Analysis of Pinduoduo’s group purchasing model!

The essence of group buying is that multiple users purchase the same product by placing orders together, thus forming a certain bargaining power and purchasing the target product at a relatively favorable price.

The group-buying model has gradually become popular since 2015, and its momentum grew rapidly in 2016. Pinduoduo, a group-buying-focused platform, was successfully listed in 2018, further promoting the development of this group-buying model.

This article will take Pinduoduo as an example to explain why group buying has become so popular so quickly? How should we proceed in the future?

This article will analyze from the following aspects:

1. Industry Analysis

The rapid development of group buying is inseparable from its essence, which is also its biggest advantage: relying on the relationship chain of acquaintances to reduce the trial and error cost of placing orders, allowing products to spread quickly in the social circle of acquaintances.

As a shopping platform that is now popular among all major shopping platforms, it has spawned many new forms of "group shopping e-commerce".

In this article, we will use the PEST analysis model to explore the reasons for the rapid development of group buying.

1. Politics

On October 26, 2015, the State Council issued Several Opinions on Promoting the Development of the Express Delivery Industry, proposing to expand the geographical scope of the customs clearance mode for the release and consolidated declaration of e-commerce export express mail lists, and to provide convenience for the urban traffic and temporary parking operations of express delivery vehicles. In addition, it also made corresponding policy provisions on the cross-provincial business and prices of express delivery companies to promote the development of the express delivery industry.

On November 9, 2015, the General Office of the State Council issued the "Guiding Opinions on Promoting the Accelerated Development of Rural E-commerce", pointing out that it is necessary to formulate and issue rural e-commerce service standards and work guidelines to promote e-commerce poverty alleviation; improve the telecommunications universal service compensation mechanism, accelerate the construction of rural information infrastructure and broadband popularization; increase credit and loan support for e-commerce entrepreneurial farmers, especially young farmers, and simplify the procedures for small short-term loans for rural online merchants; it also stipulates that eligible rural online merchants can enjoy entrepreneurial guarantee loans and interest subsidy policies in accordance with regulations.

The guidelines are in line with Pinduoduo's "low-price positioning in low-tier cities" and agricultural product sales strategy, and will be conducive to Pinduoduo's development in low-tier cities and rural areas.

2. Economy

From the above data, we can see that there are some differences in the regional distribution of urban residents' income in our country. Generally speaking, urban residents in first- and second-tier cities have higher incomes.

Take Shanghai as an example. In the first half of 2016, the per capita income of urban residents in Shanghai was 29,030 yuan, while the per capita income of urban residents in Guizhou, Henan and Gansu was between 12,000 and 13,000, less than half of that in Shanghai. Furthermore, there are large differences in per capita consumer expenditure between urban residents and rural residents.

In 2015, the per capita consumer expenditure of urban residents reached 21,392 yuan, while the per capita consumer expenditure of rural residents was only 9,223 yuan, which was also less than half of that of urban residents.

However, according to the website of the National Bureau of Statistics: In June 2016, the national consumer price index rose by 1.9% year-on-year; among them, the urban area rose by 1.9% and the rural area rose by 1.9%.

This shows that although the base of per capita consumption expenditure of rural residents is not large, the growth rate is the same as that of per capita consumption expenditure of urban residents. We can also understand this data as that there is room for growth in rural population consumption. If this space can be developed, the market prospects will definitely be considerable.

Pinduoduo came into being at this time, obviously targeting this market. The result is as everyone has seen, Pinduoduo's rapid rise and the battle for the sinking market.

3. Society and culture

According to data from the National Bureau of Statistics, in 2019, the national online retail sales reached 10,632.4 billion yuan, an increase of 16.5% over the previous year.

Among them, the online retail sales of physical goods were 852.39 billion yuan, an increase of 19.5%. Among the online retail sales of physical goods, food, clothing and daily necessities increased by 30.9%, 15.4% and 19.8% respectively.

From these data, we can infer that the public's acceptance of online shopping is increasing, which also shows that more and more people are shifting their consumption of food, clothing and daily necessities online. The application scenarios of group buying are mainly in the sales process of three types of goods: food, clothing and daily necessities.

On the other hand, with the continuous development of information technology and supply chain management and their widespread application in the logistics industry, modern information technologies such as the Internet of Things and cloud computing can be used to realize the automated operation and efficient management of the cargo transportation process, improve the service level of the logistics industry, and achieve intelligent logistics with reduced costs and optimized resource consumption.

It has not only promoted the development of e-commerce to a great extent, but also greatly enhanced the public's willingness to choose e-commerce shopping and optimized the public's online shopping experience.

4. Technology

From a technical perspective, e-commerce (Electronic Commerce) uses computer technology, network technology and telecommunication technology to realize the electronic, digital and networking of the entire business (buying and selling) process. The process of e-commerce usually includes the information collation stage - information exchange stage - commodity delivery and financial settlement stage according to the contract.

Group buying integrates information from social platforms (such as WeChat) and shopping platforms, allowing users to share products with their social circles and friends to increase conversions during the shopping process, or to use shopping to satisfy their own social needs. This is not difficult from a technical perspective, but the combination of social networking and e-commerce can achieve the effect of 1+1 greater than 2. Especially when traditional e-commerce is about to reach the end of its traffic dividend, using online social networking to achieve customer conversion and reduce customer acquisition costs has opened up a new path.

In addition, with the development of artificial intelligence technology, the addition of modules such as "Guess You Like" can customize and push personalized information based on user preferences and potential needs, which also improves the user's shopping experience, increases customer order rates, and is beneficial to the profitability of merchants and platforms.

The combination of various factors at the above four levels has contributed to the popularity of the group buying market. With the penetration of group buying and the major e-commerce platforms expanding their group buying businesses to seize market share in lower-tier cities, what will be the development trend of this industry in the next few years? Is it possible to continue to expand the market space?

