Pinduoduo: Building a growth model with the North Star indicator

The North Star refers to the absolute core indicator related to products or strategies. Once established, it will shine in the sky like the North Star, guiding the team to move in the same direction. It is very important to develop a North Star indicator and build a growth model based on it.

This article is mainly a practical article. It takes Pinduoduo as the analysis object, attempts to formulate Pinduoduo's North Star indicator, and builds a growth model based on the formulated North Star indicator.

The analysis ideas in this article will be developed according to the figure below, and I will also share the methodology later.

Regarding PMF, Pinduoduo's success is obvious to all. It is obvious that there is a huge market and it is also needed by users. The following analysis will start directly from the growth focus.

1. Current growth focus

1. Market conditions

After Taobao and JD.com have occupied the stock market of e-commerce online shopping, Pinduoduo took a different approach and opened up the incremental market in the lower-tier cities with dazzling operations. Of course, after several years of development, this initial incremental market has become a stock market. According to Kuchuan data, Pinduoduo's daily active users on Android alone have reached more than 300 million.

Pinduoduo has been deeply engaged in the sinking market. After taking the sinking market into its pocket, it may consider how to open up the upper-level incremental market.

2. Product life cycle

According to Aurora data, as of the end of June 2020, Pinduoduo's penetration rate had reached 50.29%, ranking seventh in the entire network, and its daily active users ranked sixth. It ranked second in both its primary industry (mobile shopping) and secondary industry (comprehensive mall), second only to Taobao.

According to Pinduoduo's penetration rate curve, it can also be found that the penetration rate growth rate has flattened in the second half of 2019. In 2020, it began to increase due to the impact of the epidemic, but overall it has been relatively slow and has entered a mature stage.

Combined with Pinduoduo's DAU growth data, it can be found that the trend has flattened and Pinduoduo has entered a mature stage.

During this period, Pinduoduo mainly focused on product retention and monetization. While providing users with low prices, Pinduoduo has also begun to crack down on counterfeiting in an aggressive manner, striving to create a better shopping environment for users and enhance users' trust in and reputation for the Pinduoduo platform. The issue of product quality is always a problem that cannot be completely solved. How to better improve user satisfaction and retain users in the long term to contribute to their shopping efforts is also a challenge.

3. Product categories

Pinduoduo is an e-commerce + social hybrid product that uses social relationship chains to complete e-commerce business through group buying.

For e-commerce platforms, it is mainly about users finding suitable products and completing payment, merchants earning income, and the platform earning commissions. Monetization is relatively easy, and growth focuses on monetization, optimizing the payment conversion path, increasing repurchase rates, and supporting long-term product growth.

At the same time, Pinduoduo has added certain social attributes, such as group buying with friends, inviting friends to bargain, and forming friend circles. At the same time, it needs to pay attention to user retention, utilize the user-friend relationship chain, attract users and attract products, accelerate dissemination, and also help with monetization.

In this dimension, Pinduoduo needs to make full use of the relationship chain to continuously improve product dissemination efficiency and commodity purchase rate, and ultimately help products to be better monetized.

4. Unique business factors

For Pinduoduo, it started out by selling cheap products, but if it fails to handle product quality and counterfeit issues well, it will eventually end up selling cheap products. Taobao was once caught up in various public opinion storms due to the problem of counterfeit goods. Pinduoduo must also pay attention to this issue in advance to avoid the problem of the pool leaking too quickly. Only when the goods are of great value for money can cheapness be a help and enable users to retain and repurchase for a long time.

5. Conclusion

Based on the above 4 points, Pinduoduo’s growth priorities are summarized as follows:

• Pinduoduo is currently in the stock market stage in the country. Retention and monetization are crucial, and it can consider exploring incremental market strategies.
• When a product is in its mature stage, it focuses on retention and monetization, and more forms of monetization can be considered.
• Pinduoduo has its own social attributes, which can make better use of the direct trust and endorsement of friends as well as the relevance of life to promote retention and monetization.
• Since Pinduoduo’s selling point is cheapness, it needs to pay more attention to the problem of counterfeit goods and user reputation.

2. Develop a North Star Metric

1. Clarify business goals and user value

Before analyzing business goals and user value, you need to clarify the basic information of the product:

• Target users: price-sensitive users, mainly targeting users in third- and fourth-tier cities
• Product positioning: social + e-commerce, using group buying to open up the market
• Product value: Cheap

Then let’s analyze the business goals:

Combined with the growth focus, the main focus is on monetization, so the business goal is set to obtain sustainable income.

