Pinduoduo: The New Chinese Ecommerce Giant

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The Next Generation Of Ecommerce

Mobile app Pinduoduo is the self-proclaimed cross between Costco and Disneyland, now the third largest ecommerce platform in China. The app has gained rapid popularity in the Chinese lower tier cities and is now generating a global buzz after the $1.6 billion US IPO late last month. Customers are sharing their purchasing decisions and influencing those of their friends, family, WeChat contacts and other Pinduoduo users into group buying. Think Groupon, but for really cheap packs of tissue. The ecosystem works by customers grouping their purchases – bulk buying spread across the masses.

It is somewhat of a misnomer to label Pinduoduo merely an ecommerce platform, and more accurately described as ‘social commerce’. On traditional ecommerce websites, such as Taobao or Amazon, the search bar is prominently displayed at the top of the page. The search algorithm and range of products are the core of the user experience. The customer enters the item they want, reviews the most relevant returned results and purchases the item of choice.

Notably, Pinduoduo reserves the eye-catching real estate at the top of the screen for special deals and product categories, with the search option relegated to the bottom. This makes the user experience ‘browsing-centric’ rather than the highly transactional process most are accustomed to with online shopping. The effect is to keep users engaged, browsing through the possibilities of products sold at teasingly low prices.

Pinduoduo’s Business Model

Heavy discounts are the reward to encourage the sharing of links to purchase items, which drives sales, lowers prices and creates the ‘viral’ effect at the heart of Pinduoduo’s success. WeChat is the default and primary method for this, although there are plenty of other options to create a buzz around the desired item to entice others into joining the shopping party. Everyone loves a bargain and Pinduoduo is full of them, with the average order value being a mere $6.

However, not all the bargains turn out so well, perishable items are frequently the subject of complaints. Farmers can connect directly to a large customer base to slash prices on aging fruits, similar to how the local supermarket reduces prices as food nears its sell by date. But the popularity of the app in the lower tier cities in China means often the infrastructure is not sufficient to enable delivery before spoilage.

Pinduoduo’s business model is the most intriguing shift in the highly dynamic Chinese ecommerce scene. The platform faces many challenges, not least from Alibaba’s continuing efforts to expand their reach into what is now Pinduoduo heartland. However, if Pinduoduo can keep building their understanding of social networks and nuance of customer behaviour, customers will keep the shopping party going.

Is Pinduoduo Doing Enough To Regulate Their Platform?

Since Pinduoduo’s IPO in July, the company has endured a stream of undesirable media coverage, singling out the app for not adequately protecting the intellectual property rights of establish local and international brands. Companies selling products ranging from televisions to diapers are taking action against PDD to combat the knock-offs flooding the app. As with any other channel of commerce, counterfeits cause confusion amongst shoppers and can devastate a brand’s ability to connect with their customers.

Luxury handbags are a prime target for counterfeiters in China as demand for leading European brands continues to soar. With carefully selected keywords, it is easy to generate pages of search results full of fakes on the leading Chinese ecommerce platforms. Research into five leading luxury handbag designers across Alibaba’s Taobao, Jingdong and Pinduoduo reveals that Taobao continues to lead the way in terms of the sheer scale of counterfeits available. Taobao also leads the way in the ease of finding counterfeits, including items pushed directly to customers in advertisement banners. Given Taobao has more daily active users than JD and PDD combined, this result is somewhat unsurprising, counterfeiters exploit popular platforms to maximise sales.

Despite PDD’s recent negative coverage, it has the lowest rate of counterfeits across the big three Chinese ecommerce platforms analysed. However, such a comparison is overly simplistic, as the three platforms cater to different target audiences. PDD is aimed at customers in China’s lower tier cities and rural areas, with lower incomes than the typical Shanghai shopper. The average order value on the app is a mere $6 – not a price level likely to cause confusion with a legitimate ostrich leather designer handbag.

Future Regulation

Pinduoduo is blighted with another form of intellectual property infringement – “shanzhai” – lookalikes which copy the look and feel of a brand. Using product names resembling well-known brands, with the same colours and packaging designs is commonplace. Discount supermarkets use similar tactics when creating own-brand items, with the lawfulness of their practices being questioned as they continue gain market share. For PDD, this type of behaviour can be highly confusing to customers given the focus on flash sales and time-limited group buys offering substantial discounts to lucky participants. FMCG and apparel are the most vulnerable product categories under threat from such practices, whilst customers shopping for big ticket items such as designer handbags still preferring Tmall or JD.

PDD has removed over 10 million products due to counterfeiting concerns and works proactively to block items before being listed. However, the app desperately needs formalised processes for swift removal of infringing items to truly protect brands from the widespread infringing activity. This goes to show that effective brand protection strategies are not based on pure notice sending, but relationship building with platforms to create environments conducive to commerce. Intellectual property infringements are harmful to both brand owners and ecommerce platforms, with PDD being no exception.

It must be remembered, Pinduoduo has taken a mere three years to attract over 300 million active users on its march to becoming China’s third largest ecommerce platform. The rapid pace of growth has left some brands behind, creating a vacuum then filled with knock-offs. Intellectual property infringement is rampant across the Chinese ecommerce sector and is arguably the main barrier to Alibaba, JD, PDD and co. becoming dominate global platforms.