The first time Sun Yuxiu heard of Pinduoduo was at the end of 2017, when her mother asked her to share in a discount deal on tissue packets. By ordering at the same time, they each got 20% off the original price.
The app teaching China to win friends, influence people… and save big
Since then, Sun, a Beijing-based office worker, has bought everything from live crab to apples on the social commerce platform, combining purchases with her mother and aunt to get discounts.
Sun and her relatives are just a few of Pinduoduo’s 300 million paying customers in China, where the concept of social commerce has exploded in popularity over the past two years.
Social commerce is a new form of e-commerce which involves social interactions among consumers, who also play a part in encouraging their friends to buy. The more buyers in your group, the less everyone pays.
“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,” said 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.
China’s social commerce market is set to top $150 billion by 2020, according to e-commerce marketing firm Advangent. That’s still only a fraction of China’s total e-commerce market, which is forecast to reach $1.7 trillion by the same year, according to Goldman Sachs.
When users open the Pinduoduo app, they are greeted with an array of products, many of which are priced below 10 yuan ($1.58) including delivery – if the user manages to get at least one more friend to purchase the item together.
The platform leverages each consumer’s network of friends on Tencent’s widely used WeChat platform, incentivizing group-buying while simultaneously growing its user base as customers help spread the word of its platform by sharing deals with friends.
For certain deals, further discounts are offered each time users share them with friends, and when those friends share it with even more people. The more the deal gets shared, the greater the discount.
Pinduoduo’s word of mouth model also makes it an extremely cost-effective way for e-commerce merchants to promote their products, according to Neil Wang, Greater China president of consultancy Frost & Sullivan.
“Compared to traditional marketing campaigns and advertising, Pinduoduo’s promotion channels are also more powerful in multiplying its influencing effect,” said Wang.
Despite Pinduoduo’s meteoric rise, the company has attracted criticism from users for poor-quality products. Pinduoduo did not respond to queries about this issue.
Another popular Chinese social commerce platform is Shanghai-based Xiaohongshu (Little Red Book), which operates like a combination of Instagram and Amazon, where users share photos and videos, write posts and tag items in their pictures that link to e-commerce listings.
Targeting urban women aged 18-35 years of age, the app’s total user base numbers more than 80 million. Many of Xiaohongshu’s users post photos of themselves wearing make-up or showing off new skincare products, and interested buyers can browse the site to see what others are saying about specific products.
Xiaohongshu’s social commerce model, which allows users to both generate content and form a community, has attracted some of China’s biggest celebrities – though they are not paid to endorse the site, according to the company.
Vivi Li, 26, a Shanghai native, has been using Xiaohongshu for over a year, regularly posting reviews of skincare or make-up products on her feed.
“I spend about half an hour on Xiaohongshu each day, sharing some photos or writing posts and browsing my feed,” said Li. “I also use it as a search engine of sorts to read reviews about any products I’m eyeing.”
The big guns
The rise of social commerce could pose a threat to e-commerce giants like Alibaba – the parent company of Inkstone – and JD.com, according to analysts. Both have since launched similar apps to rival Pinduoduo. Alibaba has introduced Taobao Tejia and JD has Pingou.
“Any company that is not embedding their service or product with social media and connectivity is at risk,” said Jeffrey Towson, an investment professor at China’s Peking University.
“However, e-commerce is not a winner take-all business. It tends to have lots of winners and interesting niche plays.”
The greatest winners of all? Those with the most friends, of course.
Additional reporting by Meng Jing