According to iResearch Consulting's 2019 China Social E-commerce Industry Analysis Report, the proportion of social e-commerce in China's online shopping market increased from 0.1% to 7.8% in the three years from 2015 to 2018. It is expected that although the growth rate of social e-commerce will decline before 2021, the transaction scale will continue to rise, and the prospects are promising.

2. Competitive Product Analysis

Compared with the traditional e-commerce traffic model of "search and browse - click to view - place an order to buy - repeat purchase", social e-commerce, based on online social networking, has achieved a breakthrough from "people looking for goods" to "goods looking for people", demonstrating its advantages in many aspects, and the form of group buying has become a trend.

Under the squeeze and competition from group buying platforms, major traditional e-commerce companies have also followed the trend and joined the group buying ranks. In March 2018, JD.com’s group buying app was launched. In July 2018, Suning established Suning Pingou based on "Lepingou" and launched an independent APP.

Below we will use Suning Pingou and Jingxi as competitors for competitive product analysis:

1. Pinduoduo

In September 2015, Pinduoduo was established;
In February 2016, Pinduoduo's monthly transaction volume exceeded 10 million, and the number of paying users exceeded 20 million;
In July 2016, Pinduoduo's user base exceeded 100 million, and it received $110 million in Series B financing, led by IDG Capital, Tencent, and Gaorong Capital.
In 2016, Pinduoduo completed a $9 million Series A financing led by IDG Capital in March, and a $110 million Series B financing led by Gaorong Capital in July;
In February 2017, it completed a $213 million Series C financing led by Sequoia Capital;
In April 2018, it completed a US$1.369 billion Series D financing round led by Tencent Investment.
On July 26, 2018, Pinduoduo officially entered the U.S. capital market with an issue price of US$19 and a market value of US$24 billion.

Although social e-commerce is essentially a C2B operating model, Pinduoduo's current operating model is more B2C.

Although the shopping methods for products on Pinduoduo include direct purchase and lower-priced group purchase, for most products, users do not need to find new users to group buy together. Users can purchase products by directly joining other people's group purchases.

From the perspective of all parties involved, merchants enter Pinduoduo and release products, users then purchase them on Pinduoduo, and the products are delivered by third-party logistics to complete the shopping.

As the leader in social e-commerce, Pinduoduo took only 34 months from its establishment to its listing, and has developed rapidly. According to data from Eastmoney.com, Pinduoduo's current transaction volume has reached 11.6484 million, and its total market value is 47.278 billion.

Pinduoduo not only took the lead in occupying users in third- and fourth-tier cities and gained first-mover advantage, but also took the lead in launching various social e-commerce gameplay, including "help bargaining" and "getting products for free". In terms of commodities, we have always emphasized the advantage of preferential prices to meet users' demand for cheaper commodities.

2. Jingxi

In 2016, the group buying business was launched, and the content shopping guide ecosystem - "Shopping Circle" was launched.
In March 2018, the group buying APP was launched for testing.
In May 2018, JD.com reached a new round of strategic cooperation with Tencent, and will use unique resources such as WeChat's first-level entrance and WeChat Market to create a new platform that is different from JD.com's existing scenarios and models.
During the 6.18 period in 2018, JD.com Pingou promoted growth in the lower-tier markets and launched the “Factory Direct Premium Products” program in partnership with Xinhua Credit.
In July 2018, JD.com’s group buying business department was renamed JD.com’s social e-commerce business department, and its strategic position was upgraded.
In September 2018, JD Pingou was fully upgraded to a social e-commerce platform with WeChat as its main first-level entrance.
On September 19, 2019, JD.com’s group buying app was renamed “Jingxi” and officially opened.

When major e-commerce companies entered the sinking market, Jingxi, a subsidiary of JD.com, came into being. As the social e-commerce platform of JD.com Group, Jingxi uses WeChat as a carrier for users to share group purchases, and its main business model is B2C.

Slightly different from other social e-commerce platforms, since JD.com has its own logistics system, the products sold by Jingxi can be roughly divided into two categories. One is that merchants are responsible for shipment and after-sales service, and the other is JD.com delivery and merchant after-sales service.

Compared with e-commerce companies that completely rely on third-party logistics, JD Logistics has a more efficient advantage.

As a competitor, another advantage of Jingxi is that JD.com has always focused on pursuing brand and quality, which makes consumers have relatively fewer concerns and worries about product quality.

3. Suning Group Buying

It was officially launched on July 15, 2016.
In July 2018, the cumulative number of buyers exceeded 30 million.
On July 27, 2018, the independent app Suning Pingou was launched.
On August 8, 2018, Suning established a group shopping day.

Suning Pingou is an e-commerce group-buying app under Suning.com. In terms of operating model, most of the products on Suning Pingou are sold in a B2C model, emphasizing the concept and strategy of "Pin base".

On January 26, 2019, Suning Pingou reached a strategic cooperation agreement on direct sourcing from the source with the government of Xuanen County, Hubei Province, which led to the official establishment of a 30,000-acre selenium-rich soybean base and a 30,000-acre selenium-rich tribute tea base. Xuanen became the first stop for Suning Pingou's direct sourcing from the source.

Summary : Based on the above analysis, we can roughly see that although these three products belong to social e-commerce, they each have their own characteristics.

In terms of size, Pinduoduo is currently the largest social e-commerce company and also the developer of many "gameplay" methods in social e-commerce.

For traditional e-commerce, the emergence of Pinduoduo can be described as the catfish that caused the "catfish effect" in the e-commerce market. Since Pinduoduo was the first to occupy third- and fourth-tier cities, it has set off a trend of sinking consumption. It has a high profile and a large user base. In addition, price discounts are Pinduoduo’s biggest highlight, which makes Pinduoduo’s position high in social e-commerce.

However, Pinduoduo has always been controversial in terms of product quality and reputation. In contrast, Jingxi places more emphasis on product quality and after-sales service, and consumers are also paying more and more attention to product quality. Therefore, Jingxi still has a great advantage.

