Five years’ rise path of deep double price and multi pinduoduo: three fundamental problems and four underlying logic


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University Literature / chaos
Source: Chaos University (ID: hundun University)
There are a lot of people to pinduoduo’s sharing links, and some people are disgusted with the high imitations on pinduoduo. In this era of closed social relations and the supremacy of giants, pinduoduo always seems to be good at doing things in the opposite direction, and making great progress in questioning and ridiculing all the way.
However, the market has not fully understood the logic of pinduoduo’s rise. Most people attribute the rise of pinduoduo to “cheap” and “consumption degradation”. Others believe that pinduoduo’s “low price” mainly comes from platform subsidies and counterfeit goods.
Pinduoduo’s five-year rise may be one of the most valuable business cases in China’s Internet industry in recent years. To be sure, this analysis is very difficult. We are only going to make a small attempt here, and we welcome more people with profound insights to join us in the discussion.
Pinduoduo is a very familiar and controversial enterprise.
Its disputes mainly come from two aspects
1. Does pinduoduo’s success come from its opportunism or its innovative practice?
2. Is Huang Zheng an innovator or, relying on opportunities and resources, unable to copy his success path?
With such a question, we try to double play the whole innovation path of pinduoduo, and what enlightenment can we bring to today.
Pinduoduo has not been established for a long time. We can divide it into three stages.
1. Exploration direction.
In 2007, Huang Zheng quit his high paying job at Google and returned to China to start a business. However, it was not until 2015 that his company started a new business. At that time, the e-commerce industry rose for many years, and Taobao, tmall, Jingdong and other giants had firmly occupied the market, but pinduoduo, with its special business model, forced itself into this almost saturated market. How did Huang Zheng do it?
2. Pinduoduo listed
In 2016, pinhaohuo and pinduoduo officially merged and listed on NASDAQ in July 2018, with a market value of $24 billion. It took less than two years for a start-up to go public on NASDAQ. What is the logic behind pinduoduo’s miracle?
3. Transformation of pinduoduo
After going public, pinduoduo is facing great pressure from all sides, one of the most controversial is the issue of counterfeit goods. Looking back, pinduoduo has been advancing in the voice of doubt and ridicule. From the present to the future, how will pinduoduo’s transformation be paved?
Next, we will focus on the above three issues, starting from four stages, to bring you the recovery of pinduoduo’s growth model.
1. Looking for direction: break the shackles of the existing market space (direction innovation).
2. Edge entry: the low-end market matches the low-end supply chain (market innovation).
3. Connection Reengineering: from goods centered to human centered (mode innovation).
4. Inclusive value: pursuing both high quality and low price (innovation of value creation).
Looking for direction in saturated market
In 2007, Huang Zheng did not rush to start a business after leaving Google headquarters.
The first thing he did was to go to the counter of 3C small commodity market station and perceive the consumer market and customers in face-to-face communication with customers.
Half a year later, Huang Zheng set up a 3C e-commerce company ouku. From the limited information available, the company has been in operation for three years. Although it has a revenue of several hundred million yuan a year, it has hardly made any money due to the transparent market price of mobile phones. On the contrary, the gap between the company and Jingdong has been widening.
At an event attended by Liu qiangdong and Huang Zheng, Huang Zheng mentioned his transformation idea that I could not defeat Liu qiangdong with my age, qualifications and team.
At first, this sentence sounds like a surrender, but the last one is very intriguing.
Huang Zheng said that he and I (Liu qiangdong) are two generations. “Two generations” is not a joke. It means that different generations naturally have different ideas and ways of playing. I will not compete with the previous generation in the same plane. I will look for a new dimension of competition.
Huang Zheng thinks that ouku will easily fall into a meaningless consumption war with Jingdong in the future. Therefore, when Lanting Jishi made an offer to Huang Zheng in 2011, Huang Zheng sold ouku to Lanting Jishi at a good price, only retaining the technical team.
After selling ouku, Huang Zheng has also founded an e-commerce agent operation company “Leqi” and a game company “dream seeking”. But the idea of entering the e-commerce market has never disappeared.
