Pinduoduo takes on Amazon by expanding its e-commerce business in the US

August 18, 2022 0 Comments

Pinduoduo, a Chinese online shopping app founded in 2015 with 400 million daily active users, is planing its overseas expansion. According to a report by Chinese news outlet LatePost, the e-commerce giant is said to launch a SheIn-like cross border e-commerce platform in the US market by mid-September. Pinduoduo shares rose 0.5% to $49.62 after the news came out.

Pinduoduo’s move to expand overseas is not surprising, however, choosing the US as the first market to conquer sets itself apart from its Chinese peers. Taobao owner Alibaba launched AliExpress in 2010, and currently counts Russia as its primary market. WeChat owner Tencent holds a 18.7% stake of Sea, which operates Southeast Asia e-commerce company Shopee. JD.com has invested in Indonesia shopping platform Tokopedia, Vietnam shopping platform Tiki and established JD Central with Thailand retail conglomerate Central Group. ByteDance, who recently joined the scene, has set its focus in the UK and several Southeast Asia countries.

According to LatePost, Gu Pingping, COO of Pinduoduo, and head of the company’s cross border e-commerce project, has said internally that e-commerce competition in Southeast Asian markets is too fierce.

Pinduoduo, as the latecomer, has set eyes on the US — a market with $17.5 trillion buying power in 2020, and undoubtedly the strongest market in the globe in the regard. In 2021, only 14.2% of Americans’ spending was done online, compared to 24.5% in China.

Such a market is enough to make any e-commerce business drool, but entering the US means to confront global e-commerce behemoth Amazon, who was born in the age of dot com fever and has its roots deep in the country since 1994. Amazon has an ubiquitously dominant presence in the market — Its revenue from U.S. consumers’ web purchases amounted to 30.7% of U.S. online retail sales in the first quarter of 2021, according to Digital Commerce 360.

No business would want to go face to face with the giant at its own turf, so why is Pinduoduo going against the grain? Pinduoduo’s cross border e-commerce project, dubbed Project X, remains highly secretive both internally and in the public. However, Pinduoduo’s history might offer a glimpse into its future.

Founded in 2015, when Taobao and JD.com already had a tight grip of the Chinese online shopping scene, Pinduoduo was able to overthrown Taobao in just six years. In 2021, Pinduoduo recorded over 788.4 million annual active buyers, while Alibaba’s Taobao and T-mall had 779 million active buyers.

Pinduoduo’s uprising in China can be attributed to two factors — low priced goods for price-sensitive consumers, and huge amounts of traffic diverted by WeChat. Pinduoduo targeted a market that Taobao and JD.com neglected before — the underserved, low-income consumers in China’s suburbs and rural areas, or the “sinking market”, a term generally refers to market below the second tier.

SheIn, the budget clothing shopping platform, which has become increasing popular in Europe and the US, has proved to other e-commerce players that markets with high buying power is subjected to the charm of low priced goods. In the post-pandemic age, Pinduoduo might be at its best timing to strike with its low price strategy, as the global economy downturns.

In addition, just like how Pinduoduo recruited small and middle sized merchants in China, its cross-border platform will offer merchants “0 enrollment fee, 0 commission”, which would be tempting for Amazon sellers who end up giving 30% of their income to Amazon if they use the full Amazon service, including warehouses and logistics.

Pinduoduo is still missing one key ingredient of its secret sauce for success – traffic. In China, Pinduoduo largely depended on the traffic of WeChat through mechanisms such as “share the product link in your groups chats and get discounts”.  Subsequently, Pinduoduo users voluntarily became its promoters.

However, such strategy would be difficult to replicate in the U.S. Its cross border e-commerce aspiration, SheIn, was among the first wave of companies to use influencers or KOLs in 2011 and was one of the first users of Pinterest in 2013. SheIn had took advantage of the early- stage influencer economy and build its brand awareness – now, 70% of consumers browse SheIn’s site by spontaneously searching for SheIn.

The price for traffic has surged too much now for Pinduoduo to replicate SheIn’s model. Take Google and Facebook for an example, in the U.S., the CPS (cost per sale) is about $20, according to LatePost citing a cross border seller.

Leave a Reply

Your email address will not be published. Required fields are marked *