Furthermore, from the logistics perspective, in addition to third-party logistics, Jingxi also has JD.com delivery, which has relatively better timeliness guarantee. However, the proportion of goods delivered by JD.com in Jingxi is not high.

In terms of logistics and distribution, Pinduoduo allows merchants to choose all logistics by themselves. However, Pinduoduo's logistics regulations stipulate that orders must be shipped within 2 days of user orders being placed, and after shipment, logistics information must be available within the specified time. Under the premise that it is also a third-party delivery company, Pinduoduo's overall delivery is still relatively fast.

3. Industry Chain Analysis

In the operation of social e-commerce, there are mainly the following participants: consumers (both consumers and potential consumers), merchants, and e-commerce platforms. Taking Pinduoduo as an example, its business logic diagram is as follows:

The business development of e-commerce platforms depends on merchants providing sufficient goods and, of course, sufficient customer traffic.

Next, let’s look at the needs of these participants in Pinduoduo’s development process and how these needs are solved from these aspects.

1. Consumers

From the perspective of another participant in the e-commerce operation process - the consumer side, we can understand the situation of consumers during the development of Pinduoduo by looking for relevant data.

With the development of the Internet in my country, e-commerce has also achieved rapid development. But from the perspective of geographical distribution, e-commerce first developed in first- and second-tier cities, and only expanded to lower-tier cities when the scale of e-commerce in first- and second-tier cities reached saturation.

According to iMedia Research, among China’s group-buying e-commerce users in 2018, 18.7% were from first-tier cities, while 56.3% were from third-tier and fourth-tier cities or below.

In this process, there will inevitably be a stage where "low-tier cities have demand for online shopping, but it has not yet been met." What do consumers in lower-tier cities need?

Compared with residents in first- and second-tier cities, the income and consumption levels of residents in lower-tier cities are not as objective as those in first- and second-tier cities.

But does this mean that residents in lower-tier cities have no demand for online shopping?

Obviously not.

Due to factors such as the accelerated return of population to third- and fourth-tier cities and consumption upgrading, the consumer population has steadily expanded, and residents in lower-tier cities have gradually increased their demand for shopping. Consumers' pursuit of cost-effectiveness is a market necessity, and this is even more true for lower-tier cities.

Before Pinduoduo appeared, shopping demand in low-tier cities was more likely to be met through the following channels:

Offline shopping

Going directly to offline physical stores to experience and purchase the products you need was a major shopping option at the time.

The advantages of this approach are:

Consumers can personally feel the shape and material of the product before paying, which is more real and intuitive;
Spot goods, consumers can get their "trophies" immediately after payment, without waiting for logistics;
For merchants with fixed stores, consumers' benefits from consumption coupons are more secure.

But the disadvantages cannot be ignored:

The variety and styles of goods are limited, and the demand and supply of physical stores are not equal;
Physical stores lack competition compared to online stores, so product prices are expensive;
Consumers need to spend a certain amount of travel time, money, and physical energy to shop offline.

These factors are more or less the reasons why consumers are abandoning offline shopping and choosing online shopping.

Shopping through e-commerce platforms such as Taobao and JD.com

Before Pinduoduo appeared, shopping platforms such as Taobao and JD.com already occupied a considerable share of the market, and choosing these e-commerce platforms is also a good choice. However, for consumers in lower-tier cities, the prices of goods on Taobao and JD.com are not attractive enough. They need goods with lower prices and better cost-effectiveness.

Secondly, as the major e-commerce companies with a large share of the industry at that time, their main way of acquiring customers was through advertising and other means. Consumers know about the existence of these e-commerce platforms, but have not yet developed a sense of trust in these platforms or the products sold on them.

Faced with the above two problems, how did Pinduoduo resolve them and stand out?

With the widespread popularity of social apps represented by WeChat, it has become the most important traffic entrance on mobile devices. These social platforms occupy a large amount of users' time, have high usage frequency, strong stickiness, and extremely rich traffic value, providing a good solution for e-commerce to reduce traffic costs. Social e-commerce's efficient customer acquisition and fission capabilities attracted Pinduoduo to join and enabled its scale to grow rapidly.

Through the social e-commerce marketing model, Pinduoduo not only solved the problem of high customer acquisition costs, but also to a certain extent increased new users' trust in the platform and products.

The reason is that through the social product recommendation model, new users learn about the product because their social friends recommend it to them, indicating that the product is already trusted by their social friends, thereby reducing the user's trust cost for the platform and the product.

2. Merchants

As a very important participant in the point-to-point link, the primary task for merchants is to maximize their profits. So for businesses, what are the means and obstacles to making money?

In-store sales

Physical store sales are a traditional sales method. For merchants, physical store sales have the following main concerns.

The first is the fixed expenses of physical stores. For many businesses, the risks of physical stores are much greater than those of online stores because of the high store fees and labor costs of physical stores. After deducting these fixed expenses, the profits of physical stores will be reduced a lot.

Secondly, after selecting items to wear in physical stores, users will return to online platforms to compare prices and choose the same or similar products online, shopping in the manner of “offline shopping and online purchase”, and it is very likely that the final purchase will be made in someone else’s store.

In addition, physical store sales have other shortcomings, such as the need for very high experience in controlling the supply and demand relationship, fluctuations in customer flow, etc.

Wechat Business

Around 2013, micro-businesses began to emerge, using WeChat Moments as a platform to release products. They leveraged WeChat Moments connections to push products to consumers in order to sell products, and sold products directly in WeChat Moments.

In the early stages, transactions may occur between friends based on curiosity and previous trust. However, the main purpose of Moments is to meet people’s social needs. When merchants post products on Moments frequently, the other party will feel disturbed and then blocked. This will not only fail to achieve the purpose of selling goods, but will also damage one’s own social circle.

In addition, the development of WeChat business is also limited by many other factors, such as small number of customers, low transaction volume, single product sales, inability to provide consumers with consumer rights protection, etc.

Online store sales

Online store sales are also a relatively mainstream sales model. Compared with offline shopping, online store sales have the advantage of being basically not restricted by geographical location, but for merchants, there are also many obstacles.

