The Pinduoduo (PDD) Growth Update 2023

Last week at Outside In we read up on The ‘No Buzz’ Alibaba Singles Day update and wondered who do we look for some bright growth and innovation Inspiration. And, almost instantly we got an answer in the form on Pinduoduo’s (PDD) 2023 Growth story here at: https://www.cnbc.com/2023/11/29/pinduoduo-transaction-revenue-up-315percent-as-chinese-consumers-hunt-for-bargains.html

By outpacing Alibaba’s growth and buzz in 2023, PDD seems to have slowly and steadily become a flag-bearer of tomorrow’s E-commerce growth and best practices. Recall that Outside In covered the detailed PDD story in 2 parts in 2022 – covering elements, best practices and learnings for “Interactive Commerce” – the PDD way. Before we deep dive into their Growth 2023 update in this edition, you can check out the old stories here –

Part 1: https://outsideinlens.substack.com/p/pursuing-interactive-commerce-the

Part 2: https://outsideinlens.substack.com/p/pursuing-interactive-commerce-the-a23

With this quick recap, let’s try and catch up on what’s new at PDD in 2023 (and beyond)…

On PDD Growth and “Social Commerce” (aka Interactive Commerce) Proposition

PDD posted 94% growth in third-quarter revenue of 2023, far outpacing Alibaba’s 9% growth during the same period. During the just-concluded Singles’ Day shopping festival, PDD likely racked up 20% growth in transactions versus its rivals’ single-digit rises. With over 600 million monthly active users, the group buying app Pinduoduo’s name means “shop more together” and it’s already got customers intensely hooked, thanks to its viral operating model. PDD is a social e-commerce app that allows consumers to find product deals with the added value of recruiting friends and family to join in and buy at a discounted price. It also allows customers to purchase through popular social media apps in China, such as WeChat and QQ

The genius of PDD is that it caters to an audience that’s previously been neglected; lower income households in smaller, less powerful cities across China. It’s estimated that 60% of its users come from this demographic, with most of them women in their mid-thirties. Users that sign up for the service can get astonishingly low deals by bringing other buyers on board within 24 hours using the popular messaging tools such as WeChat and QQ. Last year Pinduoduo’s penetration rate grew nearly 20%

It’s a canny way to engage a slice of the population that’s fairly new to the internet and to online shopping. PDD’s core audience is mostly novice online shoppers, but like many Chinese consumers, they’re avid bargain hunters. New users into online shopping often benefit from the encouragement of those around them – which is why Pinduoduo’s social approach works so well to engage this audience

Effectively the PDD app just organizes consumers into buying teams who then purchase goods such as bulk buy soap, corn plasters and cleaning products straight from the manufacturer

A Low Margin Approach

Targeting these lower-income households and offering hugely discounted goods is a low-margin business model. The average basket size on PDD is only around $6 – about a tenth of the average basket size of its more up-market rival JD.com

But this suits China’s ‘hourglass’ market approach. This describes the consumer habit of insisting on rock-bottom prices for more humble purchases such as diapers and house slippers but cheerfully splashing out on luxury items such as designer sunglasses and handbags that enhance social status

Under this market, the middle market tends to lose out and there’s a strong downward pressure on prices for basic goods. That’s where PDD is cleaning up – so long as it can make those tight margins work. It does this by eliminating the middleman (distributors) to help keep cost really low

Category Profile

To begin with, PDD’s focus used to be on agricultural goods. According to data approximately 600,000 merchants shipped fresh produce around China. Now, it covers major product categories. The purchases users can make include apparel, mother and childcare products, food and beverage, cosmetics and other personal care items, sports and fitness items, as well as auto accessories

Key Success Factors for PDD “Social Commerce” Driven-Growth going into 2024

1) Social (Interactive) Commerce: PDD pioneered the concept of mixing online shopping with social media interaction between sellers and their consumer base. The bold business decision has led China to quicken the transition of the country’s commerce sector from offline to online

2) Group Buying Concept: The core function of Pinduoduo is the ability to make group purchases. Consumers can share product details with family and friends to form a shopping team and enjoy a more attractive price option. PDD often highlights the perks under the “team purchase” option. However, buyers can also utilize the official individual pricing. All products ordered by a certain group are deliverable separately to each member’s address/ It offers products at up to 20% cheaper compared to their market price by letting users directly purchase from manufacturers

3) Little Ad Spends: Because the PDD app acquires users and brings them back in through a daily stream of deals, there’s little need for marketing or advertising spend. Eliminating these costs have also helped PDD scale quickly

4) Limited Deal Choices: While rival Taobao offers a wider range of products, discoverable using search, PDD reduces any choice paralysis by only offering a small number of deals available in a time-limited period. That’s a good choice for rapid turnover and easy user decision process

5) Gamified Promotions: It also enhances consumer journey by adding gaming elements and giving out promotional coupons and rewards. Buying incentives include the free product feature – called Price Chop. It is a feature that allows users to get products for free by sharing a custom link with their friends. Upon selection, a 24 hour timer begins. To get the item for free, the user must share their link with as many friends as possible. Every friend that clicks on the link and engages with PDD (no purchase required) drives an incremental discount for the initiator. If the user does not reduce the price to 0 within 24 hours, he does not get the item for free and has to start all over again! The product mimics the experience of “leveling” in a massive online multiplayer game like World of Warcraft whereby it becomes harder to level up as you graduate to higher levels. In the case of PDD, the difficulty is customized based on the user (i.e., easier for low-engagement users) and the item (i.e., expensive items are more difficult to chop). Additionally, similar to leveling, as one gets closer to 0 (i.e., a higher level) each incremental friend that engages with the user’s link grants smaller and smaller discounts

