How Pinduoduo rewired online shopping
SEOUL: When Pinduoduo, the Chinese discount shopping app, debuted nearly a decade ago, tech giants Alibaba and JD.com dominated China’s e-commerce business.
Pinduoduo felt more like a gimmick than a future rival. It was a combination of a game arcade, a shopping mall and a social network. Its main selling point was lower prices for shoppers who recruited other buyers to make group purchases. Customers could pass the time by playing video games or earn money by logging in daily to browse the app.
Now, no one is taking the company lightly.
Pinduoduo is the sister company of Temu, the bargain shopping app that has amassed tens of millions of users outside China, including in the United States, where it is spending billions of dollars on promotion. Americans who haven’t used Temu yet have probably seen its Super Bowl ads or Instagram posts.
Like TikTok, Temu is the foreign version of a highly successful Chinese company. As its popularity has grown in the United States, its business practices have also come under scrutiny. Members of Congress have questioned whether it is providing a US channel for products that are made in China using forced labour. It has encountered criticism for its labour practices and failure to enforce intellectual property laws.
Inside China, Pinduoduo has also been gaining more attention. As a popular destination for inexpensive groceries and household items, it is now closing in on JD, China’s second-biggest online retailer, in terms of market share. And when it briefly overtook Alibaba as the country’s most valuable e-commerce firm last year, Alibaba’s founder, Jack Ma, sent an internal memo imploring his company to “change and adapt” to keep up.
Last month, PDD Holdings, the parent company of Pinduoduo and Temu, reported that its annual revenue nearly doubled in 2023, while Alibaba’s and JD’s revenue grew less than 10%. The company called the result a “pivotal chapter” in its history.
MISTAKEN BELIEF
Pinduoduo has successfully capitalised on one of China’s biggest economic challenges: sluggish consumer spending and falling prices for food and other items. As the country’s growth has slowed, consumers are embracing a lifestyle of so-called downgraded spending centred on Pinduoduo purchases.
It was different when Pinduoduo emerged in 2015. China’s rapid growth over t he preceding decades had instilled confidence that an expanding middle class would continue to flex its newfound wealth with lavish spending.
Around that time, Alibaba opened a chain of supermarkets, selling king crab legs, 30-year-old single malt Scotch whisky and other luxury items. JD started an e-commerce portal called Toplife for premium brands.
“The biggest mistake at the time was this belief that China had become filled with middle-class consumers, and that it would just go up and up into the future,” said Robert Wu, editor of the Baiguan newsletter, which is focused on investment and business in China.
In a 2018 interview, Pinduoduo’s founder, Colin Huang, who is now China’s second-richest person, said it was trying to satisfy not just China’s nouveau riche but also people outside of “Beijing’s fifth ring,” a colloquialism for financially struggling people who live far from China’s main cities.
Pinduoduo, which did not respond to requests for comment, grew by wordof-mouth because it offered steep discounts. Sharing the bargains online was easy because Pinduoduo was deeply intertwined with Tencent’s WeChat, a ubiquitous messaging service in China. Within one year, Pinduoduo had 100 million users. After five years, it surpassed Alibaba with 788 million users.
‘FACEBOOK FOR SHOPPING’
In a 2023 report, Goldman Sachs estimated that Pinduoduo accounted for 19% of China’s e-commerce market by value of products sold, compared with 20% for JD and 41% for Alibaba.
Shoppers on Pinduoduo deal directly with suppliers, farmers and manufacturers to get low prices. The company keeps its fees to users and sellers low, and has avoided heavy investments by outsourcing its logistics to other companies. Huang once said he wanted Pinduoduo to be like Facebook for shopping, a place where people gathered without necessarily intending to shop.
After Pinduoduo’s success, social commerce is now the norm in China. Every e-commerce app features live shopping with influencers testing new products and responding to user questions. Some of China’s biggest social networks are shopping destinations. These include Xiaohongshu, the country’s version of Instagram, and Douyin, the app owned by ByteDance, which runs TikTok outside China.
The main appeal of Pinduoduo is its shockingly low prices. A 5.5-pound box of cherry tomatoes costs about $4.50, but the price per box is cut in half if another person joins to make a “team purchase.” A dozen rolls of fiveply toilet paper cost 80 cents. Both are delivered free.
In its early days, Pinduoduo was overrun with knockoffs. It took aggressive steps to address the issue. Buyers who receive counterfeit goods are eligible for a refund of up to 10 times their money from the seller. Sellers provide a refund with no questions asked if a customer is dissatisfied with a purchase.
Rainbow Wang, an English teacher in Beijing, said she was a devoted Pinduoduo shopper for items such as fruit, vegetables, rice and yogurt. She gets even bigger discounts by paying for a $1.50 monthly membership.
Wang said she loved the low prices, free shipping and generous return policy. There used to be more discounts, she said, but she will continue to shop there because “its stuff is still cheap.”