For example, when opening a store on Alibaba, due to Alibaba's large scale, there are many merchants, and many merchants will sell the same product at the same time. In this case, merchants need to choose paid promotion channels to increase the exposure of their products and stores.

3. Platform

As the leading platform in social e-commerce, how does Pinduoduo solve the needs of consumers in third-tier and fourth-tier cities and below, as well as merchants' demands for customer traffic?

Product Prices

For consumers in third-tier and fourth-tier cities and below, the biggest pain point is that product prices are not favorable enough. In this regard, Pinduoduo, as a platform, pursues its own positioning by taking the low-price route. In order to make the goods on Pinduoduo cheaper than other platforms, there are several factors worth mentioning.

First of all, Pinduoduo’s purchasing channels are different. There are many factories that specialize in foreign trade orders. When there are products left, they will be sold at very low prices, and merchants can make money even if they get low prices.

The second is the backlog of inventory. If these goods are kept in the hands of merchants, it will be a loss, so merchants will naturally be willing to sell them if they can.

Furthermore, all the products on Pinduoduo are purchased in groups. Compared with traditional individual user purchases, group purchases can bring larger purchase volumes, and buyers have bargaining power, thereby purchasing products at lower prices.

Furthermore, before publishing a product, the merchant needs to submit an application to the platform, and the platform will review the product price. Regarding product pricing, in order to ensure that the product price is low, Pinduoduo's product pricing rules are: the market price required for publishing the product > unit purchase price > unit price.

In addition, various activity subsidies on the Pinduoduo platform are also an important factor.

We all know that traditional e-commerce encountered the problem of high customer acquisition costs around 2015. In order to increase new users, traditional e-commerce needs to carry out publicity and promotion through various channels, which is a huge expense for the platform.

As a social e-commerce company, Pinduoduo has achieved the effect of promoting and increasing sales with the help of social platforms, thus saving part of the promotion costs. The Pinduoduo platform then uses this saved money to carry out various subsidy activities, allowing merchants to make profits and consumers to spend less money.

Platform traffic

When Pinduoduo entered the e-commerce market, e-commerce giants such as Taobao and JD.com had already occupied a large market share. According to monitoring data from the China E-Commerce Research Center, in 2015, Alibaba ranked first in the B2B e-commerce service provider market share with a market share of 42%.

Faced with this situation, Pinduoduo's first choice was to enter the sinking market, targeting consumers in third-tier and fourth-tier cities and below.

Secondly, due to the high customer acquisition cost of traditional e-commerce, Pinduoduo adopts the form of "social + e-commerce" and group buying. After inviting new customers, sharing products, and group buying, customers can buy the products they want at a lower price.

As the invited consumer, there is a high possibility that he or she has the same shopping needs as the friend who invited him or her. With the endorsement of trust, he or she will become a new user of the platform.

This promotion method has higher customer acquisition costs than traditional e-commerce and is more economical, thereby increasing customer traffic for the platform and merchants on the platform.

Consumer demand

With the development of e-commerce, consumers are becoming more and more accepting of e-commerce, but there are still some reasons that hinder the development of e-commerce. For consumers, guaranteed product quality and fast logistics delivery are their basic demands for e-commerce shopping.

First of all, the problem of poor product quality is a more prominent problem among the many problems faced by Pinduoduo.

Because Pinduoduo focuses on the "entire network", quality issues seem difficult to solve under the premise of low prices, but Pinduoduo is still making efforts in this regard.

In terms of product quality, Pinduoduo launched a "ten times compensation for fake products" product guarantee in 2018. When the Jianwang special operation was launched in June 2019, Pinduoduo also responded actively and jointly launched commodity insurance with PICC Property and Casualty Insurance to ensure that the goods were 100% authentic. The publication of the "Guiding Opinions on Promoting the Standardized and Healthy Development of the Platform Economy" has directly injected strong impetus into the development of social e-commerce.

The picture above shows Pinduoduo’s regulations on delayed shipments. In terms of delivery, the requirements of the Pinduoduo platform for regular categories are that they must be shipped within 2 days (48 hours) after the group is formed, and after shipment, logistics information must be available within the specified time.

For any violation of the regulations, the platform will impose fines on merchants. In addition, Pinduoduo also has penalty regulations for merchants regarding false shipments, fraudulent shipments, and no shipments. For consumers, these measures have shortened the waiting time from placing an order to receiving the goods to a certain extent.

In addition, the Pinduoduo platform has launched a subsidy for "return shipping included". If consumers apply for a return and refund within 15 days after confirming receipt of the goods, Pinduoduo will subsidize the return shipping fee. This will help alleviate consumers' concerns and increase order rates.

Summary: After the above analysis, we can see that the problems faced by Pinduoduo in its growth process are also faced by many e-commerce companies. Pinduoduo has largely solved the problem of customer acquisition costs in traditional e-commerce by acquiring customers through social channels. In addition, the huge amount of subsidies for the event has also injected strong motivation for Pinduoduo to "grab customers" with other e-commerce platforms.

In addition, Pinduoduo's product quality guarantees of "ten times compensation for fake products" and "genuine product insurance", as well as the "return shipping fee" subsidy, also give consumers peace of mind.

4. Commercial Value Analysis

As a social e-commerce platform, Pinduoduo’s core business is group buying.

As an e-commerce platform, revenue is an important indicator for determining whether a business can develop healthily, and GMV (gross merchandise volume) is the core indicator for measuring the competitiveness of the platform (market share).

GMV = number of users * conversion rate * average order value

Here we draw on GMV, the most commonly used data indicator in e-commerce, to analyze how Pinduoduo increases its total transaction volume from three aspects: number of users, conversion rate, and average order value.

1. Increase the number of platform users

In order to achieve GMV growth, a sufficient number of users and a certain growth rate of new users are necessary prerequisites. So what measures has Pinduoduo taken to attract new customers?

advertise

When mentioning Pinduoduo, what comes to most people’s minds is the line adapted from the song “I Miss You”: “Pinduoduo, Pinduoduo, the more you work, the more you save.”