6) Appeal to an Older Demographic: Although brands in PDD still produce a sufficient amount of interest among young online shoppers in China, most purchased and shipped items are directed to the older demographic. According to market data, the two dominating age groups in the app are people between 36 and 45 years old or 46 and higher

7) Rural User Affinity: Since the app continues to address the needs of customers wanting to save money, its offerings match the preferences of lower-tier cities. Over 36% of users in the app’s system reside in fourth and fifth tiers or below. This demographic data clearly shows that PDD’s user base comes from rural areas with moderate to low cost of living

8) Duoduo Wallet: Over the years, PDD has utilized third-party checkout methods like WeChat Pay and Alipay. These virtual wallets had given PDD more access to tech-savvy shoppers who prefer complete digital transactions. To tailor the needs of its current user base, it launched its digital wallet feature called Duoduo. Not only does it make purchases more convenient, but it also provides an added layer of security for consumers

9) Easy Shops’ Set-up Process: The process to start on the app is quite simple. There are 5 items that are needed before applying: a Chinese Business License, an Organization Code Certificate, a Tax Registration Certificate, an Account Opening Certificate, and a Chinese phone number. After obtaining the above items, a shop can directly apply on their official site and download the app for shop management. It takes about two working days for the approval. Once approved, the user can open multiple shops with the same business and tax license

10) Fun and Interactive Shopping Experience: PDD has found room in e-commerce, not as a competitor to search-based websites like JD, but as a new e-commerce platform focused on interactive and social shopping experiences online. Social shopping may seem like a new concept, but the reality is that in the physical world, shopping is meant to be “interactive and fun” and purchases are regularly informed by friends and family. Consider how much harder it feels to purchase a new clothing item without immediate feedback from friends. E-commerce platforms like JD, Alibaba, and Amazon don’t account for this. Instead, they optimize for efficiency, funnel conversion, and purchase rates. PDD, on the other hand, has tried to mimic the offline shopping experience online by building community via their team purchase model, driving engagement via fun and interactive games and rewards, and offering personalized experiences and value via recommendations

11) Daily Check-Ins’ Rewards to build LTV: The feature encourages daily usage by rewarding users with redeemable points each time he or she checks into PDD. Each time the user checks-in they are granted a small amount of money and/or credit. Over many months (and many check-ins), these rewards accumulate. While each check-in does not generate revenue for PDD, the product experience eventually ties back to commerce if/when users redeem their vouchers. This theoretically should yield a higher customer lifetime value for PDD

12) Card (Loyalty) Program: PDDs card program is designed to encourage users to share the product amongst friends and to save money via vouchers/special discounts. It has created several different cards that either (1) encourage certain user behaviors or (2) provide utility to the user The three most popular cards are the Free Pass Card, the Black Brand Card, and the Brand Card

The Free Pass Card is similar to a loyalty program where users can enjoy a “team purchase discount” without having to join a team. Users usually get one Free Pass Card after making two purchases on PDD

The Brand Black Card encourages users to leave reviews on the platform by offering them a discount on branded products in return. PDD gives users a Brand Black Card after they have posted 2 - 4 reviews on the website and promotes.  This is important as consumers rely on reviews and recommendations from previous buyers when making purchase decisions

PDD Brand Card promotes PDD-branded products. Consumers get a Brand Card after they have made a purchase and they can share their brand cards with friends via WeChat, to attract their friends to browse and buy branded products from PDD

13) Mini Games

PDD hosts in-app games to help drive up daily time spent on the platform. The first popular game was Duo Duo Orchard. Think of Farmville except now the rewards are real physical goods. The game is simple – a user creates and nurtures a virtual fruit tree to eventually yield a real box of fruit shipped to his or her address. It recently launched DD Bank, a piggy bank game where users accumulate exchangeable coins over time

Looking at the KSFs of the PDD Growth Update, we can gauge that there is a huge opportunity for companies to build social into their commerce platforms to take share from transactional platforms and expand e-commerce’s overall share of spend. The success of team purchase may be specific to the commercial landscape of China, but the insights PDD has surfaced about social integration in commerce is likely entirely universal

In Conclusion

It’s quite possible that PDD’s success may be short-lived. Consumer sentiments change fast in this rapidly-evolving market, and China’s housewives may soon tire of being pestered by their friends to buy things they don’t really need

The main message to take away from Pinduoduo’s roaring success is that there’s still a big audience yet to be conquered, and not just true in China. There are many lower-income households with less digital confidence and experience in emerging markets where household incomes and consumer sophistication is evolving at a high pace.

Pinduoduo (PDD) may not have invented the bargain group buying model but it’s managed to connect with an audience that was clearly open to the right proposition…

References and Sources

1) CNBC Article on PDD Revenue Growth: https://www.cnbc.com/2023/11/29/pinduoduo-transaction-revenue-up-315percent-as-chinese-consumers-hunt-for-bargains.html

2) Fortune on Alibaba’s Reversal, PDD’s Growth: https://fortune.com/2023/11/30/alibaba-market-value-below-pdd-china/

3) PDD Social Commerce Success Story: https://toppandigital.com/us/blog-usa/pinduoduo-chinese-ecommerce-success-story/

4) Pinduoduo Marketing Guide: https://sekkeidigitalgroup.com/pinduoduo-marketing-guide/

5) Y-Combinator on PDD and Social Commerce: https://www.ycombinator.com/library/2z-pinduoduo-and-the-rise-of-social-e-commerce