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Why Pinduoduo succeeded and what problems are stopping its growth?

By ESC Editorial Team, about 1 year ago Business
Why Pinduoduo succeeded and what problems are stopping its growth?

Why is Pinduoduo becoming a success in the e-commerce?


Almost everyone believes that Alibaba and JD.com have reached the ultimate limit of China’s e-commerce and leave no room for e-commerce startups. However, the rapid rise of Pinduoduo has shown that there will be new models in the e-commerce market.


The value of all products always involves two factors: to meet the needs and solve the problems. The key to Pinduoduo’s success is that it solves the following two contradictions.


1. Break down the bottlenecks between production and circulation


The first contradiction resolved by Pinduoduo is the solution of the bottleneck between the end of production and the end of circulation in the industrial chain.


One of the basic characteristics of China as a factory in the world is that the manufacturing process is too large, with a long-term surplus on the supply side. Due to the oversupply of manufacturing capacity, the processing industry relies heavily on the digestion of large capacity in the cycle, so that the end of production was in a weak position compared to the end of circulation.


The expensive traffic flow is another reason why production is weak. The advent of the internet and the mobile internet has boosted the profits of commerce, so that the first companies in these sectors made a lot of money. Nowadays, more and more competitors are sharing mobile Internet traffic, while online traffic has become more expensive than offline traffic. The sales of most manufacturing companies are based on third-party channels, without support for independent marketing and own purchases. Pinduoduo is such a third-party trading platform that is based on social networks and connects C-side users and B-side suppliers.


2. Focus on the lower price ranges and not on the high-priced ones


Consumption improvement was founded with the goal of increasing the unit price of each product, service and customer. It is a fixed target for almost all e-commerce platforms. Alibaba's strategic realignment of consumption improvements is very determined and striking. Most traffic resources appear to be distributed to Tmall.com rather than Taobao.com. It caused many Taobao shopkeepers, whose competitiveness is the lower price, to complain that they were treated unfairly by Alibaba.


As other e-commerce companies focus their resources on high-priced areas, manufacturers, accustomed to competing at lower prices, are seeing fewer and fewer channels for the distribution of products and services. Low-price areas have become a competitive field and threaten to further restrict the circulation channels. Under this status, Pinduoduo takes the opportunity to do business at lower prices by combining its online sales channels and most Chinese factories with strong basic manufacturing capabilities. 


What problems does Pinduoduo face?


It took a very short time for Pinduoduo to achieve the growth that has taken Alibaba and JD.com many years. But the extremely fast growth rate will always bring many problems at the same time, such as the problems of counterfeiting, logistics and services, and how eventually the unit price for each customer can be increased. The problems experienced by Alibaba and JD must also be solved by Pinduoduo. As Pinduoduo works in an intense competitive environment with less tolerance of consumers, higher costs may be incurred when it copes with those issues.


Since the counterfeit credibility crisis, Pinduoduo has begun to focus on evaluating the products and services offered by shopkeepers, leading to conflicts between the two sides. Here is a typical example of shopkeeper protests that took place on Jun 13, when Pinduoduo was in disputes with shopkeepers who were doing business on the platform after a quality crackdown.


[June 13 protest by the Pinduoduo shopkeepers]: After an investigation revealed false deliveries, counterfeit goods and suspicious product descriptions, 14 shopkeepers on the Pinduoduo platform had to pay a fine of more than RMB 10,000. And the business accounts and orders from these shopkeepers had been frozen by Pinduoduo in the last three months. On June 13, 2018, the 14 shopkeepers protested outside the buildings of Pinduoduo’s headquarters, demanding an explanation. And Pinduoduo was accused of making a profit from the fines of the shopkeepers.]


Unlike Taobao, Pinduoduo has no shops and shopping carts on its platform. Instead, Pinduoduo provides a platform to connect manufactures’ businesses and their customers online and completes the payment. In this way, all the products provided by the shopkeepers on the platform are operated independently and each product sample will be previewed and priced by an operator at the Pinduoduo end.


The most popular sales on Pinduoduo are always those which meet people’s daily needs with lower price. But the products that are unexpectedly a hit in the marketplace can cause the underserved traders to fail delivery, misdelivery and customer refund. And low prices may also lead to quality losses in the products.


In addition, Pinduoduo needs to think about how to strengthen user loyalty to the platform. Pinduoduo’s founder, Colin Huang (Huang Zheng) believes that most present-day Chinese consumers have used the Pinduoduo platform. However, the data shows that the penetration rates of third- and fourth-tier cities are nearly saturated, indicating that in the future, Pinduoduo will need to intensively research in the first- and second-tier cities to increase user numbers.


Therefore, from now on, Pinduoduo must focus on its technology developing and applying more standardised management.



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