Explainer: How Pinduoduo’s team purchase model differs from group-buying sites

Explainer: How Pinduoduo’s team purchase model differs from group-buying sites

Staff Writer
Staff Writer
Pinduoduo Content Team
July 17, 2020

Pinduoduo (PDD) is the second-largest e-commerce platform in China with 628.1 million annual active buyers and the biggest online marketplace for agricultural produce. It pioneered the concept of the team purchase, where groups of friends or even strangers can band together to buy something for a lower price than if they had purchased individually on their own.

Many commentators who have not used Pinduoduo tend to equate Pinduoduo’s team purchase model with group buying but there are important differences, as we highlight in the explainer below. We hope you find it useful in understanding more about Pinduoduo!

First, economies of scale for better prices :
PDD sells primarily everyday physical goods to consumers across China while traditional group-buying sites focus on local services.

  • For physical goods, e.g. a bottle of nail polish, merchants can lower the price of the item due to economies of scale if they receive a large number of orders, especially with team purchasing helping to aggregate demand. By contrast, the economies of scale in providing manual services, e.g. manicure, are limited and unchanged by bulk orders. Just imagine if too many customers had signed up for the discounted manicure and were crammed into the same space. The collective experience will be diminished with scale
  • The scope and frequency of purchase is much greater for everyday physical goods than local services, which are more specialized and limited by geography. For instance, while consumers would buy different products from sellers in other cities (because the products are shipped to their doorsteps), no one would buy a local service like a dental check-up or manicure in another city hundreds or thousands of miles away.

Second, social element of team purchase vs group buying:
On Pinduoduo, the act of interacting with friends via sharing of links and purchasing together affects not just the immediate team purchase but future shopping recommendations.

  • In PDD’s team purchase model, users are incentivised by a lower team purchase price (vs an individual purchase price) to go out and rope in their friends. Over time, as they interact with their friends by sharing products or purchasing together, these signals of their preferences feed into the personalization of each user’s recommendation feed. Afterall, your friends probably know you better and we believe users can influence the behavior of their respective circles of friends. Another example of how this social feedback loop influences what users see in their recommendation feed is how users can also see items or stores tagged with labels indicating a friend had bought from it or rated it highly. How this information drives further engagement by the user, and how their response varies across different categories and between different friends allows us to further finetune our recommendations. This social influence is a key feature of the interactive e-commerce designed by PDD.
  • The traditional group buying experience is a solitary one and based on a search model where a user keys in what he is looking for, selects the deal and then waits to be notified when the minimum group size is reached. What their friends buy or like does not influence what the user is recommended.

Third, a question of sustainability:
Pinduoduo aims to win mindshare among consumers as the place to be for a fun time discovering value-for-money products.

  • Group-buying discount sites are essentially wholesale web traffic resellers, bidding for related keywords on behalf of local services providers who would find it uneconomical do so on their own and them charging them a commission on sales. Merchants have an incentive to try to convert group-buy customers to become regular customers directly so that they do not have to keep paying the site hefty commissions on future sales. Conversely, those merchants who rely heavily and continuously on group-buying platforms may not be capable of attracting or keeping customers on their own. This may have negative implications on merchant quality over time.
  • By contrast, Pinduoduo has over 5 million merchants on its platform offering many more products. The breadth and variety of value-for-money offers on PDD means the users would keep returning to the platform to discover new products. Merchants have to keep competing among themselves for users’ attention, and remember, this is across an entire nationwide base of merchants, not just limited to local competition. This eventually creates a virtuous cycle, where the quality of merchants keeps improving over time as the higher quality merchants gain more sales volume.

The above three points have contributed to the rapid growth of Pinduoduo as a platform. We have 628.1 million annual active buyers as of the end of March 2020, many times more than the biggest group-buying sites.

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