Original link: https://www.latepost.com/news/dj_detail?id=1628
Internet companies use A/B testing as the basis for all product adjustments. And Pinduoduo goes one step further, testing all participants in every link of the business, re-discovering how fast a company can grow and how the business rules can be folded.
In each link, Pinduoduo starts with innovative practice to benefit all parties, and then gradually evolves into a limit test of the tolerance of the participants.
“Cut a knife” is the ultimate means of user growth: users attract people to order discounts, receive money, get AirPods, help Pinduoduo to surpass the number of Taobao users, until it enters the number game with six decimal places, it can’t be cut. The last cut.
“Consolidation of orders” is the ultimate sales efficiency: merchants and enterprises reduce prices and increase volume, zero marketing expenses in exchange for tens of millions of orders, until an algorithm-driven advertising delivery tool appears in front of them.
“Duty” drives employees to never stop: Pinduoduo employees receive salaries that are superior to those of their peers, and focus on doing things in a non-disturbing environment until late night overtime becomes the norm, and options are becoming more and more difficult to cash out.
“Scale” is the ultimate temptation for partners: promotion, logistics, suppliers from all walks of life have seized the last high-growth company in China’s Internet industry, breaking the long-standing industry structure, until the payment period in front of them is getting shorter and shorter long.
Similar practices and changes have appeared in all aspects of Pinduoduo’s business, allowing Pinduoduo to achieve roller coaster-like growth faster and easier. Until 2021 when GMV reaches 2.4 trillion, Pinduoduo will still have fewer than 10,000 employees—Alibaba has more than twice the number of employees at the same sales scale. The “Move fast and break things” (moving fast and breaking everything) that was once admired by Silicon Valley and attracted all-round resistance is perfectly reflected in the growth process of Pinduoduo.
When Pinduoduo was established in 2015, the infrastructure of all aspects of China’s e-commerce was already mature. From the first day, what it faced was all-round and sufficient supply, and no room for competition. This flexible company has used and even transformed every market rule to the extreme, squeezing out the giants and growing into a company with a market value of 100 billion US dollars. As scale changes, power relations change. Only those who set the rules can say “survival of the fittest”, while the parties involved in “full competition” and continue to participate do not have much choice.
Starting this year, some changes are taking place. In March, many small and medium-sized businesses on Pinduoduo placed orders in batches in Pinduoduo’s self-operated stores for a short period of time as consumers, and quickly applied for refunds and “only refunds but no returns” to vent their dissatisfaction.
During the same period, the number of users of Pinduoduo is also decreasing. According to a third-party data service agency, from the end of February to the end of March, the number of daily active users of Pinduoduo app dropped from 386 million to 352 million, surpassed by Taobao again.
In order to regain growth, Pinduoduo launched the cross-border e-commerce platform TEMU last year. Now more than 10 million people in the United States open TEMU every day. The new growth space brought by Pinduoduo also brings attention that it hopes to avoid. Affected by this, the global market’s attention to this e-commerce platform from China and its parent company has increased to an unprecedented level, and more problems have been discovered.
Even at Pinduoduo’s Golden Hongqiao headquarters, the working atmosphere is changing. In some departments, young employees began to clock in at 10 o’clock every morning and leave work at 10 o’clock in the evening.
As the parties were pushed through one tipping point after another, some changes took place.
From white brand to brand, time is compressed and contradictions are gathered
Taobao, which was established in 2003, rose rapidly relying on the free store opening policy that benefited small and medium-sized businesses. Jack Ma called the free policy “a red handkerchief that you hold in your hand.” As a result, a large number of small and medium-sized businesses poured into Taobao. But five years later, Taobao began to upgrade its brand, introduced a large number of brands to settle in, and increased the annual technical service fee and breach of contract deposit for the entire store. A group of small and medium-sized merchants with limited competitiveness went out angrily, and tens of thousands of people formed “Anti-Taobao Alliance”.
The branding trend of Taobao was further accelerated after Alibaba went public in 2014. In 2015, Ali’s advertising revenue was 37.5 billion yuan, and the platform turnover (GMV) was 3.092 billion yuan, which means that merchants spend 1213 yuan on average for every 100,000 yuan of goods sold advertising fee. By 2017, merchants will also sell 100,000 yuan of goods on Taobao, and the advertising costs will rise to 1,657 yuan. This is the gap that Pinduoduo has seized.
