This article was originally posted on forbes.com
Digital economy observers outside of China can be forgiven for missing the meteoric rise of Pinduoduo. Founded in September 2015, Pinduoduo is the fastest growing e-commerce startup in the history of China, attaining a GMV of $15 billion only two years from launch, a milestone that took incumbents Alibaba and JD.com 5 and 10 years to achieve. Today Pinduoduo’s $40+ billion market cap is the equal of JD.com and its 366 million monthly users and 536 annual active buyers are both second in China only to Alibaba.
What has been the secret to this incredible growth? And how did Pinduoduo achieve it in the face of such large established competitors? There are many factors, but one of the most interesting is how Pinduoduo has successfully gamified shopping for the most mundane everyday products to drive re-engagement and user retention. In many ways, Pinduoduo represents the most successful example of how a mobile commerce app can be designed from the ground up to engineer social sharing, viral engagement and repeat buying as part of the user experience.
The name Pinduoduo means “Together, More Savings, More Fun.” It’s a great summation of the company’s core group-buying value proposition, which has been described as “Groupon on Steroids.” But there are key differences. Where Groupon focused on local vendors of “want to have” goods and services like fancy dinners and massages, Pinduoduo offers deep discounts for bulk purchases of everyday “need to have” household items. In this way, Pinduoduo is more like a social sharing driven version of Costco or Dollar General.
Pinduoduo started by targeting price-conscious (as opposed to brand conscious) buyers in third and fourth tier Chinese cities – an underserved market. It enables these buyers, often women in charge of household purchases, to obtain deep discounts by getting their friends to participate in group buys of items ranging from produce to diapers.
Would-be buyers have 24 hours to complete a buying group, and the app shows the discount increasing with each additional buyer added. This creates urgency and excitement. For shoppers who love a bargain, it’s an irresistible experience. In a September article on Pinduoduo in Wired magazine, one such buyer, a 46 year old housewife and nanny from rural inner Mongolia, was quoted as saying: “I have to be careful not to use this app too much. It has so many deals that I want to spend all my time and money on it.”
This social sharing of deals is primarily done on WeChat, the super app that is used by a billion people in China. WeChat’s parent company Tencent, recognized Pinduoduo’s potential and became an investor in 2016, promoting Pinduoduo and turbocharging its user acquisition. Driven by sharing on WeChat, Pinduoduo’s average customer acquisition cost is only $2, compared to $39 and $41 for primary rivals JD.com and Taobao. But even more impressive is its 7-day retention rate of 77%, the highest of any e-commerce platform in China. This retention comes from the continuous re-engagement at the prospect of winning deep discounts. It’s the combination of the viral acquisition loop and the addictive shopping experience that has caused Pinduoduo to become bigger than eBay in just four short years.
It’s no coincidence that founder Huang “Colin” Zheng, an ex-Google engineer, had prior startup experience on a consumer electronics e-commerce site as well as a WeChat based role playing game company. He deliberately sought to combine a game-like experience with e-commerce. This is evident in many game-like features that Pinduoduo uses to re-engage users, including special deals and promotions. You get free products for getting friends to install the app, and there are leaderboards showing people who have had the most friends sign up. You win coupons by spinning a wheel on an in-app game, then the coupon only lasts 2 hours, prompting an impulse buy.
None of these promotional hooks and viral strategies would work if the fundamental user experience wasn’t itself engaging. Here is Huang’s core insight: that the mobile shopping experience is based on browsing, not searching, and that you could push deals rather than items. This is profound: the desktop e-commerce model (Amazon/JD.com) is based on a multitude of SKUs, the buyer knowing what they want, and the search function. Pinduoduo, on the other hand, gives the user an item feed they can browse that intelligent agents/AI helps tailors and makes more targeted over time. This enables item discovery and a space where purchase decisions are dynamic and can be influenced by other people. The established e-commerce function is reversed: it’s “Goods find People” rather than “People find Goods.” Many aspects of Pinduoduo, from the underserved target markets to the unparalleled distribution afforded by WeChat, are singular and cannot be reproduced. But the lessons of building a socially shared, dynamic experience where the use of app itself drives consistent re-engagement are more important than ever. If Huang could find a way to make buying the most mundane everyday household items exciting and fun, then app developers everywhere can try to find ways to do the same with their apps.