The question is, is there any room for China’s e-commerce market to get involved?
In 2011, Jingdong and Ali actually occupied the majority of e-commerce.
By 2016, the market share of the two giants has further expanded.
At that time, many people in the industry were inclined to think that the competition of e-commerce track had been settled.
What can’t be done in 2011, can we still do it in 2016? Between the electric light and flint, Huang Zheng was born with the prototype of pinduoduo.
Liang Ning once divided the portraits of Internet users into three categories: Daming, Benben and Xiaoxiao. Daming is a user who has a clear shopping goal. Stupid users, many of our female friends, went to Taobao to buy a sweater. After a long time of shopping, they didn’t buy clothes and ordered a favorite lipstick. Another example is our leisure users, even do not have a clear shopping needs, just accidentally found a good thing, complete the order.
Compared with the shopping scene of searching for items on Taobao and Jingdong, it is undoubtedly the consumption scenarios of the latter two types of users that spell out the goods well.
This strategy can be seen in Huang Zheng’s later speeches.
Huang Zheng said pinduoduo should combine Costco and Disney to integrate entertainment and consumption scenes together. From the later data statistics, pinduoduo’s shopping scene is indeed like this.

Nearly half of pinduoduo users think that shopping on pinduoduo can be cheaper with acquaintances and can also recommend each other. There are also a large number of people think that shopping on pinduoduo is just like shopping. When you see the right one, you can also invite friends to join in the shopping and bargain.
The phenomenon of “shopping on the Internet” has been greatly reduced, which has greatly reduced the cost of “shopping on the Internet”.
However, behind the phenomenal growth, we think that the most fundamental reason for the success of social e-commerce is that it achieves “Pareto optimization” in marketing.
In other words, it is necessary to save a lot of advertising expenses through the traditional advertising mode of the e-commerce company to obtain a large amount of advertising.
The platform can return part of the vacant advertising expenses to the platform merchants and users, and finally form a multi-party benefit situation.
In contrast, the market feedback shows that in the eight months since the official launch of spell goods in April 2015, the cumulative number of users has exceeded 10 million. In less than a year, there are about hundreds of companies that copy the mode of spell goods online. With its strong operational strength and product iteration ability, spell goods has become a great success.
Faced with the explosion of competing goods, I believe many entrepreneurs will have such an idea: why can’t we see good opportunities in the market, but when others do it, we think, why didn’t we think of it at that time?
A netizen adapted a sentence of Mr. Lu Xun: ordinary people open the book of business, and each page has the words “market saturation”. The innovators couldn’t sleep. After watching the midnight carefully, we could see that the whole book was full of “new markets” and “new opportunities”.
This is a new perspective of observation. When we look at the whole market as a red sea, it may indicate that it is time to change the rules of the game. Instead of looking for opportunities in the original plane, we should look for the possibility of changing the market structure.
The marginal market is always a fertile land for new entrants
It seems that Huang Zheng has found a new road. But if we compare today’s pinduoduo with the goods at that time, we will find that there are many differences between them.
From MVP to giant pinduoduo, what adjustments has Huang Zheng made in his business logic?
Looking back on 2015-2016, several important changes have taken place in China’s e-commerce market.
1. Cheap Internet and mobile phones.
Xiaomi released the first red rice mobile phone, which announced the end of China’s cottage machine market. The continuous reduction of 4G network charges and the introduction of cheap and high-quality mobile phones into the market have provided a large number of cheap and available internet access tools for Chinese netizens.
2. New Internet users have emerged in large numbers in third to sixth tier cities.
Driven by the downward trend of mobile phone and network costs, the number of Internet users from the third to the sixth tier in China has increased dramatically. What are the characteristics of these new generation of Internet users? These people are already able to surf the Internet, but they are not proficient in online shopping.
As shown in the figure below, there is always a large gap between wechat active users and Alibaba active users.
3. Payment technology is becoming more and more mature.
WeChat payment and the popularity of Alipay provide the most important support for mobile shopping.
