How does Pinduoduo deeply tap into the number of WeChat users?

Pinduoduo pays more attention to the understanding of "people". Relying on the massive users of WeChat , it shares and recommends products through "people" and then finds suitable "people" through products. It not only quickly acquires a large number of users at a low cost, but also reduces the time users spend making decisions.

Since e-commerce took root in China in the 1990s and Taobao was established in 2003, China's e-commerce has entered a period of rapid development. Alibaba and JD.com are competing for supremacy in the field of comprehensive e-commerce. Traditional enterprises such as Suning and Gome are constantly expanding their territory in the e-commerce field through digital development. Vertical e-commerce companies such as Jumei and Miaya Baby have established a foothold in niche fields by intensive cultivation. In the current e-commerce landscape, almost every field is saturated. At the same time, as the Internet 's demographic dividend gradually reaches its peak and traffic acquisition becomes increasingly expensive, it is becoming increasingly difficult to break through the competition in the e-commerce field, and there seems to be no way out at all.

In 2017, when the entire industry was focusing on new retail and exploring various possible breakthrough models, Pinduoduo, which had only been established for two years, emerged in the public eye with its rapid rise: in December 2017, Pinduoduo's users exceeded 300 million, ranking third, second only to Taobao and JD.com; in January 2018, Pinduoduo's GMV exceeded 40 billion. It started out as silence, but by the time one heard about it, it was already a giant that could not be ignored.

Pinduoduo calls itself a social e-commerce platform with a C2B model:

• On the one hand, it deeply integrates "e-commerce" and "social networking", allowing users to purchase goods at preferential prices by participating in or initiating group purchases with family and friends;
• On the other hand, the platform drives upstream supply-side production and circulation by rapidly aggregating large amounts of demand. In the group-buying world created by Pinduoduo, social sharing is at its core.

When a user selects a product and sends a group purchase invitation to his friends, the initiator can purchase the product at a low price if the group purchase is successful. People who passively participate in the group purchase have more opportunities for non-purposeful shopping. Under this model, Pinduoduo achieved rapid dissemination and fission by leveraging WeChat's massive active users and low-priced popular products .

Figure 1: C2B social e-commerce model

1. Traditional e-commerce logic

• Acquire new users through marketing and promotions, and convert traffic into orders;
• Establish a smooth shopping experience and provide high-quality products and services to achieve user retention and repeat purchases;
• Use product and content recommendation and search mechanisms to help users quickly find the products they want;
• Attract merchants to settle in, provide new channels to sell goods, and achieve win-win results for all parties (for platform-based e-commerce);
• Build/enhance warehousing and logistics capabilities;
• The above points are repeatedly verified and optimized through data operations .

Under this logic, two problems emerge:

• First, the customer acquisition cost of e-commerce platforms is getting higher and higher;
• Secondly, the need for service scope and product categories is constantly expanding, which to some extent makes users lost in the search and selection of massive products, and the purchase decision time is prolonged.

2. Pinduoduo’s logic

Pinduoduo takes a different approach:

• With sharing as the main entry point, it spreads rapidly on social platforms through the form of "group buying";
• Social attributes and high cost-performance ratio stimulate non-rigid shopping demand;
• Focus on product sharing and recommendation, launch low-priced and popular products, and use products to find the right people;
• Add interactivity and fun to the traditional shopping process to create a shared shopping experience;
• By creating economies of scale through group buying, merchants/manufacturers with large quantities of goods will be connected with users to achieve resource balance.

Pinduoduo pays more attention to the understanding of "people". Relying on the massive users of WeChat, it shares and recommends products through "people" and then finds suitable "people" through products. It not only quickly acquires a large number of users at a low cost, but also reduces the time users spend making decisions.

Figure 2: Analysis of Pinduoduo’s business logic

3. Pinduoduo’s core scenarios

Pinduoduo’s core user scenarios can be divided into the following four categories:

• Go to group order directly: After finding the product that meets your needs, initiate a group order;
• Participate in group buying: After discovering suitable products through sharing or browsing information, participate in group buying;
• Bargain for free: Invite WeChat friends to help bargain;
• Individual purchase: If you purchase individually without participating in a group purchase, the individual purchase price will be higher than the group purchase price.

In most application scenarios, Pinduoduo includes invitation or sharing links, which enables in-depth mining of the number of WeChat users and user relationships.

Figure 3: Group buying user flow

Although low prices and group buying are common methods in e-commerce, Pinduoduo has chosen a more targeted user group on this basis and pays attention to user experience and feelings.

• Through the low-price model, it targets married women in third- and fourth-tier cities, knowing that they need products with higher cost-effectiveness, and allowing them to complete group purchases again and again in their spare time;
• Create a feeling of "small happiness" and share this feeling of "small happiness" with their relatives and friends, and buy low-priced and applicable goods together;
• The ultra-low price lowers users' psychological expectations and creates a feeling that "buying is making a profit"; and because of the attraction of low prices, some users will continue to shop on Pinduoduo.

4. Pinduoduo’s operating model

Since its establishment in September 2015, Pinduoduo has transitioned from the exploration stage to the growth stage, adopting different operating models during the exploration and growth stages.

Figure 4: Platform life cycle (data from Pinduoduo official website and E-commerce Research Center)

4.1 Platform Exploration Period

• Strategic positioning: Focus on "social e-commerce" and position the target group as price-sensitive people, solving the problem of how users can buy high-cost-effective products;
• Category: The products launched at this stage are mainly fresh food and daily necessities that users buy frequently. The price-performance ratio of the product itself is more important than the brand content.
• Operation: Operation advertising and marketing investment are concentrated on attracting investors and the back-end industrial chain; the user side mainly leverages the influence of WeChat mini-programs and WeChat's massive active users, continuously draws traffic to the platform through WeChat recommendations and sharing and low-priced hot-selling products, and retains users with the help of marketing centered on low prices and sharing.