User value:

Buy in-demand goods at a low price.

Linking business goals and user value to form a closed loop:

Consider which indicators can form a closed loop:

• Total order volume: The more orders there are, the more likely users are to buy the right products, which can form a positive cycle.
• Total transaction amount: The more total transaction amount, either the more orders or the higher the average order value, the more income can be obtained to increase the subsidy and discount, thus stimulating users to buy goods at a more favorable price.
• Number of active users: The larger the number of active users, the more likely it is that users will be guided to purchase products, thus generating more orders.
• Number of users who have completed transactions: The more users who have completed transactions, the more users who have purchased suitable products. This brings value to users, and the product can also earn more revenue.

2. 6 standard screening indicators

After screening, two suitable indicators are obtained:

Total executed order volume and total transaction amount (gmv).

3. Determine indicators based on current situation

Since the focus at this stage is on monetization, the following analysis is made:

• A higher total number of completed orders does not necessarily mean higher revenue. It is possible that all of them are low-priced orders, and the profits earned are very low.
• The total transaction amount can be, for the same number of orders, the higher the total transaction amount, the more income you may get

Therefore, the North Star indicator is finally set as:

Total transaction volume (gmv):

For e-commerce shopping platforms, an important reverse indicator needs to be added:

• Return rate
• If the total transaction amount increases, but the return rate also increases, it means that user satisfaction decreases, and it is necessary to analyze whether adjustments are needed and adjust the strategy in a timely manner.

3. Building a Growth Model

1. Identify your North Star Metric

Total transaction volume (GMV)

2. Sort out the core user paths

3. Build a growth model

Full chain funnel type:

Factorization type:

(The above growth model is constructed based on the North Star indicator. The data shown is for understanding only and is purely fictitious. Combining this growth model will also help build a growth dashboard. An article will be published later to explain the growth dashboard. If you are interested, please continue to pay attention.)

4. Say a few more words

By formulating a growth strategy based on the growth model, we can find that Pinduoduo's important focus is on product browsing. Various gameplays are used to increase the number and duration of user browsing of products. We are not afraid that you will not buy, but we are afraid that you will not browse. If you have browsed, I have the confidence to use various discounts, various sense of time urgency, and various task systems to make you impulsive and continue to consume. It's great!

4. Final

Every product will have different North Star indicators at different stages of its development.

For products such as Taobao, JD.com, Suning.com, and Vipshop, which were positioned as e-commerce companies from the beginning, the ultimate North Star indicator may be GMV, and during the growth stage it may be the number of users who completed transactions.

But for products like Xiaohongshu, they may not have formed their own mature monetization model at the beginning. After continuous exploration and accompanied by different North Star indicators, they developed into the community e-commerce products we use now.

Xiaohongshu's development has gone through four stages:

• Initially, Xiaohongshu appeared on the market as a UGC community product. During that period, its North Star indicator was probably the number of published notes.
• In 2014, Xiaohongshu began to explore commercialization, mainly focusing on overseas shopping. During this stage, its North Star indicator was mainly the number of users who shopped.
• In 2016, Xiaohongshu entered a rapid growth phase. At the same time, a large amount of high-quality content was accumulated in the product, which led to shopping. Users were inspired to consume by discovering interesting and useful content. The North Star indicator at this stage may be the number of active users.
• By 2018, Xiaohongshu had formed its own unique e-commerce shopping model and had become relatively mature. Xiaohongshu began to focus on monetization, and the North Star Indicator also became GMV.

In addition, it can be found that at different growth stages, as the market changes, products will be adjusted at any time, but they are all developed around the product's North Star indicator. If the strategy changes, the North Star indicator will also be adjusted accordingly. Therefore, we must always pay attention, have a concentrated focus but also make flexible adjustments.

With the rapid growth of Pinduoduo and Douyin Express, many e-commerce companies have begun to open up the incremental market. Taobao has launched Taobao Express and JD has also launched JD Express. With the rise of live streaming, they have also begun to develop and launch live streaming functions.

In any case, there will always be new ideas and new demand scenarios. If you cannot be the discoverer, you must be a follower in time. The market is changing rapidly, so you have to be sensitive.

You can try to develop a North Star Indicator for your current product, and you are welcome to discuss it with me.

Any success is inseparable from the accumulation of small things. Do small things and achieve big things. Come on!

Author: Sun Xiaoshier

Source: Xiaoshier Growth Recorder