4. Low end supply chain spillover.
In 2015, Taobao launched a severe crackdown on counterfeiting, calling it “240000 fake merchants offline in one second”. In November of the same year, JD announced the permanent closure of its second-hand platform “paipaipai” business.
A large number of low-end supply chain enterprises that used to rely on Taobao and Jingdong have lost their foothold.
When the supply (low-end supply chain spillover) and demand (the rise of Internet users outside the Fifth Ring Road) and even (mature payment technology) have undergone great changes, how to integrate the supply and demand of Internet users outside the Fifth Ring Road and the low-end supply chain has become the inevitable way to the marginal rise of pinduoduo.
In September 2015, pinduoduo app was launched quickly on the basis of the verification of the logic of “spell goods” social e-commerce.
In two weeks, the number of fans exceeded one million, and after four months, there were more than ten million paying users. After that, many people are familiar with it. Pinduoduo has become the third pole of China’s e-commerce market in the posture of black horse, and its data keeps climbing, even surpassing many mature e-commerce platforms.
In 2018, the two brands, pinhaohuo and pinduoduo, were officially merged. After completing their mission, they stepped back to become a sub brand of pinduoduo.
What can we learn in the process? I think there are two important implications.
1. From MVP to business model, it is not scaled up.
The core function of MVP is to verify logic. Once the logic runs through, it does not mean that it can be scaled up to your business model. We can see from the cases of “pinduoduo” and “pinduoduo”, that pinduoduo is actually a re evaluation of the relationship between supply and demand in the market, and finally decides to enter the market by way of cutting into the low-end market.
2. The marginal market is always a fertile land for new entrants.
Huang Zheng once said that in the first two or three years of pinduoduo’s establishment, there were basically no competitors. Why are there no rivals? Because pinduoduo’s user pool is almost independent of the traffic of Taobao and Jingdong, and does not affect each other. Mainstream e-commerce has no energy or willingness to interfere in this part of the market.
Tiger sniff once had a report that commented on pinduoduo. I think it is very pertinent. This article says that pinduoduo has not taken away the original users of Taobao, but that pinduoduo has actually expanded the user plate of the entire e-commerce business and realized the real popularization in the marginal sense.
Therefore, for most of us entrepreneurs, if we want to avoid the attack of giants, we may have to do some work that the giants feel worthless, low profit and hard and tired for a period of time.
When we integrate these inefficient things that we are not willing to get involved in, it is possible to open a new business model and obtain a new market.
The reconstruction of connection logic is the fundamental reason for pinduoduo’s rapid growth

We have a lot of entrepreneurs who have completed the construction and layout of the business model, and have made small achievements in their own field, but there is still a big gap between them.
On the contrary, pinduoduo’s performance after listing has met the expectations of the public. It took Jingdong ten years, Taobao five years and pinduoduo only two years for Gmv from 0 to 100 billion.
In this world, there are many industrious and intelligent people, but few people have reached the summit. Behind the magic growth of pinduoduo, what is worth thinking about.
As Zhang Ruimin, chairman of the board of directors and chief executive officer of Haier Group, said, “there are no great enterprises, only enterprises of the times”. People who have reached the summit must have stepped on the rhythm of the times. What kind of beat does pinduoduo step on.
In my opinion, the old and new logic of e-commerce has undeniably changed.
Under the old logic of connection, supply is scarce, so people have to look for goods.
Under the new logic of connection, supply is sufficient, so the goods have to find people.
In the agricultural era, due to the low productivity, our social products can only meet the consumption needs of some people. Good food and arts and crafts are specially provided for the nobility and the royal family. The common people can’t use any good things. At this stage, the quality and quantity of our products are scarce.
During the industrial revolution, we liberated manpower with machines, carried out large-scale social production, and a large number of low-cost standardized products were sent to ordinary people, such as Ford’s Model T. Only after the production of products is standardized, can the cost be reduced, so that every ordinary family can get on the bus. This is the logic of supply and demand in the industrial era. At this stage, the quantity of supply is sufficient, but the quality of supply is scarce.
