Pinduoduo platform operation and promotion strategy!

There is no doubt that price is Pinduoduo's advantage and also the basis for it to challenge Taobao.

But Pinduoduo, with 430 million monthly active users and millions of merchants, is already large enough. In such a huge system, it is not an easy task to maintain long-term stable low prices.

So how does Pinduoduo control prices? At the platform operation level, what strategies and rules ensure the stability of the entire ecosystem?

In fact, Pinduoduo’s price control is not aimed at all products on the platform, but only at those products that are on the platform’s resource position and those hot-selling products. This is easy to understand. On the one hand, the platform's total product pool is very large, and the number of products may be hundreds of millions. If the prices of all products are controlled, the cost will be astronomical. On the other hand, there is no need to control the prices of all goods, because most goods have little traffic and little transaction volume, so there is no point in controlling prices. Therefore, after weighing the pros and cons, the most cost-effective option is to control the prices only for core best-selling products and high-quality goods. In fact, this is what Pinduoduo does.

1. Primary Strategy - Price Control at the Event End

There are many activity resources on Pinduoduo, and the picture below is just a regular part of them.

Merchants can sign up for these activities through the backend, and when signing up for the activities, they will be subject to strict price controls.

1.1 Price control during registration

The first hurdle is the price control during registration. Some activities will directly require the product to be 50% off the daily price, and some activities will require it to be the lowest price in history within 30 days. The picture below is an example of a merchant registering.

If the price is higher than the required discount when actually registering, then registration will not be possible. Even when registering for certain activities, the system will calculate a suggested price based on specific logic, and the activity price registered by the merchant cannot be higher than this suggested price. Pinduoduo achieved the first step of price control by controlling prices during event registration.

1.2 Price control during audit

Based on the real feedback from many merchants and the post information in Pinduoduo's merchant community, we can infer that Pinduoduo's review process has several steps. The first is the system's automatic price review. Pinduoduo has an internal price comparison system that can capture all the same products on the entire site and compare them together. This is equivalent to the entire industry, where among all highly similar products, only the one with the lowest price can be included in the event.

What is the concept? For example, some standard products, such as grain, oil, and department stores, at a glance, almost all of them are the same in the industry. This means that the system has to filter out the lowest-priced one from dozens or even hundreds of the same products, which also makes the industry competition very fierce. This fierce competition also forces merchants to constantly bargain with each other to lower prices, ultimately lowering the average market price of the entire industry. Frankly speaking, those who can win in this kind of price competition are often large factories in industrial belts or large traders with extreme price advantages.

Of course, the price comparison of the system follows certain rules. First, the prices of products from well-known brands will definitely not be compared with those of white-label (no-brand) products. For example, the price of Estee Lauder's foundation will only be compared with the price of the same model of Estee Lauder's foundation.

Second, compare prices only when the materials and specifications are the same. For example, among shirts, pure cotton ones are only compared with pure cotton ones, and polyester ones are only compared with polyester ones. Even if two shirts look exactly the same, they will not be compared together as long as the materials are inconsistent. Because different materials correspond to different production costs, if prices are randomly compared across materials, it will lead to the phenomenon of bad money driving out good money, that is, merchants cut corners and use worse and worse materials. The comparison of materials is quite strict. For some special industries, the percentage of cotton content is required to be exactly the same.

However, it must be admitted that even with complex specifications, this price comparison system is not omnipotent. For example, almost all cotton textiles have "workmanship" and "accessories". Accessories are the buttons and zippers of clothes, and workmanship refers to whether it is hemmed, double-layered or single-layered, and other technical differences. These factors are difficult to quantify into numbers, and even each batch of goods produced in the factory is different. Because of this difficulty in quantification, computers cannot make comparisons. But workmanship and auxiliary materials sometimes do affect the production costs of merchants and the consumer experience. When goods with high-quality workmanship and high-quality auxiliary materials are compared with inferior products, it is unfair to good merchants. But from another perspective, absolute fairness does not exist.

Then again, the system price comparison is only a preliminary review. After the initial review, there is also manual price comparison. Manual price comparison refers to Pinduoduo's operations staff, who will manually check the prices again. This is the time to compete in labor, which is also one of the reasons why Pinduoduo employees work 996. It is rumored that one Pinduoduo employee is doing the work of three...

1.3 Continuous price control during the activity period

When a product passes the price comparison during registration and the price comparison during review, it will finally be included in the event after passing multiple tests. Can we breathe a sigh of relief now? Of course not, the price comparison business never stops.