Pinduoduo took advantage of this group of small and medium-sized merchants who were “neglected” by Ali, as well as their relatively low-priced, rich-style white-brand products. The “red handkerchief” in Pinduoduo’s hands is almost the same as Taobao in the early years, including policies such as “opening a store with zero threshold” and “only charging 0.6% technical service fee”.
Chen Ming, a big fruit seller who switched from Taobao to Pinduoduo, told LatePost that in 2018, the margin for Pinduoduo’s fruit category is 10,000 yuan. It can be exchanged for 70,000-80,000 yuan in sales, of which more than 70% are brought by promotion tools, and the rest are brought by natural traffic. Chen Ming still remembers that the product he put on the shelves on the first day when he settled in was dandelion. “Southerners eat this as a wild vegetable, and sold 300 orders without advertising. I was so happy that I stayed up all night.” At 5 o’clock the next morning, he got up before dawn and continued to stare at the backstage.
When merchants and partners ask for the platform, the platform will naturally offer more stringent cooperation conditions.
In order to improve the shopping experience of consumers, Pinduoduo has relaxed the review of users’ “refund only” applications starting in 2020. This is a clause that is not friendly to small and medium businesses.
A businessman told “LatePost” that before 2020, if consumers use the “refund only” function due to product quality problems, the platform will strictly review the arguments at both ends and require both parties to provide evidence; after 2020, the platform will obviously change its position On the consumer side, more than 90% of the users’ “refund only” applications can be approved, and in many cases, when consumers just ask the store customer service for some product details, the interface will directly pop up the “refund only” option hint.
The above-mentioned merchants said that the quality of small and medium-sized merchants’ products fluctuates greatly. Compared with the products of brand merchants with stricter quality control, the looser “refund only” approval means that merchants may need to bear more unexplained damages.
It is difficult for most small and medium businesses like Chen Ming to directly contact Pinduoduo’s investment manager to express their demands. “Only when the sales volume is good and they notice it, will they be drawn into a large industry group.” He remembers that once, some people in the group continued to complain that the “refund only” rule was unreasonable, and the investment manager directly stood up and said: “Put ‘refund only’ into your operating costs, or don’t do it if you don’t want to do it”.
The rule of “payment will be deducted for delayed delivery” also distressed Chen Ming. During the epidemic last year, Chen Ming spent a deposit of 5,000 yuan to participate in a platform event, but he encountered risk control at random, and his fruit was also sealed in place. Chen Ming repeatedly submitted materials to the background specialist for review, and wanted to withdraw from the event or delay delivery, but in the end the platform not only withheld his deposit, but also fined him for “delayed delivery, deducting 3 yuan for each order”.
In 2019, Pinduoduo started its own branding process. Huang Zheng once said in an interview after the company’s listing: “It’s not that we are unwilling to use the Tmall model to combat counterfeiting. What I mean is that when we implement the Tmall model, we may be dead before we have time to crack down on counterfeiting.” He believes that it is too inefficient for Pinduoduo to recreate Tmall. “So I have to think of another way to do the so-called brand upgrade, which should be different.”
Brands and white-label products are inherently mutually exclusive, and Huang Zheng is very clear about this, especially Pinduoduo has always advocated small profits but quick turnover, exchanging sales by squeezing the profit margins of products; he is also good at using the ability of recommendation algorithms to boost sales on the platform. The birth of a single “explosive product” weakens the presence of merchant stores. But the logic of branding is the opposite. It requires brands on the platform to have stronger pricing power and store operation power.
Huang Zheng gave the answer quickly. In the summer of the second year after the interview, Pinduoduo started with the best “hard currency” and launched brand products such as Moutai and Apple through the “10 billion subsidy” campaign. Growth in sales and users——At the end of fiscal year 2020, the per capita consumption of Pinduoduo buyers increased from 1,551 yuan at the beginning of the year to 2,115 yuan.
Beginning in 2021, Pinduoduo will issue “Black Label” and “Gold Label” to the official flagship store opened by the brand. This year, Pinduoduo established a “Super Star Project Team” internally, mobilizing more than a dozen first-level executives. Their main tasks are to attract brands, provide brand agency operation services, and sign gambling agreements with brands.
“LatePost” recently learned that brands participating in the “Super Star” can enjoy additional subsidies on top of the “10 billion subsidy”, and the maximum subsidy for a single product is 15% (including the “10 billion subsidy”), and the annual single brand subsidy is capped Roughly 2% of the order amount.