In September 2016, Pinduoduo reached an agreement with Yiquan Culture Communication Co., Ltd. The original singer Zhu Zhuai was invited to adapt and sing the original song "I Miss You So Much".

This is one of the most successful brainwashing advertisements among Pinduoduo and even the entire e-commerce industry. In addition, Pinduoduo has also contracted many popular variety shows. These investments have to a certain extent increased Pinduoduo's popularity and brought a lot of traffic to Pinduoduo.

Self-propagation

As a leader in social e-commerce, Pinduoduo uses social platforms to increase the number of platform users and guide user dissemination. The means of dissemination include: targeting value-sensitive users, using product mechanisms such as discounts + bargaining, bargaining for free, and group buying to guide users to spread the products to WeChat group chats and Moments, thereby completing a series of actions such as self-propagation, attracting new users, and paid activation. When it comes to self-propagation, Pinduoduo has a wide range of tricks. Below we will take “bargain and get it for free” as an example to explain in detail how Pinduoduo guides users to engage in self-propagation.

First, after the user selects the product he wants to get for free, the operation page will jump to prompt the user to share. On this page, the first thing we can see is the countdown to the expiration time. The purpose of this design is to create a sense of tension for users and urge users to share quickly so that the platform can achieve the purpose of promotion.

Secondly, below the countdown is the current shared task progress, showing the progress left to get it for free in percentage form.

This number is usually less than 10. Its purpose is to make users feel that they are "only one step away from getting the product for free", improve consumers' sense of self-efficacy, make users more confident that they can complete the task, and thus encourage users to actively share.

In addition, for new users, countdown reminders can also help improve conversion rates. For old users, it encourages consumers to place orders faster and increase the number of orders placed by consumers to achieve the effect of increasing the average order value.

Again, the page also displays a special area for various ways to complete the task, giving users a certain degree of choice in how to achieve the task goals in the form of game incentives, but for the platform, the ultimate goal of various tasks is to return to promotion.

There is also a special area called “Show Your Review” at the bottom of the page, which creates a real sense of context for users by displaying user avatars, names, and reviews with pictures, helping them to believe in the authenticity of the event. At the same time, when users see that others have received the product for free, their own sense of self-efficacy will increase.

These methods are the means by which the platform guides users to spread information, and through these channels, the users' communication capabilities can be fully tapped and utilized.

Finally, after the user shares the product link, in order to further improve user retention and conversion, unlike in the past, the promoted user can bargain for the other party on the web page after clicking the shared link.

As for the current promotion process, after the promoted user clicks on the shared link, the page message will prompt "Go to the APP to help bargain", which means that the promoted user must go to the APP to help the other party bargain. If the promoted user has not installed the Pinduoduo APP, he needs to install it first. These methods can not only add new users to the platform, but also increase platform activity and APP installation volume.

2. Increase conversion rate

Conversion rate is another important factor affecting GMV growth. How does Pinduoduo ensure the conversion rate?

One of Pinduoduo's main features is to use social platforms to achieve communication and user conversion. The advantages of using social methods to achieve promotion and attract new users compared to traditional e-commerce can be seen mainly from the following aspects.

First, the target users of promotion are more accurate. Suppose Consumer A wants to buy a product on the Pinduoduo platform. If Consumer A chooses to buy in a group, he can get certain discounts. For Consumer A, in order to get the discount, he needs to find Consumer B to buy with him. At this time, in order to ensure the success of the group purchase, Consumer A needs to use his understanding of his friends to determine who is more likely to buy the product. This process is more accurate than the "wide-net" promotion method of e-commerce advertising, and has lower costs and higher conversion rates.

Secondly, for all consumers, they need to first establish trust in the product before purchasing it. The advantages of social e-commerce over traditional e-commerce are once again evident. Since Consumer B learned about the product through it being recommended to him by his friend Consumer A, it shows that the product has gained the trust of Consumer A, thereby reducing Consumer B's trust cost.

Thirdly, as a platform, Pinduoduo will display red envelope push notifications on the homepage, as well as cash back or discounts after users place orders of a certain amount. For new users, this can increase the conversion rate of new users. In addition, the product details page will display some after-sales guarantees for the product, such as "return shipping included", "7-day no-reason return", "10 times compensation for fake products", etc., to reduce users' concerns about the product.

Fourthly, the product details page also displays no-threshold coupons to encourage users to place orders and increase user conversion rates.

For old users, the display of information in these aspects can also help increase the number of orders placed by users and thus increase the average order value.

3. Increase the average order value

Once a certain number of platform users are reached, increasing the average order value of existing users is the main way to further achieve GMV growth. What measures has Pinduoduo taken to increase the average order value?

First, there is a section called “Pin Xiaoquan” on the homepage of Pinduoduo, through which consumers can see the purchasing dynamics of their friends (mostly WeChat friends). Since everyone's consumption level and needs are usually similar to those of their friends, coupled with the effects of trust endorsement and herd mentality, consumers are very likely to purchase the goods that have been purchased in their friends' dynamics.

Furthermore, when consumers use Pinduoduo to browse products, the product introduction will display message prompts such as "Products purchased by friends" and "Products well-received by friends". The purpose of this series of operations is to make full use of the similarities between friends, reduce consumers' trust costs, and guide users to purchase products, thereby achieving the goal of increasing the average order value.

Secondly, when consumers enter the purchase details of a product, as shown in the figure below, the page will specifically display the current number of people who have placed an order for the product, the avatars and names of the group buyers, and the countdown of the remaining time for each group buyer, so as to create a "bustling market feeling" for consumers. Multiple purchases can also lower consumers' trust barriers. In this situation, consumers are more likely to place orders driven by the herd mentality.

