For a long time, Taobao(Alibaba) and JD.com are the two champions in China e-commerce. Some investors from Venture Capital even claimed that they would never invest any e-commerce startup in China since the two champions were dominating the market. Surprisingly this year, Pinduoduo, a group-buy e-commerce website came out.
Pinduoduo started its business in offering cheap household products, including washing powder, toilet paper and fruits. Why does this website succeed from this highly competitive market? There might be some reasons.
Firstly, perfect positioning. Different from other dominant giant players in the market which targeted general mass especially the people in top tier cities who owns more buying power, Pinduoduo target the lower income group especially those in lower tier cities (tier 3-5). These people are more price sensitive and their main target would be household products. The large population of this group brought a huge long tail effect that created a huge demand.
Secondly, Pinduoduo crated a special business model - group buy through social network. All the products offered on the website provided two price, unit price and group buy price. The difference between the two is huge. User can easily share their interests toward a product through wechat moments (similar to facebook wall). Once 10 people are interested in it, the product will be offered at group buy price.
Last but not least, the small merchants from lower tier cities chose Pinduoduo as their preferred platform as well. Different from Taobao's high handling charge, Pinduoduo offers more for small merchants. Besides, the mass lower tier city users also provided a word of mouth effect for the platform, bringing more friends and relatives to the platform.
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