Pinduoduo is the e-commerce platform with the highest “traffic efficiency” in China. The most effective way to attract brands is to provide resources with the most conversion rate (on-site exposure opportunities), and the traffic that small and medium businesses can obtain will change accordingly. few.
The latest research report of Zhongtai Securities explained that branded products naturally refuse to appear in the same space as white brand products. As David Hume said: Humans naturally associate and compare things that are related in “time and space”. Co-displaying with white label merchandise will hurt the brand’s premium.
In mid-2022, Pinduoduo officially launched a site-wide promotion tool, and its launch also means that the platform has commercialized all natural traffic without monetization indicators. Prior to this, Pinduoduo only had two advertising promotion tools, “Duoduo Search” (search resources) and “Duoduo Scene” (theme event resources), and 30% of the sales on the site still came from free natural traffic.
The emergence of full-stop advertising tools has brought merchants a higher conversion rate, but it also means that the situation of small and medium-sized merchants in Pinduoduo will be more difficult. Small and medium-sized merchants no longer rely on low enough prices to launch popular products as in the past, but must compete with brand merchants with higher profits to gain more exposure. The originally thin profit margins of small and medium-sized businesses have been further compressed.
It is understood that Pinduoduo currently accounts for about 20% of brand sales, while Taobao and Douyin account for twice as much.
“It’s really a carrot, cut at both ends.” Chen Ming lamented that the platform took all the benefits.
From a small start-up company to a listed giant with a scale of 100 billion, it will still not be bound by principles
A senior person in the advertising industry told “LatePost” that Pinduoduo has found many suppliers to launch short video content to acquire customers.
From the main website to overseas business TEMU, Pinduoduo has always been willing to “spend a lot of money” in the early stage of platform construction in exchange for user growth. The main team of Pinduoduo’s overseas user growth was transferred from the main site. They had no relevant experience before. At the beginning, they also relied on suppliers for the content delivery of overseas experts. TEMU will negotiate a fixed price with suppliers, including suppliers looking for overseas experts. The cost of content delivery, and the rest is regarded as the supplier’s service fee. TEMU allows service providers to suppress the quotations of overseas talents by suppressing the total package cost.
An overseas advertising industry practitioner said: “Big advertising companies only charge 1% service fee for TEMU’s services, and they do click-to-exposure ads. The reason why they lose money is because of the large scale of image orders.”
Even, suppliers sometimes don’t get their money on time. A former Pinduoduo employee once witnessed unpaid suppliers come to Jinhongqiao Building to pull down banners. This is not uncommon in the Chinese business world, but a well-funded, Nasdaq-listed internet giant is usually more cautious about the rules.
“There will be situations where some suppliers turn their backs and stop cooperating, but continue to cooperate after a week. After all, Pinduoduo is a big platform, and everyone wants to find large-scale business here.” The above-mentioned advertising industry person said.
In the face of larger partners, Pinduoduo is equally flexible.
Jitu was founded in 2015 by Li Jie, the founder of OPPO’s Indonesian business, and has grown into the second largest express delivery company in Southeast Asia in 4 years. In the second half of 2019, Jitu decided to return to China for development. Li Jie promised in his open letter to “enter the Top 3 in China’s express delivery industry within three years”. Three years later, Jitu achieved the fourth place in China Express, which is inseparable from the promotion of Pinduoduo.
From 2019 to 2020, Pinduoduo is in a stage of rapid growth. Unwilling to be subject to the “three links and one delivery” logistics system injected by Ali. Pinduoduo chose to support Jitu. Similar to Pinduoduo, Jitu’s initial means of spreading the market was also “subsidies”. From 2019 to 2021, Jitu once created the lowest price in the main express production areas such as Yiwu, Zhejiang Province-an order of 0.8 yuan was sent nationwide.
In the early days of the cooperation, Pinduoduo’s balance was particularly tilted towards Jitu. In 2020, Pinduoduo will give Jitu a subsidy of 3 million yuan per day, and about 1 billion yuan for the whole year. With its own subsidies, the price of Jitu’s hair across the country is on average 20%-30% lower than that of the three links and one agreement. The low price is attractive. Many small and medium-sized businesses have shifted from three links and one reach to Jitu.
For the advertising resources in the backstage of the merchant, Pinduoduo will also recommend Jitu, and the platform’s investment promotion will also recommend Jitu in the merchant’s WeChat group. Jitu’s position in the logistics system ranks first. Merchants can also use Pinduoduo to cooperate with Jitu. Launched electronic face-to-face delivery.