If the user enters the purchase process but gives up on payment, a prompt "Are you sure you want to give up on payment" will pop up on the page, showing the advantages of the product and the news that many users have given the product positive reviews, in order to further strengthen consumers' trust in the product. And will continue to buy the highlighted ones and give up the gray ones for the time being. These measures are aimed at encouraging users to place orders in order to increase the average order value.

The third aspect is the membership system. On the consumer’s personal homepage, there is a column called “Money-Saving Monthly Card”, which is also the column for Pinduoduo membership promotion. By paying to purchase the “Money-Saving Monthly Card”, users can enjoy a variety of privileges, including exclusive low prices, platform-wide coupons, group buying gifts, and free trials. This form allows consumers who use Pinduoduo for a long time and frequently to enjoy various privileges and save money. For merchants, it can achieve the goal of cultivating users to use the platform for a long time, improving consumer stickiness and activity, and ultimately achieving an increase in average order value.

From the perspective of merchants, Pinduoduo has the following initiatives:

First, the registration threshold for individual merchants is relatively low. Pinduoduo authenticates merchants through ID cards and phone numbers, and supports opening two stores with one identity.

Secondly, in Pinduoduo, the price, sales volume, and ratings of goods are used as reference factors for priority display. Merchants do not need to attract traffic on their own, and there is no such cost. Merchants only need to spend time on product selection and pricing.

Again, Pinduoduo has a support policy for newly settled merchants. By participating in Pinduoduo’s new product activities, new stores can be in the resource position for 10 days after passing the review.

In essence, these measures can directly promote the increase in product variety, thereby increasing conversion rate and average order value.

Advantages: Meet the needs of third- and fourth-tier users, low customer acquisition cost

Through the above analysis, it is not difficult to see that Pinduoduo's main market is in third-tier and fourth-tier cities and below. Pinduoduo has grasped the needs and pain points of these users for e-commerce, and controls the prices of platform products through purchasing channels and review of merchant pricing, allowing consumers to buy products at a lower price on the Pinduoduo platform than other e-commerce platforms.

Secondly, being able to stand out in the market where Taobao and JD already have such a large share, the low customer acquisition cost is also one of the important strategies for Pinduoduo to succeed. Through various activities, rewards and helps the platform promote and attract new users. This model has the advantages of low customer acquisition costs and high customer quality for the platform.

Disadvantages: Poor reputation, difficult transformation

Pinduoduo’s initial positioning was to provide consumers with low-priced products. Under the restrictions of low-priced prices, it is difficult to avoid “fake goods” and “low-quality goods”. Low prices are the advantage of Pinduoduo, but consumers' perception of "cheap but not good goods" is reasonable and difficult to change, which leads to consumers' lack of security on the Pinduoduo platform. Even if we can see now, Pinduoduo has made many measures to improve the quality of products. However, the actual problem is that the established image of Pinduoduo in the eyes of consumers has been formed, and consumers' perception of this platform is difficult to change. These are all huge obstacles for Pinduoduo to transform and rush into the Fifth Ring Road.

Secondly, the essence of social e-commerce is to promote with the help of social circles, which is an important tactical advantage of Pinduoduo. However, facing the high-frequency disturbance of "help cut" news, Pinduoduo has left a bad impression on many people, and thus the negative comments that "300 million people are using it and one billion people are complaining about it."

Pinduoduo has also tried to change this point. As for the recent changes made by Pinduoduo, the prompt for "help cut it" has become "Please look here, it is really important to me + link."

As shown in the picture above. However, this change does not seem to be appropriate, because this form is very similar to the form of online account theft and does not look like a "serious" operation. After the author's practical experience, I shared such links with friends, and my friends reported that such links were like virus links.

Moreover, with the optimization of WeChat network environment, some Pinduoduo sharing links shared in this form will pop up after clicking the link that is unsafe and stops access. I personally think that such changes are not worth the cost.

5. Product Iteration Analysis

In order to gain an in-depth understanding of Pinduoduo's follow-up process and explore the product iteration logic, the author iterated the main core versions of Pinduoduo V2.8.0 to V5.9.1 as follows:

According to the above review, we can clearly see the iteration path of Pinduoduo. Overall, the above iteration process of Pinduoduo reflects the following trends:

1. Improved basic functions

Through the above-mentioned sorting process, we can see that Pinduoduo's functional improvement is almost mixed in the entire iteration process. For example, some early basic features have been added, such as the additional evaluation function, prompt for unpaid orders, clear cache function, and the reason for canceling orders.

2. Activities and Shopping Guide

Various activities are one of the main forms of e-commerce promotion, which is reflected in the iteration of the Pinduoduo version.

Through the above statistics, we can clearly see that most of the iterations and updates in the version record involve event promotion, including Goddess Day, Home Decoration Festival, Mid-Year Promotion, Double Eleven, Double Twelve, Mid-Year Promotion, etc. Basically, there will be at least once every two months, and each event will also have various large subsidies.

In addition, Pinduoduo is also actively launching various new channels, new promotional sections, as well as adding new functions such as searching merchants and sharing products. These iterative records are conducive to guiding consumers to shop and self-dissemination.

The new versions related to these activities promotion account for such a high proportion in Pinduoduo's iteration records, which also reflects Pinduoduo's low-price route from the side, attracting and accumulating consumers through various activities and subsidies to ultimately achieve platform GMV growth.

3. Brand upgrade

With the accumulation of Pinduoduo's consumers, merchants, etc. at this time, consumers have basically taken a position on Pinduoduo and have also shown some concerns about product quality.

Correspondingly, Pinduoduo's iteration reflects a new trend, which is more inclined to dispel consumers' concerns about products, including new brand pavilions, platform customer service ratings, reporting of counterfeit brand products, logistics complaint capabilities and other functions.

For consumers, these iterations and updates better protect consumers' rights and interests and attach importance to consumers' shopping experience.

At the same time, the emergence of counterfeit product reporting function also reflects from the perspective of Pinduoduo gradually improving the quality of platform products, focusing on improving and enhancing consumers' awareness of Pinduoduo and improving reputation.

