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February 26, 2019

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E-tailer sets its sights on unsophisticated buyers

EVERYONE in China has probably heard of Taobao, TMall and, among other giant online buying sites, but many elderly people and residents of smaller cities and rural towns don’t necessarily have the digital sophistication needed to type in keywords, search for products, compare prices and place orders.

Enter Pinduoduo, a Shanghai-based platform created in 2015 that combines e-commerce and social media. It is tapping a neglected niche in e-tailing, and so far, it’s been successful.

It works something like this. Users on popular social media sites like WeChat and QQ are encouraged to invite friends and family to form “shopping teams” to get better group discounts on products. Links to Pinduodo merchandise — from groceries and electronics to personal care items, clothing and toys — are transmitted through the social chatter on WeChat or other online sites.

This sort of viral marketing ensures people are sharing product information with peers who have similar incomes and preferences.

Pinduoduo doesn’t cater to luxury brands, but rather concentrates on lesser brands with prices attractive to people with little computer savvy or interest.

Its business model allows middlemen to be bypassed by shipping directly from manufacturers. Discounts on products can be as high as 90 percent.

By the end of last year, its consumer base rose to 418 million and gross merchandise value in 2018 added 2.3 times from a year ago to 471.6 billion yuan (US$69.4 billion). The average spending of each active buyer doubled to 1,127 yuan.

Since last August, some 600 million pieces of merchandise were sold through brand flagship stores on the site, with the majority going to smaller cities.

“Pinduoduo has successfully built up its impact in lower tier cities, and older, more established players are still lagging behind because they associate user behavior with that of mature markets,” said Cao Lei, director of the China E-commerce Research Center. said Pinduoduo’s phenomenal rise has been called “consumption downgrading” in an era when most e-tailers have been focusing on “consumption upgrading.”

Whatever the truth of the business model, investors are taking note.

The company has attracted investment from Tencent and other players, and last July it listed on the Nasdaq market in the US in an initial public offering that raised US$1.6 billion.

The stock was trading at about US$28 last week, up from its offer price of US$19.

This month, the company announced a public share sale of more than US$1 billion in additional shares.

The platform was founded by Huang Zheng, also known as Colin Huang, who used to work for Google and had started online gaming business before he launched Pinduoduo.

Pinduoduo has had to overcome some birthing pains.

There was criticism about rampant knockoff products being sold on the platform, such as diapers under the brands Parmebos or Parmepas, with product photos that looked like Pampers diapers, or TV sets marketed under Shaasung or SumSung brand names.

Pinduoduo has since removed dodgy product listings and has closed loopholes.

The platform is now trying to shed its image as a purveyor of cheap, low-quality products by introducing new features, such as live-streaming of manufacturing processes at factories producing the goods it sells.

It has also invited manufacturers to join a program in which it helps factories to enhance their supply-chain efficiency.

Shanghai-listed Guangdong Songfa Ceramics was among the earliest to join a trial program initiated by Pinduoduo that allows original equipment manufacturers to lift the profile of their products to online shoppers.

Leveraging Pinduoduo’s extensive reach, Songfa has saved offline distribution costs amounting to nearly 60 percent of the retail prices, according to Lu Shaoxin, marketing department general manager.

Jiaweishi, another merchant on Pinduoduo, makes home-cleaning robots for overseas home electronics companies. It is now offering a tailor-made version at a cost at least 100 yuan less than the similar products on other e-commerce platforms such as Tmall and

“These mechanisms allow manufacturers to respond swiftly to consumer demand since the online retailers are providing an efficient feedback to the factories,” said Professor Ju Xuenan at the Central University of Finance and Economics.

Regional brands have traditionally suffered from too few channels to promote their products beyond local borders.

A select 20 factories have set up live-streaming services where shoppers can take a peek at their manufacturing processes.

Pinduoduo is also requiring factories to produce quality assessment reports and document the sourcing of traw materials.

Live-streaming may prove successful in attracting new buyers, but some express doubts that it can actually help build consumer trust.

“For brands I trust, there’s no necessity for me to look at the production process,” said Shanghai office worker Crystal Hu. “It’s not possible for a shopper to look at the live-streaming process for every potential purchase. It may attract buyers with little online shopping experience, but discerning buyers have many more ways to learn about and compare products.”

Hu said she frequently purchases merchandise on Taobao but seldom uses Pinduoduo.

Pinduoduo said it is also offering more “fun” functions. For example, users can grow a virtual tree in an orchard and receive an actual package of fruit as a reward when their tree bears fruit.

These little tricks, according to founder Huang Zheng, aim to offer an entertaining shopping experience as well as value for money.

Other e-commerce players, such as Suning and Taobao, have also adopted strategies to deepen collaboration with manufacturers.

Taobao said it is aiming to forge links with as many as 10,000 manufacturers in the next three years to help them improve the supply chain models, and, at the same time, offer value-for-money deals to shoppers by cutting distribution costs.

Most of the candidates in the trial program are home electronics, consumer goods and apparel makers.

Industry watchers said it’s a reversal from the emphasis online shopping platforms have placed on helping consumers find products.

Under the new business model, they are helping manufacturers find potential buyers to bring supply and demand forces in more direct contact.


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