Date
16 August 2018
Pinduoduo has achieved success by focusing on consumers in China's small towns and rural areas. Photo: Reuters
Pinduoduo has achieved success by focusing on consumers in China's small towns and rural areas. Photo: Reuters

How Pinduoduo became No.3 China e-commerce player in three years

Shares of Chinese e-commerce platform Pinduoduo soared nearly 40 percent on their debut on the Nasdaq last Thursday, valuing the company at US$30 billion.

Following the listing, Pinduoduo’s founder Huang Zheng, who is in his 30s, has seen his personal wealth shoot up to HK$106 billion, making him the 12th richest man in China.

While everybody talks about consumption upgrade and the opportunities from China’s middle class, Pinduoduo has chosen to focus on the huge numbers of consumers in small towns and rural areas.

Using group buying to drive down prices, the strategy proved to be highly successful.

Huang was born in eastern China’s Zhejiang province in 1980. By the time was he was 21, he was already quite famous in China’s computer programming circles. He even helped Netease founder Ding Lei tackle a technical issue, according to reports. The two went on to become good friends.

After graduating from Zhejiang University, Huang went to the University of Wisconsin for his master’s degree in computer science. He then joined Goggle as an engineer.

After spending three years at Google, Huang returned to China and started several online shopping and gaming companies. All these start-ups have been sold. Huang had earned over 100 million yuan before turning 30.

Huang founded Pinduoduo in September 2015, Ding Lei was one of the angel investors, while SF Express founder Wang Wei, Vivo chairman Duan Yongping, and Sun Tongyu, a co-founder of Alibaba, also participated in the fund-raising.

Internet giant Tencent acquired 18.5 percent of Pinduoduo in the second year, and became the second largest shareholder after Huang.

In less than three years since inception, Pinduoduo’s 12-month gross merchandise volume (GMV) surpassed 141.2 billion yuan.

It is now the third largest e-commerce company in China by that metric, trailing only Taobao and JD.com.

The so-called new middle class pales in size in comparison with the hundreds of millions of consumers in small towns and rural areas. Hence, Pinduoduo consciously chose to focus on the under-served segment.

“The needs of nearly one billion consumers are being ignored,” Huang once remarked.

Pinduoduo has built a model of factory-to-customer, which allows manufacturers to sell their goods on the platform directly to customers and cut off layers of middlemen in the channel of distribution.

Often, products on Pindoudou go for prices that are one-fifth of supermarket prices, and are also much cheaper than offerings found on competing shopping sites like Taobao.

The company applies the same approach to food produce, through the direct farmer-to-customer model.

That said, Pinduoduo also has some problems. The platform has faced criticism for proliferation of knockoffs and low-quality products on the site. That has led to the e-commerce entity become controversial even as it turned highly successful.

This article appeared in the Hong Kong Economic Journal on July 30

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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