Overall, Pinduoduo's entire iteration process is a process of exploration and progress. First of all, the basic functions are improved, and then after the user accumulation reaches a certain amount, it gradually begins to move towards protecting consumer rights. This is also to improve customer experience and prevent customer churn. However, event promotion has been reflected almost throughout the iteration process, which is closely related to the positioning of Pinduoduo's low-price route.

6. Industrial structure analysis

In the above iterative analysis, we analyzed the iteration steps of Pinduoduo's product functions. Next, let's take a look at what users' needs these functions meet and how they are distributed throughout the entire app.

This is mainly analyzed through product structure. The following figure is the product structure brain diagram of Pinduoduo V5.9.1:

For the sake of analysis, the author will get the following table by re-examining the product structure of Pinduoduo according to users, scenarios, needs and functions:

When consumers use Pinduoduo to shop, there are mainly three scenarios:

1. Before purchasing, you want to have enough understanding of goods, services and after-sales guarantees

Before purchasing, for customers who do not have a strong shopping demand or just browse the Pinduoduo APP, they have no plans for what products they want to buy. At this time, they need to actively attract consumers' attention through rolling advertising, pinxiaoquan, and 10 billion subsidies, and use various discount activities to make consumers interested in the products.

For consumers with clear needs, consumers can find their target products from the search box or classification area.

After consumers arrive at a specific product page, their main needs become understanding of the product in the province, activity intensity, after-sales service, and customer reviews of the product that has been purchased. In these aspects, Pinduoduo basically has corresponding modules.

Especially in solving consumers' concerns about genuine products, difficulty and cost of return, Pinduoduo has made many relevant settings, including whether the products support seven-day unreasonable returns, highlighting this service for products that provide return package shipping fees, and highlighting the "genuine insurance" for products with genuine products, etc., aiming to dispel consumers' shopping concerns.

2. During purchase, the need for order coupons, setting delivery address, and using coupons

Since Pinduoduo is a social e-commerce company, its shopping forms are divided into two types: order-published or purchased separately. The price of consumers who choose order-published is more favorable than buying separately. During the purchase process, consumers will have the needs of initiating orders, inviting friends, using coupons, setting delivery address, and selecting payment methods. Pinduoduo also has corresponding functional modules to meet the needs of consumers.

3. After purchase, various needs such as return and exchange, product review, official intervention, etc.

After completing the shopping, for consumers who purchase products by "initiating orders" method, inviting friends to orders is one of the most frequent needs. After such users purchase, Pinduoduo will jump to the interface of inviting friends.

For consumers, after purchasing the goods, there is also a need to confirm receipts, evaluate goods, return and exchanges, and intervene on the platform customer service. These functional modules also have corresponding layouts in Pinduoduo.

Among them, for some consumers, it may also be necessary to change the delivery address, and the corresponding address change module is also set. For various necessary and possible needs after shopping, the platform function modules basically have corresponding settings.

From the above analysis, we can find that Pinduoduo's functional design can well meet the needs of consumers in the three scenarios of purchase, during purchase and after purchase, especially the module settings for guiding consumers with unclear shopping purposes are relatively comprehensive.

In view of Pinduoduo's weakness, that is, consumers have more concerns about product quality and after-sales service. From the functional settings before purchase, we can also see that Pinduoduo has focused on solving this problem, taking into account the concerns before purchasing. The distribution of its key functions is more consistent with the characteristics of Pinduoduo itself and the layout is more reasonable.

7. Operational Path Analysis

The so-called "good products are operated" reflects the crucial position of operation in the process of product growth and development. So, in the period when e-commerce has developed to a relatively strong and industry giants have formed, how did Pinduoduo find a glimmer of vitality in the cracks and develop and grow rapidly? The author has sorted out the following categories of Pinduoduo's main operating activities to date: program sponsorship, cross-border cooperation, operation projects and promotional activities.

1. Program sponsorship

On October 15, 2016, Pinduoduo Movie logged into major theaters in Guangzhou, with a user base of over 80 million.
On July 9, 2017, Pinduoduo specially sponsored "Extreme Challenge" to witness the "Fight Together".
On July 13, 2017, Pinduoduo named "Zu Linglong" to start a fantasy love together.
On July 14, 2017, Pinduoduo's exclusive "New Chinese Songs" was held together to find the future.
On October 28, 2017, Pinduoduo specially sponsored Oriental TV's "Meet the Little Master".
On January 3, 2018, Pinduoduo named "Happy Comedy", which was serious and funny and accompanied by joy.
In March 2018, Pinduoduo named "If You Are the One" and "I Am a Detective" and named the TV series "There Are Trees in the South".
In April 2018, Pinduoduo became the chief partner of "Happy Camp", sponsoring "Infinite Song Season" and sponsoring the Internet with the title "Running Man Season 2".
In May 2018, Pinduoduo specially sponsored the "Youth Class Reunion".
In July 2018, Pinduoduo exclusively named Hunan Satellite TV's "My Boy".
In July 2018, Pinduoduo became the chief partner of "Chinese Restaurant 2018", jointly named "Where Are We Going, Dad, Season 6" and named "Fantasy City" online.
In August 2018, Pinduoduo exclusively named "Is it true" and exclusively named "We Are In Action".
In October 2018, Pinduoduo Network was crowned "Dear Inn".
In December 2018, Pinduoduo sponsored the "Dream of the Oriental 2019 Oriental Satellite TV New Year's Eve Ceremony".
In January 2019, Pinduoduo sponsored "Direct Spring Festival Gala" and named "Singer".
In March 2019, Pinduoduo jointly sponsored iQiyi's "I Am a Singer and Writer".
In September 2019, Pinduoduo and iQiyi exclusively broadcast "I Wait for You in the Future".
In November 2019, Pinduoduo named iQiyi's "Singing So Beautiful".
In December 2019, Pinduoduo joined hands with Hunan Satellite TV's New Year's Eve Gala to deliver over 1 billion red envelopes.
In January 2020, Pinduoduo exclusively named Hunan Satellite TV’s Global Overseas Chinese Spring Festival Gala.

