Taobao is Threatened by this 2-Year-Old Startup: Pinduoduo
On the 9th of December 2017, Cheetah Mobile published a ranking of e-commerce Apps in China. Taobao was number #1. And right behind, the number #2, was Pinduoduo.
With over 200 million registered users in 2 years, Pinduoduo is the leading Chinese App for social e-commerce, and the fastest growing App in the history of the Chinese Internet. Let's take a close look at it.
Pinduoduo is an e-commerce platform enabling users to participate in group buying deals, mostly via WeChat.
It mostly sells very affordable products, generally under 100 RMB (for example, you could find winter boots on Pinduoduo for 29 RMB, and a new blanket for 49 RMB)
The company grew remarkably fast:
January 2014: Pinduoduo was founded by Huang Zheng (黄峥), a former Google employee
September 2015: Pinduoduo receives A round investment from an impressive list of investors, including the former Taobao CEO Sun Tongyu
September 2016: B round of funding of 110 million USD, including Tencent and IDG as investors
December 2017: Cheetah mobile ranks Pinduoduo as #2 e-commerce App
One might wonder what caused such an explosive growth. Besides all of the tricks we mentioned above, Pinduoduo has one specificity: it is doing exceptionally well in smaller cities (Tier 3 and smaller).
64.7% of Pinduoduo users come from Tier 3 cities or smaller, against only 50.1% of users for JD.com. And only 7.6% of Pinduoduo users come from Tier 1 cities.
Moreover, many of Pinduoduo users are female above 40 years old in smaller Chinese cities. These users are extremely price-sensitive, but they make frequent purchase and they are often in control of purchasing for the whole family.
These users might not have much experience with e-commerce purchase, but once they learn how (and bring all their friends into the platform) they can bring long term profits to the Pinduoduo: they have high purchasing power, and are continuously using the App.
There are two words that come to mind when thinking of Pinduoduo: addictive and viral.
The App is doing everything to push you to share the App with your friends. And once you did, it does a great job at keeping them hooked. The App combines a bunch of tactics in order to achieve these results.
Group Buying
The core function of the App is Group Buying: each item has an official price and a group-buy discounted price. In order to get the discounted price, I can find another friend to join the group-buy deal, and we'll both get the product shipped to our respective address.
Free products
Cheap products are great. But what about free products? That's just what Pinduoduo offers.
The App offers a range of products for free. You just have to get enough new users to follow the Pinduoduo Official Account, install the App and sign up via WeChat login.
1 App install will get you a small box of candy. 9 App installs will get you 1.3 kg of nuts from the food startup Three Squirrels (三只松鼠). That's the one I went for.
Sure enough, my awesome WeChat friends helped out and installed the App, and on the next day...
This can sound like a crazy strategy, but it's not. The package sells for 99 RMB full price, 79 RMB in group buying. But Three Squirrels makes a heavy margin on this, and most likely only charges Pinduoduo around 20-30 RMB to ship the free product.
That's 3 RMB per high-quality App installs, linked with a WeChat social account. The promotion also leads one person to actually get a delivery, engage with products and share about the experience with friends.
This is exactly the kind of strategy that propelled Pinduoduo on the top of the App stores.
Moreover, people might keep scanning the QR code after the free product has been claimed. In my case, 25 friends scanned the QR code trying to help me get the free product: that's a cost of less than 1 RMB per follower for Pinduoduo!
Short term coupons
Pinduoduo offers coupons. That's nothing special in China.
However, Pinduoduo's coupons have exceptionally short durations: usually only 2 hours.
The message is clear: you should not linger around or hesitate. Pinduoduo is a platform where you should buy things, and you should buy them now.
Ask friends to "bargain"
Another way Pinduoduo creates viral incentives is by asking friends to help "bargain" for a cheaper price.
You can share certain products with friends. Each time a friend volunteers to help you "bargain", the price decreases a bit. Eventually, you can get the product for free.
This trick can also seem costly, but it can be worthwhile for the brand. In order to get a cooking pot worth 150 RMB (which in reality might only be worth 50RMB), you'll have to have around 25 friends to log in to the WeChat shop.
And in doing so, you gave strong social proof supporting the brand, by letting your friends know you really care about getting this product.
Red envelopes + Leaderboard
Using cash red envelopes to reward users for inviting friends is another old trick of viral marketing. Pinduoduo rewards users a cash red envelope between 5-20 RMB.
Here again, Pinduoduo takes it a step further. Not only do they reward users, but they also display a leaderboard of the users who made the most money out of inviting friends.
The top user made 2,940 RMB from sharing with 290 friends. Many of us have thousands of WeChat friends, and it's easy to imagine earning similar amounts from sharing on our moments.
Suddenly, the incentive that we picture in our mind is not a few RMB, but literally thousands.
Lotteries
One more viral mechanism from Pinduoduo is the use of lotteries. Typically, users have to pay a small entry fee (0.01 RMB) to get into a lottery. For the lottery to be active, they must also invite enough friends to join it within a specific period of time.
If they get enough friends to join, users can then get a chance to win the product for only 0.01 RMB.
This is another marketing trick:
It's not clear how many users in total will join the lottery and what are the chances of winning
The interface tricks the users into thinking this is just another group buy, so they would share the products with friends to reach the group buy number
If you don't win, Pinduoduo will refund the 0.01 RMB along with a coupon to buy more stuff on Pinduoduo
This is a great and cheap way for brands to do marketing without having to invest too much. Although users might only realize it's a lottery trap after they invited 6 friends to join.
Customer service messages
Pinduoduo also makes great use of Customer Service Messages. These messages are customizable messages that can be sent 48 hours after the user followed the account or interacted with it.
Most of the accounts only use these messages for welcome message or customer service requests. But Pinduoduo does much more: they use these messages to continually recommend new products to the user.
Unlike the "Broadcast" messages that are limited (4 per months for service accounts), these messages are unlimited and can be customized for each user. They're the perfect way to make recommendations based on order history.
We received on average 5 messages every 24 hours after subscribing - and these are very visible messages sent from a WeChat Service Account!
Moreover, if users click a menu item on the WeChat Official Account (for instance to check order status) the 48 hours window is re-opened and Pinduoduo can keep messaging them.
Automatic payment
The last trick we'd like to mention is the "automatic WeChat payments" that Pinduoduo is using.
You might already be using this function if you're using Didi Dache for ride hailing: once you finish a ride, it is automatically billed to your WeChat Payment account without the need for further validation.
That's exactly what Pinduoduo does: the first time you pay, it enables "password-less payments" by default. After this first purchase, you won't have to enter your password anymore and will be able to do one-click payments.
This is an amazing way to increase impulse purchases, which are the bread-and-butter of Pinduoduo.
Pinduoduo has experienced a meteoric rise to the top of the Chinese e-commerce landscape over the last 2 years. At the core of its success was a strong emphasis on social commerce, viral marketing & retaining users.
Although this trajectory is very unique, a lot of brands and platforms can take cues from Pinduoduo's success. By applying some of these tactics to your own business, you too can have more users with stronger levels of engagement.