A consumer-to-manufacturer (“C2M”) revolution is currently under way in China that could remake the way goods are produced and sold in the future.
In traditional retail, manufacturers produce what they think consumers want, then distribute them through a chain of wholesalers and retailers. This can often be a hit-and-miss exercise and lead to much waste, the costs of which are built into the pricing that consumers pay.
E-commerce platforms like Pinduoduo are flipping the model by aggregating demand and analyzing the spending patterns of the hundreds of millions of users who shop on their platforms. These insights are then passed on to manufacturers, who are then able to tailor their products for a better fit to market demand.
The C2M model thus reduces the amount of guesswork that goes into production decisions and gives manufacturers more visibility so that they can better plan their inventory and logistics.
This direct-to-consumer model also removes layers of intermediaries, resulting in a virtuous circle of cost savings leading to lower prices, which in turn generates more demand and economies of scale.
For many export-dependent manufacturers in China, embracing C2M has come at an opportune time because domestic orders could make up for the drop in overseas orders due to COVID-19. Consumers are also increasingly open to buying value-for-money goods instead of paying a brand premium for products of similar quality.
This is providing the perfect conditions for C2M to take off in China.
Jiaweishi, the vacuum robot maker, used to produce mainly for brands in the US and overseas markets. The company signed on with Pinduoduo’s New Brand Initiative to jump-start its entry to the domestic Chinese market and diversify its export-led business.“Before C2M, we didn’t know what consumers liked or wanted, only what we thought they liked or wanted,” said a Jiaweishi executive.
Today, C2M makes up 55% of its sales in China, with traditional retail accounting for the rest. The company expects offline channels to become more experiential and online sales to become more mainstream.
By cutting out the layers of distributors and retailers, C2M has helped Jiaweishi cut down inventory risk by producing “to demand” by consumers.
Working together with Pinduoduo, the company was able to pinpoint and produce a model with features that consumers valued – longer battery life and higher suction power – and price it competitively. The result was sales that far surpassed their expectations.
First introduced in 2018, Pinduoduo’s C2M initiative got an upgrade this month as it pledged to help local manufacturers develop new home-grown brands and achieve 1 trillion yuan ($150 billion) in total sales over the next five years.
To be sure, there are some unique factors that enable C2M to work in China.
First, China has a highly advanced manufacturing base, with original equipment manufacturers (OEMs) like Jiaweishi that have an incentive to build their own brands and cater to the growing needs of consumers in the world’s second-largest economy.
Second, China’s consumers are very comfortable shopping online and are open to new ideas, which has helped create the world’s biggest e-commerce market. The pandemic has only accelerated this offline-to-online migration.
Third, e-commerce platforms like Pinduoduo, with its emphasis on interactivity and social connections, can more accurately pinpoint consumer trends and predict demand among different groups of its almost 700 million users.
For consumers, C2M offers a consumer-led manufacturing process that better reflects their needs by connecting buyers directly with producers. The feedback from consumers results in more tailored products, strips out the middlemen, and lowers costs.
Therefore, while the pandemic is causing hardship to many businesses, it may also turn out to be a time of opportunity for those who are able to capture this shift in consumer demand.
David Liu is Vice President of Strategy at Pinduoduo. This opinion piece was first published on Charged Retail.