Beware of Pinduoduo: the popular group shopping app from China has found its way to profit. This way, it is firmly in the saddle to soon conquer Western markets as well – starting with the United States.
New sources of income
Pinduoduo, the app that made social e-commerce and group purchases big in China, is impressing with solid quarterly results. After a spring full of lockdowns and Covid restrictions in China, consumer confidence recovered in the second quarter and the shopping platform visibly benefited as a result.
Turnover rose by 36 % compared to a year earlier to 31.4 billion yuan (4.6 billion euros). Not only is this much better than expected, but the app also managed to tap into new sources of income. For example, revenue growth was mainly attributable to online marketing services and transaction services for sellers on the platform. This makes Pinduoduo less dependent on the (shrinking) margins on products, which are often sold at huge discounts.
Key to expansion
The Chinese e-commerce player has thus also found the precious key to profit, as net profit rose by no less than 268 % to 8.9 billion yuan (1.3 billion euro). A year earlier, the app was barely profitable.
Its growth, despite the slowdown in the Chinese economy, gives Pinduoduo the confidence to pursue foreign expansion. The group purchasing platform is currently helping sales partners prepare for an expansion into the North American market, Bloomberg has learnt from internal sources. In its home market, the app has more than 880 million monthly active users.
More users than Alibaba
Pinduoduo is challenging the very definition of online shopping by shifting the focus from convenience to experience. The young company, a bit of a love child of Groupon and a bazaar, captures the innovative spirit of Chinese retail like no other. The boundaries between online and offline, between shopping and entertainment and between manufacturer and retailer are completely blurred. It is a continuation of Chinese OMO commerce, a far-reaching variant of omnichannel as we know it in the West.
The app has aroused mass interest in the concept of group purchasing. It sells a wide range of products, from apples to cars, with the unusual premise that the more people who buy at the same time, the cheaper it gets. Those who wish to sign up for a deal are given 24 hours to gather a team of up to ten fellow buyers, which yields discounts of up to 90 %. Proof of its success? Pinduoduo already has more active users than Alibaba.
The app combines a sense of belonging with bargains, a recipe that particularly appeals to lower-income households (especially mothers) in smaller towns. By weaving social media into the concept, the experience takes on a whole new dimension. Groups of friends convince each other to make impulse buys while chatting, while live-streaming allows for immediate feedback from the seller. Moreover, by linking with friends, everyone gets personalised product suggestions based on their social network.
Virtual sales pitches
There are no intermediaries at Pinduoduo, all products come directly to the consumer from the farmer or manufacturer. However, there is no direct vertical integration either. Pinduoduo simply lets producers advertise their merchandise themselves, often with the help of livestreaming, which is very popular in China. Manufacturers can thus make a virtual sales pitch, advertise and target consumers. They arrange delivery themselves or they deliver to the central hubs of the e-commerce platform.
Sellers are sure of their sales in advance if they offer a deal on the app, as there is a minimum number of people who have to sign up before it goes through, which creates interesting economies of scale. Yet, not everyone is happy with the way the app works. When Pinduoduo sold a batch of Tesla cars for a bargain, the car manufacturer initially refused to deliver. How the app will be received in the US therefore remains to be seen.
Want to know more about Pinduoduo and how Chinese OMO Commerce can also bring about a revolution in the West? Read all about it in the new book The Future of Shopping: Re-set Re-made Re-tail.