2. Cross-border cooperation

On October 11, 2017, Pinduoduo joined hands with Industrial and Commercial Bank of China and WeChat Pay to deliver benefits together.
On November 2, 2017, Pinduoduo joined hands with AppTrea and Tencent Charity to launch the "hello Kids" charity project, innovatively launching the "charity shopping" model.
On December 14, 2016, Pinduoduo and the Red Cross Society helped poor farmers to launch a charity sale for the Thousand People Group.
In June 2018, Pinduoduo and Tencent AppTrea to call you to play the World Cup together.
In November 2018, Pinduoduo and Hei Cat complained to jointly protect the safety of shopping orders.

3. Promotions

(Because marketing activities have a certain periodicity, the following is mainly to sort out the activities in 2019)

From January 4 to January 31, 2019, the Pinduo Multi-Year Products Festival.
From February 28 to March 10, 2019, Pinduoduo Goddess Day.
May 17, 2019, Pinduoduo Foodie Festival.
On May 20, 2019, Pinduoduo's 520th Seconds Kill Festival.
From May 23 to June 20, 2019, Pinduoduo 618, a subsidy of 10 billion yuan broke through low prices.
From August 14 to 25, 2019, Pinduoduo Agricultural Products Festival.
From September 22 to September 24, 2019, the Duoduo Harvest Festival.
From October 8 to October 10, 2019, the fourth anniversary of Pinduoduo.
From October 21 to November 11, 2019, Pinduoduo Double Eleven event.
From December 19 to December 24, 2019, Pinduoduo Christmas Carnival Week.
December 20, 2019-January 15, 2020, Pinduo Multi-Year Products Festival.

3. Operation project

In March 2017, Pinduoduo launched the "Tip-Tip Hunter" project, which mainly sells agricultural products.
On July 7, 2017, the Pinduoduo agricultural poverty alleviation project "Green Skin Walnuts from the Footsteps of Huashan" was launched.
At the end of 2017, Pinduoduo started a new farmer support plan to help sell agricultural products.
On April 25, 2018, Pinduoduo launched the "Partnering together to help farmers" poverty alleviation and agricultural assistance plan, selling 330,000 kilograms of garlic per day.
On December 12, 2018, Pinduoduo's new brand plan focused on the growth of China's small and medium-sized manufacturing enterprises.
In May 2019, Pinduoduo launched the "Shanghai Time-honored Brand New Store Plan" and announced the launch of the "10 billion subsidy breakdown of the base price" activity.

8. Conclusion

Through the overall analysis of the social e-commerce market and Pinduoduo, we can draw the following conclusions:

1) From the perspective of policies, economy, social culture, technology and other factors, the income of residents in third- and fourth-tier cities and the demand for the Internet have not only promoted the development of e-commerce in these cities, but also showed huge market and business opportunities, causing more and more e-commerce to join the battle of the "sinking market".

2) As the leader of social e-commerce, Pinduoduo not only has obvious advantages in scale for urban residents in third- and fourth-tier cities and below, but also has first-mover advantages, and also maintains an advantage in commodity pricing, which can meet the low-price demand of urban residents in third- and fourth-tier cities and below.

However, in terms of product quality and platform reputation, it is Pinduoduo's shortcomings. After all, whether for first- and second-tier cities or third- and fourth-tier cities, consumers' requirements for product quality will generally be higher and higher. Moreover, Pinduoduo's new strategic direction is also to "rush into the fifth ring road". In this process, platform reputation is an important resistance to the realization of Pinduoduo's strategic goal.

3) From the perspective of the industrial chain, merchants and consumers are two indispensable participants in the Pinduoduo platform's transactions. If Pinduoduo wants to achieve development, it not only needs to better meet consumer needs, but also helps merchants obtain more profits.

4) For consumers, the pursuit of cost-effectiveness is inevitable, so providing consumers with higher cost-effective products is a job that Pinduoduo cannot ignore. In addition, if you want to improve consumers' shopping experience, you must continue to pursue improvements in product quality and further improvements in after-sales service. For merchants, profitability is the merchant’s first goal. Then, it is particularly important to ensure that all merchants can obtain sufficient customer flow, and the platform needs to increase the exposure of products. We can see that Pinduoduo is constantly launching various operational activities and the continuous iteration and follow-up of its core business to guide more consumers to place orders and shop.

Since the essence of group purchase is to allow consumers to buy goods at a lower price, Pinduoduo must work hard on product prices and after-sales service. After all, whether the cost-effectiveness and whether the after-sales service are all the main factors affecting consumers' purchase of goods. For the platform, the important role of group buying is to reduce customer acquisition costs. How to guide consumers to share products to achieve an increase in conversion rate is also a major task of Pinduoduo.

5) From the perspective of product iteration, Pinduoduo's entire iteration process reflects the characteristics of exploration and progress. First, the basic functions are improved, and then after the user accumulation reaches a certain amount, it gradually begins to move towards improving customer experience to prevent customer churn. However, event promotion has been reflected almost throughout the iteration process, which is closely related to the positioning of Pinduoduo's low-price route.

As a social e-commerce company, most of Pinduoduo's functional designs have to be centered around consumers. The scenarios for consumers to use Pinduoduo APP are mainly divided into three scenarios: before, during and after purchase. Through the analysis of the functions of Pinduoduo APP, we can find that Pinduoduo has the most functions designed in the scene before purchasing, and it is also the most closely related to Pinduoduo's revenue. In addition, Pinduoduo is also constantly improving various services and after-sales services after purchase, pursuing the healthy development of products.

Below, we use the SWOT model to summarize the analysis of Pinduoduo in this article:

The above is an analysis report made by the author for the purpose of being familiar with the group buying business, so he did not give any suggestions on the direction of product optimization. I hope these contents will be helpful to everyone. Due to limited personal abilities, the boss is welcome to give advice and thank you for any errors in the article or if the analysis is not in place.

Author: Only

Source: Only

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