The products in the event will be randomly inspected in real time. Some branded products will be compared with similar products on Taobao, Tmall, JD.com, etc., especially during the Double 11 promotion. If the price of the same product on the competing platform increases (meaning a temporary price reduction), then the price of the same product on Pinduoduo will also be reduced accordingly, ultimately maintaining a lower price than competitors.

At this point, everyone may have a question: since the price comparison is so strict, will the merchants suffer serious losses? Why do businesses still hold activities? Because businesses need traffic. Only with traffic can there be conversions, transactions, business and profits. If merchants do not hold activities, then their only way to obtain traffic is through paid advertising. Advertisements are usually charged on a per-click basis, which can easily lead to an embarrassing situation where clicks are high but conversions are low. Therefore, merchants need to participate in activities to obtain traffic, and the platform, which holds the traffic, can of course use it to ask merchants to lower prices.

2. Advanced Strategy - Magical Bidding System

In fact, price control at the event end is a routine operation that any e-commerce platform will have. Pinduoduo just controls prices more strictly. The bidding system we are going to talk about next is Pinduoduo’s original creation! There are absolutely no similar rules on platforms such as Taobao and JD.com.

Its core point is "traffic redistribution", that is, if another merchant can offer a lower price for a popular product on the platform, it can replace all the traffic of the original product. When merchants bid, they are blind and do not know the bids of their competitors. At the end of a bidding period, the item with the lowest bid wins.

The bidding system is a genius idea. Perhaps it was inspired by antique auctions and government bidding. Pinduoduo's bidding system takes the essence of these systems and integrates the characteristics of the platform itself, and was finally designed into its current form.

For the platform, this system creates a fierce market competition environment, greatly improving the turnover rate of hot products. At the same time, it also ensures that the platform can obtain a steady supply of low-priced goods, allowing the platform's overall commodity environment to tend to be stable and low-priced in the long term. On the platform, it is impossible for any merchant or any ordinary product to obtain excess profits. Once a merchant raises prices, his competitors will immediately participate in the bidding, replace his traffic, and cause the original merchant's sales to plummet. Unless the product has a special patent or a well-known brand as a moat.

The bidding system is very cruel to merchants. But real business competition is so cruel. Products without patents, brands or characteristics can only compete on price. There are constant hand-to-hand price wars between merchants. According to a real Pinduoduo merchant, every time a bidding activity begins, he will stare at the computer all night. The next day, the circle of peers will discuss who has bid against whom. They guard against bidding like they are guarding against thieves. It’s better now that the platform traffic is dispersed. Last year, a single bid could kill a hot-selling product with sales of over 100,000.

In the end, it is the consumers who truly benefit from the bidding system. To some extent, Pinduoduo is indeed practicing its slogan: giving consumers more benefits.

Of course, there are many conditions and restrictions in the bidding activities. For example, the product must be of the same style in order to be eligible for bidding, and the same style means that the similarity must reach a certain level. So how do you identify the same model? The judgment is mainly based on the appearance of the pictures, brand authorization, material, specifications and dimensions. At the same time, the merchants will be asked to send samples before bidding. There is a special sample review team to determine whether the goods are the same. Inferior goods and goods that are short in weight will be cut out at this stage.

However, it should be emphasized that there is no perfect rule in the world. The bidding system is also unlikely to be perfect. For example, if a merchant sells a mixture of good and bad goods, and the quality of each production batch is unstable, this problem cannot be avoided.

But in general, Pinduoduo's bidding system effectively ensures the liquidity of the platform's products and controls the long-term low-price stability of the price system. This operating strategy can be said to be very innovative.

The core value of an e-commerce platform lies in connecting and reorganizing products, consumers, and scenarios, which is actually Tmall's classic "people, goods, and places" theory. Among them, commodities and their prices are a very critical factor in the entire industry chain.

By observing Pinduoduo, we can find that it has implemented the principle of low prices to the end in its platform operation strategy. Whether it is price control on the activity side or the unique bidding system, it has maintained the platform's long-term low-price ecology. The low-price advantage is Pinduoduo's basic advantage. At least from the current perspective, Pinduoduo's basic advantage is still relatively solid.

Of course, Pinduoduo has recently been focusing on hundreds of billions of subsidies (high-unit-customer brand goods), employee in-app purchases (mini programs), live broadcasts, various small game scenarios, etc. These are potential incremental parts for the future, which is, of course, another topic.

Author: Chai Ji

Source: Chai Ji