At this stage, improving the quality of supply above the quantity of supply is undoubtedly the core logic of the next business. Behind the magic growth of pinduoduo is the logical change from TBC to DCB.
“Zheng Ren” is the logic of Huang Duoduo. We learn about “people” through group work, and then we will gradually transition to machine recommenders in the later stage.
Taobao is the flow logic, the main body is search. Users have to find their own products, so they need a large number of SKUs to meet the long tail demand; pinduoduo represents matching and recommends products to consumers. SKUs are limited, but they should meet the needs of rich structure.
Social e-commerce, in fact, is a kind of business logic with people as the core. Therefore, Huang Zheng said that pinduoduo wants to create a unique shopping platform, a platform for group differentiation based on human dimension.
I think this sentence has not been fully explained. To be more accurate, pinduoduo is not only a platform for a person to be divided into groups, but also a re division of a person in different consumption scenarios.
Many people say that what pinduoduo is doing is the innovation of people outside the Fifth Ring Road. I think this logic is out of date. In the future, pinduoduo’s market will continue to rise. As Huang Zheng said, pinduoduo should pursue high cost performance. Users of our platform can not only be very generous when starting luxury goods, but also compare the price of a box of fruit among three companies.
So we can see that pinduoduo used a very typical low-end destruction mode in the second step of innovation. However, when it comes to the third step, we find that its value dimension has a new derivation – using the distribution and matching mechanism of “social + AI” to meet the “high cost performance demand” of consumers at all levels. This is the core innovation of pinduoduo so far.
At the same time, we believe that a new value network prototype has been formed in pinduoduo’s business model.
The star sea of pinduoduo: pursuing inclusive value
So far, in addition to the low-end label of Duoduo, the pressure from all sides is still coming from the low-end of the market.
Many institutions have put forward suggestions on the development path of “tmall” to pinduoduo. In fact, pinduoduo has indeed launched the anti-counterfeiting campaign and launched its own brand Pavilion, which is considered by the industry as a follow-up to the guess of tmall’s path.
But if we think from Huang Zheng’s point of view, we have to go back to the core question: does China need a better tmall? The answer is clearly no.
Pinduoduo’s definition of its future vision is called “inclusive”.
What is inclusive?
First, Pratt Whitney needs to make Internet technology benefit more people and more scenes.
According to the latest statistics, there is still a big gap between the total amount of online retail sales and the total amount of social zero. In other words, the seemingly booming Internet e-commerce still has a long way to go from the real popularization of the whole society.
Second, it should be cost-effective. We should use high-quality, low-cost way to realize the universal supply of the supply chain to the whole society, buy better products with less money, and improve the happiness of the whole people.
In our inherent thinking, good things must be expensive. The extra profit brought by high price can feed back the product development and promote the continuous iteration of the product.
This logic does sound right. But if we expand our perspective, we can start from the agricultural era, when the social products were crude in technology, and the slightly better things could only be provided to the nobles and the royal families, which were expensive. In the industrial age, machines liberated manpower, and large-scale standardized cheap and high-quality products entered the homes of ordinary people. In the information age, this trend will undoubtedly continue.
The core factor of driving animals to be beautiful and cheap is not the cost of enterprise research and development, but the improvement of industrial chain cooperation efficiency.
Huang Zheng once gave an example.
A man in the summer had a hunch that this winter would be a cold winter, so he placed an order for 1000 down coats from the manufacturer.
After getting the order, the manufacturer said, first of all, you need to pay a 10% deposit in advance. Secondly, as a benefit of placing an order in advance, I can give you a 30% discount on the whole order. Where does this 30% discount come from?

People familiar with factory cost management may know that if the order can be confirmed for a long time in advance, in fact, the factory can use leisure time or low time to produce some products that are not in a hurry to deliver. This scheduling mechanism can effectively help manufacturers to save costs. Including the upstream material order, if the order is given in advance, the cost will be reduced accordingly.
