Pinduoduo’s new e-commerce operation methodology!

Today, Pinduoduo released its Q4 and full-year financial report for 2019. The data basically met expectations, and GMV unsurprisingly exceeded RMB 1 trillion. What do you think of Pinduoduo’s financial report and the new e-commerce proposed by the company?

With continued investment, customer acquisition remains the top priority. In 2019, Pinduoduo had 585 million annual active buyers. A total of 48.9 million new people were added in a single quarter. Among several e-commerce companies, it has the largest number of new users in a single quarter. Pinduoduo, which is running at full speed, has now become the second largest e-commerce company in China in terms of the number of buyers. In terms of GMV, it is second only to Taobao and JD.com. Given this status, why are Pinduoduo and its management still increasing their investment?

"As I mentioned, 2020 is a year of continued investment for Pinduoduo. As our platform grows, it is possible to take certain leverage." This is management's answer to the question about marketing expenses this year. Based on Pinduoduo's Q4 financial data, we calculate Pinduoduo's user acquisition cost. In the fourth quarter of 2019, Pinduoduo's sales and marketing expenses were 9.4 billion yuan, and it had 48.9 million new users. In other words, the cost of each new user was 184.76 yuan. If the subsidy costs are excluded, the actual cost for users to purchase users is still lower.

"Regarding the question about sales and marketing, we do not have quarterly targets for sales and marketing spending. Instead, we decide based on internal ROI thresholds. Therefore, if we see attractive spending opportunities, we will do so." When it comes to customer acquisition, management's answer is clear: as long as the ROI is reasonable and attractive opportunities arise, they will invest. And this can also be seen from Pinduoduo's methodology from its development in the past few years.

As a platform, users and merchants are the two most important components. Obtaining traffic naturally becomes Pinduoduo's most important task. We see that Pinduoduo’s rapid growth is actually the result of efficient customer acquisition. As for how to acquire customers efficiently, the data has already reflected everything. This is far lower than the cost of acquiring new users of JD.com and Taobao. So, if you were Huang Zheng, would you use losses to achieve growth? I think anyone would do this without hesitation.

Because the current traffic is always the cheapest and will only become more and more expensive in the future. I have also said in my previous article that cheapness is just one result of Pinduoduo. The prerequisite is a huge number of users and a large number of merchants. As a connector of platforms, Pinduoduo has created and improved tremendous efficiency in connecting people and goods. Lower customer acquisition costs and lower store opening costs for merchants. This results in Pinduoduo’s product prices being very low. End users, merchants, and platforms all benefit.

The essence of subsidies: using money to accelerate user thinking. When it comes to Pinduoduo's 10 billion yuan in subsidies, there are many voices of support and doubt. Some people questioned that Pinduoduo’s subsidies are a form of “charitable behavior” and that giving users red envelopes will discourage them from retaining the user base in the future. Another saying is that even Pinduoduo cannot change its low-end image. Let’s discuss them one by one:

Both the number of users and ARPU continue to grow. Unsustainable subsidies will neither retain users nor increase ARPU. Therefore, many apps that claim to provide subsidies only work for a while and then disappear. For example, with the earliest OFO yellow bikes, users can receive subsidy red envelopes when riding. It gained hundreds of millions of users in the short term, but eventually collapsed due to huge losses. Mobike in the market today not only does not provide subsidies, but also increases the unit price of riding. As for Pinduoduo's user data, every indicator is going up while subsidies are being provided:

Among them, the ARPU in 2019 reached 1,702 yuan, a year-on-year increase of 53.9%. Although there is a big gap with Taobao, it is understandable because Pinduoduo acquired 48 million new customers in the past quarter, which diluted the overall ARPU to a certain extent.

The second point is about Pinduoduo’s low-end and image issues. I think that Pinduoduo has achieved a GMV of over one trillion and has 580 million active users as of today. It is already biased to describe it as low-end, sinking users and outside the Fifth Ring Road. How can a product with 500 million users have all low-end users? This is impossible just by thinking about it. I think Pinduoduo has become a general e-commerce product today. Especially for commodities worth dozens of yuan, such as agricultural products, fruits, and food, Pinduoduo already has a huge advantage.

Although it has 500 million users, Pinduoduo is still increasing its subsidies. I understand that Pinduoduo needs to change the minds of users. Because Pinduoduo started out by focusing on agricultural products and fruits, with an average customer spending of just a few dozen yuan. Pinduoduo needs to make users feel trust and security in high-priced goods and other categories of goods. So, we saw that Pinduoduo focused on subsidizing Apple phones last year and in February this year. And who is the largest e-commerce company in the 3C digital industry? Jingdong! Pinduoduo, on the surface, appears to be a subsidy for Apple phones. In fact, they want to attract JD.com users who are using Pinduoduo! In addition to mobile phones, Pinduoduo mainly subsidizes branded goods among the 10 billion yuan in subsidies, including Dyson hair dryers, Moutai, AUX, Mengniu, etc.

Through subsidies, Pinduoduo not only tells you: you can buy fruits for tens of yuan here, you can also buy branded products for hundreds of yuan; you can not only buy white-label products for tens of yuan, but also buy Apple phones for thousands of yuan. The "10 billion subsidies" are equivalent to a currency. Pinduoduo has shortened the time it takes for Taobao to evolve into Tmall.

What is Pinduoduo’s new e-commerce? Open Pinduoduo’s official website, and the homepage has their slogan: Pinduoduo, the pioneer of new e-commerce, buy together to get cheap prices.

How to understand the three words "new e-commerce"?

Traditional e-commerce can be summed up in four words: more, faster, better, cheaper. There are many products, the logistics is fast, the products are good and the prices are low. This is the goal that Taobao and JD.com have always been pursuing. Moreover, both companies have given themselves extremely strong advantages. Taobao, needless to say. In terms of both the number of users and the number of merchants, it is the leader. JD.com’s product supply is far less than Taobao’s because it mainly operates its own business. However, thanks to its self-built logistics and delivery efficiency, its fulfillment costs are low and the experience is very good. It also gains extremely high user loyalty. The rise of Pinduoduo must be a differentiated approach, a new e-commerce. This is how I understand it:

Jian: Compared with traditional e-commerce, this is Pinduoduo’s biggest difference. Traditional e-commerce emphasizes unlimited supply so that users have more choices. Satisfy users' needs for "shopping". Pinduoduo has always been talking about optimizing the upstream and cooperating with factories. For example, for toilet paper, Taobao Juhuasuan may have 1,000 merchants, while Pinduoduo’s starting point is the plant category. Can it screen 10 merchants, optimize the products and output, and lower the prices? Make paper products that are easy to use and affordable. This is the “online Costco” with Chinese characteristics. When shopping on Pinduoduo, in the future, only a few brands will be needed in each category, and users can buy whatever they want without worrying about quality or price issues. Simple purchasing, simple products, simple decision making.

Simple, affordable, good products, save money. I have distilled these four key words.

I think new e-commerce needs to be simple, popular, good and economical. The supply of goods is simple, the prices are affordable, the quality of goods is good, and you can save some money every time you buy. From the beginning to now, it can be said that Pinduoduo has been building differentiated competitive advantages around the three words "new e-commerce". At present, this competitive advantage is growing. Traditional e-commerce companies have not responded at all.

Author: Science and Technology Xiang Ling said

Source: Science and Technology