interesting is, Pinduoduo labeled the higher price, which is the common price generally set by JD.com and the like on its website, right next to the low price Pinduoduo could offer to its customer, which makes customers feel they have got a great deal; and the company did not stop there, it actually allows the customer to get the low price deal through buddying-up with any stranger who wishes to purchase the product instead of finding a person to form a group by him or herself.
The algorithm which takes all the credits
The algorithm behind the platform allows a certain time frame for the customer to find a buddy in the group buying action, again, if you do not wish to wait, you can find another "customer" and get the product shipped as soon as possible, the platform helps to record every progress of your purchase, and sends you the notifications of whether the algorithm successfully found you the match or not, which in a way, further adds a bit of time pressure to the customer, a bit of excitement and expectation, and provide the customer the sense of ease and security during the entire process.
The algorithm would always be able to find the magical "match" if the customer is patient enough, and it's always a pretty much enjoyable journey for a purchaser. De facto, even if the algorithm failed to find the customer the match, which very rarely happens, the platform allows you to get the low price deal relying on a special "Buddy-up Free" scheme. Because the possibility of this is very low, the company's balance book would not be compromised by these very occasional incidents.
Cooperation with other brands
In fact, many famous brands have established cooperation partnerships with Pinduoduo already, including top luxury brand Giorgio Armani. These negate the logic SinaTech (新浪科技) described, of famous brands cannot cooperate well with Pinduoduo because customers on Pinduoduo do not recognize brands, which is a conclusion quite interesting if not bizarre. It turns out brands will lean towards to you when you are becoming the largest market share occupier of the industry.
Psychology theories suggest that the more emotional and physical efforts inputted in either a relationship or an event, easier for participants to engage more and stick with it. When customers see the records of his or her purchasing on the platform, with all the details about every progress, it enables the customer a feeling of being emotionally involved in the procedure, it's quite difficult for the customer to back out during a purchase.
Though the glorious past performance lingers, the company has to face with the struggle in further expanding adopting genius ideas, highly possibly, involving stealing customers from JD.com and Tmall the like.
But how? To cooperate with small to medium scale manufacturing bodies is no doubt, so far, the best and most smart strategy to adopt to retain its paramount competitive edge, compared with JD.com and Tmall, of offering very low price via the form of group buying. According to Jiemian News (界面新闻), Pinduoduo launched its cooperation plan with small to medium scale manufacturing bodies in December 2018, preparing to support 1000 factories to promote their brand, the first batch includes good but very fresh brands like Jia Wei Shi (家卫士), Song Fa China (松发陶瓷), China Sanho (三禾厨具), Bai Ya (百亚), Fu Guang (富光) and so on covering many industries.
In the article published on SinaTech mentioned above, the author argues that the manufacturing bodies Pinduoduo chose are sacrificing their own profit margin for recognition from the public in the long term; however, the alliance is not strong enough since these manufacturers will not search for long term cooperation because once the goals are reached, they will leave for better partners.
However, the interesting fact is more and more famous brands are settling in Pinduoduo's platform. It's highly possible that these manufacturers are gaining support from Pinduoduo, at the same time, enjoying the large customer flow it is creating. Furthermore, these small to medium scale companies lack sufficient fund to burn into marketing for itself, the recognition of their brands can more easily be obtained through the growth in sales, which thanks to Pinduoduo's large customer pool, seems not so difficult to realize.