Huang Zheng explained that there are certain waste links in the traditional supply chain model. A large number of supply side manufacturers, in fact, have no way to obtain stable batch orders, so their production is unplanned and scattered, and they often adjust their production rhythm at any time according to the uncertain demand transmitted from the front end. In this way, the cost of production must be the highest. If the cost can not be lowered and the price can not be raised, a vicious circle will be created. A large number of low-end products will gradually fill the so-called counterfeit market.
The new supply chain can be more efficient. Huang Zheng named this process as “using the semi planned economy on the demand side to promote the realization of the semi market economy on the supply side”.
On the one hand, pinduoduo integrates a large number of scattered customer demands and delivers them to the supply side in a planned way, so as to provide manufacturers with certain production certainty and planning.
Like the down jacket example we mentioned above, because of this certainty, manufacturers can layout and optimize the existing production resources to achieve the minimum production cost. And this kind of cost reduction can even feed back the profit to the users, so that the products can finally achieve “Wumart” and “low price”.
On the other hand, manufacturers do not understand customer and market demand, do not know how to innovate, only from the perspective of low-cost competition dilemma will be eased.
As a platform side, pinduoduo can package and deliver customer needs and customer portraits to the supply side, so as to help the supply side improve product design, so as to truly mobilize the overall collaborative efficiency of the industrial chain. For example, the “new brand plan” launched by pinduoduo undoubtedly implies such an idea.
So we see that the early tmall is only a phenomenon in the process, and we think it is a kind of tactics. So for pinduoduo, its transformation must not be to become a better tmall, but to create a new value network.
In this new network, our supply side and demand side are fully linked to achieve good product supply and low-cost supply at the same time. Then the ultimate realization of the so-called “inclusive” in its mission vision can bring our users, our consumers, that is, our people, a sense of satisfaction, a sense of gain and a sense of happiness.
The answer to the opening question: look for opportunities in the gap, and continue to evolve in uncertainty
Back to the beginning of our initial question: is pinduoduo’s success opportunism or innovative practice? I think the capital markets have given it the most honest answer. And for Huang Zheng himself, there are undoubtedly many places worthy of our in-depth observation and thinking.
Finally, a few summary to share with you.
1. Uncertainty is the basis of our business judgment.
Many entrepreneurs howl in the face of the national epidemic. But in fact, there are so many uncertainties in society, and the uneasiness brought about by the epidemic may be a microcosm of the nature of this society.
Uncertainty is the norm of society. As an entrepreneur and entrepreneur, this is a prerequisite for us to acquire tomorrow.
The world is uncertain and incomplete. We should regard it as a basic judgment, and on this basis, we should build a judgment on the future business.
2. How to benefit from uncertainty?
In fact, we can see that Huang Zheng and pinduoduo have achieved rapid growth in a short period of time after they have captured the clues of the changes in the environment and stepped on the rhythm of changes.
Any great enterprise is essentially iterative, and the essence of business is also a process of continuous innovation. Continuous innovation and evolution is the only way to deal with uncertainty.
3. Innovation needs anchors.
If we want to make continuous innovation, we can’t innovate at will. First of all, we should establish an anchor point of innovation, a long-term benchmark, and focus on the pursuit of long-term value.
Duan Yongping once warned Huang Zheng that doing things fast is slow and slow is fast. To do things with a normal mind, consider the promotion of their long-term value. Although the uncertainty factors of various external environment will lead to the deviation between price and value, in the long run, price will tend to value. If your value increases, you will eventually get the price you want. So we need to focus on the pursuit of long-term value.
Therefore, my third insight is that if we want to carry out continuous evolution and continuous innovation, we must have an anchor point that can firmly anchor us. It is an investment in long-term value, a reverence for business common sense, and a grasp of every moment at the moment.
4. The sense of mission has never been so important.
It is not difficult to find that the new generation of entrepreneurs, no matter Huang Zheng, Wang Xing and Zhang Yiming, embody a strong sense of social mission. They regard the long-term social value as their personal mission, to gather a large number of followers and complete a great cause together.
A great enterprise must consider its own value from the perspective of social value. Only by thinking deeply about social value can we promote the continuous development of our enterprise itself, and make our team go more determined and long-term.
(statement: This article only represents the author’s point of view, not Sina’s position.)