Alibaba has now launched a discount version of its Taobao platform, and provided some 10 billion yuan in subsidies for its group-buy service.
PDD’s high performance has pushed Alibaba and JD to shift their attention to the sinking market as well, which is poised to be the next battlefield. While Alibaba and JD put their emphasis on capturing city dwellers willing to pay more for better quality products, PDD began on the other end of the spectrum, selling cheap unbranded goods, agricultural products and groceries. PDD’s cheap prices and wide product range appeal to China’s so-called “sinking market consumers,” (下沉消费市场) a term often used by domestic market analysts and media to refer to lower-tier cities, small towns, and rural areas in China. PDD accomplished its explosive growth due as much to its focus on an under-served market segment as its social commerce innovations.
Two of the biggest e-commerce industry players in China, Alibaba and JD, made up the majority of the market cap until PDD pushed its valuation to $70 billion in mid-May. With over 630 million online shoppers, China has the largest and fastest-growing e-commerce market in the world. It also allows PDD to provide a highly personalized shopping experience, built on the back of data gathered via group buying and other social integrations - PDD can recommend users items their friends have purchased, which “helps solve the ‘trust deficit’ of retail in China’s developing cities, where more than 80% of retail is unorganized and consumers rely heavily on social recommendations to initiate transactions.” įollowing is a glimpse of its unique business model, and a close-up on its competitors, partners, strengths and weaknesses. This Facebook-like advertising strategy has reduced marketing costs for PDD sellers, most of whom are relatively small and can’t spare much on advertising. Unlike Alibaba, which has expanded its “search ads” business by acquiring Yahoo, PDD employs “targeted ads” that are closely tailored for each consumer. Targeted advertising: About 80% of PDD’s revenue comes from advertisements. These ‘growth hacks’ range from daily check-in rewards to mini-games like “Duo Duo Orchard” which allows users to water a virtual tree each day until it ‘grows’ large enough that they can receive a box of real fruit. Gamification: PDD employs a range of techniques designed to increase user stickiness and encourage users to share links to the app. PDD users share the deal with their friends via the ubiquitous messaging app WeChat, plugging PDD directly into a powerful advertising network. As PDD users share the deal with more people, they can “price chop” and incrementally bring the price down near to zero if enough people join. Group buying: PDD offers products at a significantly reduced price once a minimum number of buyers sign up for the deal. The company accomplished this with a few key social commerce innovations: It sprinted past the trillion yuan GMV mark after less than five years, shattering the 14-year and 20-year records set by Alibaba and JD respectively. Pinduoduo (Nasdaq: PDD) is one of the fastest-growing internet companies in the world, nearly surpassing Alibaba and JD in gross merchandise value, active users, and revenue growth in just five years, but is much less well-known to global investors.