In 2020, a consensus of “preferential treatment of Jitu” has emerged among merchants: as long as merchants use Jitu to deliver goods, they can be exempted from punishment for false shipments, false trajectories, and false collections.
By the first half of 2021, Pinduoduo’s scale will be stable, and its annual GMV will reach 2.4 trillion yuan, making it a partner that every logistics company hopes to win. At this time, Pinduoduo’s balance on the logistics side is gradually returning. Even if Jitu is used, the merchant will be fined by the platform if there is no collection record within 24 hours, no logistics record update within 48 hours, or too many abnormal orders. During the 2022 “Spring Festival does not close” event, Pinduoduo’s partners have added Yunda.
When the cross-border e-commerce TEMU was launched, Jitu was no longer the exclusive partner of Pinduoduo, and even encountered a long settlement cycle.
Generally speaking, the settlement cycle of the freight forwarding industry is 45 days. A person in the logistics industry estimated that TEMU’s current quotation for Jitu is 40 yuan per kilogram—including cross-border special lines and destination delivery, which must be a loss. Jitu International responded to this, which is inconsistent with the facts.
The environment has changed, and the tipping point may have arrived
At the beginning of Pinduoduo’s birth, Huang Zheng recognized the brutal competition situation of China’s Internet – any place the table is full, “People on the table don’t want you to come up, and people under the table don’t want you to go up, I will definitely It will be a double blow; coupled with the rapid growth, we will face all the problems that Taobao has faced in the past ten years in a short period of time.”
For a long time, the only goal of Pinduoduo is efficiency. The core strategy is to increase DAU (daily active users) and GMV (transaction volume) through aggressive tactics of constantly increasing leverage, and run faster than others to survive. In this process, it pushes every link that is beneficial to itself one step further, whether it is merchants, partners or employees, they are all going through the ultimate stress test of this company.
The 26-year-old Huang Zheng and Duan Yongping participated in Buffett’s lunch, which was worth 4 million yuan. Huang Zheng said that the greatest significance of this meal was to realize the “power of simplicity and common sense.”
The simplest common sense in the e-commerce industry is “supply and demand”, and “supply and demand” is the starting point of all Pinduoduo’s “leveraging” strategies. Huang Zheng knows the bottom line of everyone in the ecology. In all ecosystems where supply exceeds demand, Pinduoduo dares to exert pressure and repeatedly test its bottom line. The most typical one is the merchant side. China’s industrial belt is rich enough and its production capacity is large enough. Again is the logistics side.
The user’s mind is the most precious. Judging from the user experience of Pinduoduo, all of Pinduoduo’s product designs point to the extreme simplification of the shopping process, and the realization of “low prices” is also achieved through the most impactful cash subsidies. New users receive cash directly.
The high-intensity work of employees is the actual point of achieving efficiency. Pinduoduo, which was in the period of rapid development, offered salaries higher than the market price in order to win over talents. Other companies “couldn’t catch up” with the salary package, and many employees were also “stuck” in Pinduoduo. In terms of organization, Pinduoduo implements centralized and flat management, which eliminates the management problems caused by ranks.
It’s just that today, this once high-speed train is slowing down, and both Pinduoduo’s own growth and the ecological parties’ tolerance for it seem to be a little less.
Several former employees told “LatePost” that starting from 2021, the conversion rate of game scenes such as “Duoduo Orchard” and “Chop a Knife” that Pinduoduo was originally praised by people will no longer have “obvious effects”. Starting in the fourth quarter of 2021, Pinduoduo can no longer effectively invest all its profits in new businesses, and has begun to officially “release profits”——From 2022, Pinduoduo’s advertising business has continued to soar, making the annual net profit over 30 billion Yuan. These are all signs that Pinduoduo has entered a bottleneck period from high-speed growth.
But from September 1, 2022, when Pinduoduo officially landed in the US market as a TEMU cross-border e-commerce platform, everything will be different. The overseas industry chain is far from perfect as China’s e-commerce in 2015. The transaction cycle is long, the feedback cycle is also long, coupled with different user psychology and business environment, Pinduoduo did not “explore the bottom line” as many observers inferred, but accepted and realized more “do not look exciting”. , relatively lackluster business growth.
From two years and eleven months, setting the record for the fastest listing of an Internet company in China, to entering the global market relatively cautiously, changing the inertia of behavior. Its managers are not only good at levers and insight into human nature, but also understand the tolerance limits of all parties in different environments.
Title map source: Atlas Shrugged by Midjourney
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