Is social commerce going to spell doom for Alibaba and JD.com?
PINDUODUO. Remember that name because it’s something you’re going to hear more about in the coming weeks and months.
The US$1.5 billion company launched by ex-Google engineer Huang Zheng in 2015 has become a force to reckon with.
The Groupon-like platform combines online shopping with social media and has 300 million paying customers.
According to an article by Forbes, the company has even managed to turn China’s older generation into fans of online shopping, with awesome deals and discounts like US$1 toilet paper packs and tee-shirts, US$5 bed sheets, and US$80 smartphones.
In fact, those deals and offers are what helped the company gain such a massive following and give digital retailers like Alibaba and JD.com a tough new competitor.
“While the country’s tech giants such as Alibaba and Tencent compete for increasingly wealthy customers in China’s major urban centers, Pinduoduo has been capturing another less noticed market: low-income people from lower-tier cities and towns.”
Forbes believes that the fact that Pinduoduo allows shoppers to share products across Chinese social media platforms bodes well with customers vying for more discounts and better deals. Users share products with friends over WeChat, for example, which helps them enjoy discounts of up to 90 percent and earns them cash back incentives and free products as a reward for their loyalty.
The company’s plan to mix up social media and online shopping to create social commerce is working wonders for the business.
“The potential of social commerce is huge because people like to buy what their friends recommend. Increasingly, in China’s e-commerce landscape, people don’t know what sales channel to trust, but if they see their friends purchasing things on social commerce sites they are more likely to buy,” Shaun Rein, the Managing Director of China Market Research Group and Author of The War for China’s Wallet: Profiting from the New World Order told the South China Morning Post (SCMP).
According to research by the SCMP, Pinduoduo roughly translates to “buy more together” and is especially popular in provincial cities in China. Almost 65 percent of users live in the country’s tier 3 cities – those with a population under 3 million – according to data published by Jiguang Big Data last November. More than half of its users are also aged between 30 and 39.
“Pinduoduo’s word of mouth e-commerce model, which leverages users’ desire to save money by encouraging friends to also make a purchase, makes it an extremely cost-effective way for e-commerce merchants to promote their products,” Neil Wang, Greater China President of Consultancy, Frost & Sullivan told the SCMP.
There’s no doubt that Pinduoduo has great potential and will continue to do exceedingly well. The real question is, will it be able to win over customers from Alibaba and JD.com in the future? After all, who doesn’t love a good deal and shopping with friends?