Recently, the market value of Pinduoduo has surpassed Baidu and become the fifth largest Internet company in China.
As is acknowledged to all, Pinduoduo mainly focuses on the market of the third, fourth and fifth-tier cities. It has been three years so far since it was listed in 2015. It has surpassed the “B” of BAT (Baidu, Alibaba, Tencent) now, which has taken four years to achieve. It is the sinking market that accelerates its rise.
Zhang Zhen, one of the many investors and a partner of Gaorong Capital, is very optimistic about the sinking market. There is a basic logic behind this: whether the market is big enough depends not only on consumers’ income, but also on their deposits.
Third-tier and fourth-tier cities have less pressure to survive, as housing loan pressure has not squeezed the consumption space of residents. If the housing loan is removed, the disposable income of third-tier city residents is the highest, followed by second-tier cities and new-first-tier cities.
According to Alibaba Group’s annual financial report for fiscal year 2019, the number of mobile monthly users including Taobao and Tmall reached 721 million, an increase of 104 million over the same period last year.
With most Internet companies facing the “bottleneck of new users”, Taobao and Tmall have also witnessed tremendous growth in user size to this extent. More importantly, 77% of the more than 100 million new consumers have come from the sinking market.
Japan’s richest man is Uniqlo’s boss, while Spain’s richest man (once the world’s richest man) is ZARA’s boss, and Germany’s richest man is ALDI’s Boss. All these companies focus on the sinking market, which mainly refers to the consumers of or below middle class.
Throughout the world, sinking markets also provide strong momentum for business growth.
Let us look at the traditional e-commerce chain of marketing-commodity trading-payment-warehousing logistics.
China’s manufacturing industry has several characteristics:
1. The industry has the most complete categories and the largest production capacity.
2. Presenting regional cluster production, for example, one specific product is mainly produced in one town in Guangdong and Fujian area.
3. Consumer product capacity spills over, with insufficient brands.
4. Insufficient high-end manufacturing, including new materials, industrial chip software, R&D and design, precision production, precision instruments, etc.
5. Lack of high-end manufacturing service products and high-end manufacturing productive services.
Consumer goods include fast moving consumer goods (FMCG) and durable goods. Fast food products, such as food, beverage and dairy products, are usually purchased weekly or even daily. Consumer durables such as household appliances, mobile phones and automobiles can be purchased for at least one year or more.
Taobao is a market with more than 11 million shops. Like the market we visited when we were children, it is a small society, where there are fake goods and cheaters. Taobao has its characteristics as a small society. Now we hardly go to the market, we go to professional chain stores, supermarkets and shopping malls. But if you want to buy a small piece of something, Taobao might still be your best choice.
As for Pinduoduo, it also has strict selections requirements for its suppliers. So some people would say that Pinduoduo is an upgraded version of Taobao. It can be said that Pinduoduo mainly benefits from Wechat’s dividend for its expansion to consumers over 45 years old. Pinduoduo covers the consuming habits of the 45＋ age group: low price, collective buying behavior, and not very sensitive to brands. People always say that Pinduoduo is all about four or five: 45-year-old people, four or five-tier cities, four or five-tier brand goods. Actually, it is far away from the truth. Retail sales must be covering all ranges.
Pinduoduo is a product of the success of consumers’ involvement in new consumers through self-distribution advertising via social networking platform WeChat. For the sake of cheapness, consumers themselves have the initiative to share, to distribute and to advertise products from Pinduoduo. The marketing models of Taobao and Pinduoduo are very different.
Products on Pinduoduo are too cheap. Even if it is just fun, people might be willing to buy a fridge for 18 yuan. The marketing and branding strategies of Pinduoduo are very simple and straight-forward. Of course, there are also some things to give up, such as consumers’ tastes.
Focusing on the first or second-tier cites is just competing against each other in a huge but fierce market. You can either win it all or lose it all. But if you have enough business sense or wisdom to make improve efficiency, and to push prices to as close as the bottom line, you will be the one and only winner in every competition, from first-tier cities to sixth-tier counties, urban and rural towns. And this is what every player in this business game is dying to achieve.