When Pinduoduo, the Chinese language low cost buying app, debuted practically a decade in the past, the tech giants Alibaba and JD.com dominated China’s e-commerce enterprise.
Pinduoduo felt extra like a gimmick than a future rival. It was a mix of a sport arcade, a shopping center and a social community. Its essential promoting level was decrease costs for customers who recruited different patrons to make group purchases. Prospects might go the time by taking part in video video games or earn cash by logging in every day to browse the app.
Now, nobody is taking the corporate flippantly.
Pinduoduo is the sister firm of Temu, the discount buying app that has amassed tens of thousands and thousands of customers outdoors China, together with in america, the place it’s spending billions of {dollars} on promotion. Individuals who haven’t used Temu but have most likely seen its Tremendous Bowl adverts or Instagram posts.
Like TikTok, Temu is the international model of a extremely profitable Chinese language firm. As its reputation has grown in america, its enterprise practices have additionally come below scrutiny. Members of Congress have questioned whether or not it’s offering a U.S. channel for merchandise which might be made in China utilizing pressured labor. It has encountered criticism for its labor practices and failure to implement mental property legal guidelines.
Inside China, Pinduoduo has additionally been gaining extra consideration. As a preferred vacation spot for cheap groceries and home goods, it’s now closing in on JD, China’s second-biggest on-line retailer, when it comes to market share. And when it briefly overtook Alibaba because the nation’s Most worthy e-commerce agency final yr, Alibaba’s founder, Jack Ma, despatched an inside memo imploring his firm to “change and adapt” to maintain up.
Final month, PDD Holdings, the father or mother firm of Pinduoduo and Temu, reported that its annual income practically doubled in 2023, whereas Alibaba’s and JD’s income grew lower than 10 %. The corporate known as the consequence a “pivotal chapter” in its historical past.
Pinduoduo has efficiently capitalized on considered one of China’s largest financial challenges: sluggish client spending and falling costs for meals and different objects. Because the nation’s progress has slowed, shoppers are embracing a life-style of so-called downgraded spending centered on Pinduoduo purchases.
It was completely different when Pinduoduo emerged in 2015. China’s speedy progress over the previous many years had instilled confidence that an increasing center class would proceed to flex its newfound wealth with lavish spending.
Round that point, Alibaba opened a series of supermarkets, promoting king crab legs, 30-year-old single malt Scotch whisky and different luxurious objects. JD began an e-commerce portal known as Toplife for premium manufacturers.
“The largest mistake on the time was this perception that China had turn out to be stuffed with middle-class shoppers, and that it might simply go up and up into the longer term,” stated Robert Wu, editor of the Baiguan publication, which is targeted on funding and enterprise in China.
In a 2018 interview, Pinduoduo’s founder, Colin Huang, who’s now China’s second-richest particular person, stated it was attempting to fulfill not simply China’s nouveau riche but in addition folks outdoors of “Beijing’s fifth ring,” a colloquialism for financially struggling individuals who dwell removed from China’s essential cities.
Pinduoduo, which didn’t reply to requests for remark, grew by phrase of mouth as a result of it supplied steep reductions. Sharing the bargains on-line was simple as a result of Pinduoduo was deeply intertwined with Tencent’s WeChat, a ubiquitous messaging service in China. Inside one yr, Pinduoduo had 100 million customers. After 5 years, it surpassed Alibaba with 788 million customers.
In a 2023 report, Goldman Sachs estimated that Pinduoduo accounted for 19 % of China’s e-commerce market by worth of merchandise bought, in contrast with 20 % for JD and 41 % for Alibaba.
Consumers on Pinduoduo deal instantly with suppliers, farmers and producers to get low costs. The corporate retains its charges to customers and sellers low, and has averted heavy investments by outsourcing its logistics to different firms. Mr. Huang as soon as stated he wished Pinduoduo to be like Fb for buying, a vacation spot the place folks gathered with out essentially intending to buy.
After Pinduoduo’s success, social commerce is now the norm in China. Each e-commerce app options dwell buying with influencers testing new merchandise and responding to consumer questions. A few of China’s largest social networks are buying locations. These embody Xiaohongshu, the nation’s model of Instagram, and Douyin, the app owned by ByteDance, which runs TikTok outdoors China.
The primary attraction of Pinduoduo is its shockingly low costs. A 5.5-pound field of cherry tomatoes prices about $4.50, however the value per field is reduce in half if one other particular person joins to make a “group buy.” A dozen rolls of five-ply rest room paper value 80 cents. Each are delivered free.
In its early days, Pinduoduo was overrun with knockoffs. It took aggressive steps to handle the problem. Patrons who obtain counterfeit items are eligible for a refund of as much as 10 instances their cash from the vendor. Sellers present a refund with no questions requested if a buyer is dissatisfied with a purchase order.
Rainbow Wang, an English instructor in Beijing, stated she was a faithful Pinduoduo shopper for every day objects equivalent to fruit, greens, rice and yogurt. She will get even greater reductions by paying for a $1.50 month-to-month membership.
Ms. Wang stated she cherished the low costs, free delivery and beneficiant return coverage. There was once extra reductions, she stated, however she’s going to proceed to buy there as a result of “its stuff continues to be low-cost.”
For sellers, the massive site visitors to the app is the draw. Marcus Ding, common supervisor of a sporting items firm, stated he made extra money on Pinduoduo due to its decrease vendor charges. However a few fifth of the income he generates on Pinduoduo goes again into selling his merchandise on the platform. Pinduoduo makes most of its cash from promoting on the location. Final yr, about two-thirds of its income got here from sellers paying for product listings to look prominently.
The promoting mannequin was most certainly influenced by Google, the place Mr. Huang labored as an engineer from 2004 to 2007. Pinduoduo’s adverts are bought utilizing a Google-like public sale system to bid on key phrases.
There are different indicators of Google’s affect.
In a 2018 submitting for an preliminary public providing on the Nasdaq trade, Mr. Huang, who left Pinduoduo in 2021 however stays its largest shareholder, began a letter by declaring that “Pinduoduo isn’t a standard firm.” Fourteen years earlier, Larry Web page and Sergey Brin, Google’s founders, famously opened their I.P.O. letter in the identical means.
Google declared that considered one of its rules was “Don’t be evil.” Mr. Huang echoed that sentiment, too. “We might not all the time be understood, however we all the time do issues out of fine will and do no evil,” he wrote.
Such statements of altruism run at odds with a few of the firm’s techniques, critics say. Final yr, the Google Play retailer suspended Pinduoduo’s app outdoors China after cybersecurity consultants discovered that it was laced with malware. And Pinduoduo is more likely to face extra scrutiny due to Temu’s success. It is without doubt one of the most downloaded apps in america and increasing into dozens of different nations.
Temu doesn’t promote groceries, specializing in garments, magnificence merchandise and devices. Very like Pinduoduo’s prospects in China, Temu’s customers purchase merchandise instantly from producers and distributors. It’s most likely shedding cash on most orders due to its low costs.
With most of Temu’s merchandise originating in China, it prices an estimated $11 per order to ship merchandise to america and $9 to $10 per order for shipments to Europe and Australia, in response to Robin Zhu, a Chinese language web analyst at Bernstein Analysis.
Final month, Chen Lei, PDD Holdings’ co-chief government and chairman, advised analysts that Temu’s world growth was at an early stage with many uncertainties. However it’s working off a lesson from China: Shoppers all the time need extra financial savings.