4.2 Platform Growth Stage

After the exploration period of verification and accumulation of "social e-commerce", the target population was gradually expanded to price-sensitive users across the entire network and full-category operations were achieved to meet users' needs of "buying whatever they want".

The operational strategy on the user side has also begun to change:

On the one hand, it has continued to make efforts in marketing and promotion , placing advertisements in subways and bus stations in first-tier cities and sponsoring popular variety shows and film and television dramas. At the same time, the "divine song" "Pinduoduo" has also become well-known. Since then, Pinduoduo is not just a place for sharing products and bargaining together in chats with family and friends, but has completely entered the public eye.

On the other hand, Pinduoduo began to pay more attention to user word of mouth and establishing a positive platform image, continued to increase its efforts to combat product counterfeiting and optimize after-sales service, and gradually directed users obtained from WeChat to its own App.

5. Pinduoduo’s inspiration

Figure 5: Pinduoduo’s strategy, tactics and opportunities

5.1 Mingdao: Return to the essence of retail, focus on the experience of “people” and stimulate potential demand

Among the three elements of retail, "people", "goods" and "place", traditional retail usually pays more attention to "goods" and "place", mainly focusing on how to expand productivity to produce more products and how to find more channels for sales, but often ignores the real needs of actual consumers. Focusing on the “people” experience and stimulating potential needs means:

• Have a deep insight into user needs and the emotional experience behind them. For example, Pinduoduo targets people who are sensitive to prices, satisfying both their needs for purchasing goods at low prices and their desire for the "little happiness" and the feeling of "making a profit when buying" of purchasing practical goods at very cheap prices.
• With the help of digital technology, we can establish diverse and efficient ways to connect with users, capture user information and perceive consumption needs in a timely manner, and establish consumption scenarios that transcend spatial and temporal limitations, constantly stimulating and satisfying user consumption needs. For example, Suning launched the "Smart Xiaobiu" product, which is an artificial intelligence speaker. Users can place orders and check express deliveries directly on the Suning.com e-commerce website through voice instructions. Suning uses Internet of Things and artificial intelligence technologies to connect users with its powerful retail resources, which not only simplifies the shopping process for users, but also provides more retail entrances for Suning itself.

5.2 Taking advantage of the situation: Creating refined operations under the trend of consumption upgrading

The diversity of Chinese society has resulted in a structural stratification of consumption: from "nowhere to buy" to "price sensitive", from "price sensitive" to the pursuit of "quality and experience", from the pursuit of "quality and experience" to the pursuit of "simplicity and health", etc. Different operating strategies need to be adopted for different consumer groups. Overall, residents in high-tier cities pursue high quality, focus on consumption experience, and are willing to pay for brand premiums and emotional value based on the value of the product itself. Low-tier cities are still in the price-sensitive and "enough is enough" stage, and the needs of this group of people are often ignored by mainstream companies and platforms. Pinduoduo just seized the opportunity. While e-commerce leaders such as Alibaba, JD.com, and NetEase have been focusing on the mid- to high-end consumer market in recent years, Pinduoduo has occupied the market in lower-tier cities with its price advantage, while also satisfying the "consumption upgrade" needs of residents in lower-tier cities.

The structural classification of consumption has brought more segmented user groups in the same field. Traditional retail companies need to assess the situation and work hard on user operations :

• From a macro-strategic perspective, we select target user groups based on platform positioning, continuously monitor and evaluate the matching degree between platform positioning and target user groups, and constantly review and optimize the way of connecting users, so as to deliver the most effective and attractive information to users who need it most or are most likely to buy;
• From the specific execution level, we empower user operations through data, linking users' decision nodes (cognition-interest-purchase-repurchase) with their own characteristics (user information, interest preferences, purchasing power, etc.), and ultimately connecting users in a more efficient and intelligent way to help them make decisions. Similar to this is Walmart's WMX (Walmart Exchange) advertising platform, which can provide accurate product advertisements by analyzing users' background information, consumption habits, etc. when users enter Walmart through various channels. It can also select suitable users as audiences based on user background information in the promotion of specific products, create advertisements and deliver them to selected channels.

5.3 Excellent technology: extensive integration and innovation to open up business links

By continuously innovating digital technologies to drive integration and innovation, retail companies can, on the one hand, maximize their reach, understanding, and service to users at the consumer front end, and on the other hand, go deep into the back end of the supply chain to enhance the overall resource integration and coordination capabilities of the industrial chain.

• Channel and resource integration, deep integration and connection of different channels (online and offline) and different terminals (PC, mobile, smart terminals, VR , etc.), and coordinated cooperation in capturing user information, products and content, marketing and promotion, orders and payments, etc., to construct a digital omni-channel experience, such as Hema Fresh and Yonghui Super Species;
• By going deep into the back end of the supply chain, through insights into users and the collection of large amounts of demand, we push the production link in reverse, so that production is no longer a closed-door batch design, but a planned production driven by demand and that can quickly respond to the market. On Pinduoduo, some products reduce costs through "customized production + compressed supply chain", which not only provides users with low-priced products, but also improves the efficiency of the entire supply chain.

Author: Liu Sijia, authorized to be published by Qinggua Media .

Source: ThoughtWorks