Even if you haven’t heard of Pinduoduo, a budget online marketplace that currently ranks among China’s top ecommerce platforms, you’ve probably heard of its overseas equivalent, Temu.
Since its launch in the United States in September 2022, Temu has expanded aggressively into dozens of other markets, and made waves with its omnipresent marketing and advertising, most recently during Superbowl LVIII this year. Its slogan, “shop like a billionaire”, encourages customers to buy products freely and impulsively, knowing that they can afford the rock-bottom prices.
In 2023, in the US alone, Temu enjoyed 4,173% growth in monthly active users of its app, topping SimilarWeb’s Apps 100 ranking. Although Temu is a new, and still relatively small, player in the US ecommerce market, many are speculating that it poses a threat to Amazon.
This isn’t without precedent. Pinduoduo entered the Chinese ecommerce scene in 2015, and rapidly grew to become one of its largest players thanks to a savvy combination of social features, gamification, low prices, and targeting the right audiences. In late November, its parent company temporarily overtook leader Alibaba in market capitalisation, making it – for a time – China’s most valuable ecommerce company.
How did Pinduoduo succeed at becoming such a dominant force in a short space of time? In this piece, we’ll look at the tactics that have enabled its rise, how competitors are shifting their behaviour to meet the threat of Pinduoduo, and whether Temu can replicate Pinduoduo’s success overseas.
For further trends in social commerce and APAC, Econsultancy members can consult our Ecommerce Quarterly trends report or Digital Shift webinar. Econsultancy runs global marketing academies and offers training in ecommerce.
How Pinduoduo has used social sharing to hack its way to growth
Pinduoduo’s name in Chinese literally translates into “join together more more”, and a large part of its success can be attributed to this approach: encouraging shoppers to band together to secure discounts as a group.
Shoppers are offered lower prices if they can team up with others to buy the same product, which incentivises them to share Pinduoduo and encourage their friends, family and colleagues to buy items. As a result, WeChat, China’s most popular messaging app, has been a major driver of growth for Pinduoduo. Its group chats can be used to recruit shoppers, and Pinduoduo itself exists as a ‘mini-app’ within WeChat.
For consumers in China’s rural, ‘lower tier’ (i.e. smaller) cities, WeChat is a place of information and connection, and so this combined with Pinduoduo’s low prices allowed Pinduoduo to take hold within rural communities in a major way.
Some of Pinduoduo’s competitors have looked at this success and tried to replicate the model: in 2020, WeChat parent company Tencent launched Xiao’e Pinpin, its own group-buying mini program, while a year earlier JD.com relaunched Jingxi, a group-buying app and WeChat mini-program,to target consumers in rural areas. However, both imitators have struggled to gain traction, with Tencent shuttering Xiao’e Pinpin in 2022, while JD.com pulled Jingxi out of several markets amid poor sales, although it has since rebranded the business to JD Pinpin in the hopes of reviving it.
Other social incentives for Pinduoduo shoppers include ‘Price Chop’, a feature enabling users to get free products through sharing a custom link with as many friends as possible, and membership cards, which incentivise shoppers to leave product reviews and share branded products.
Pinduoduo has also successfully used gamification to drive engagement and dwell time on the app. Each time a user visits Pinduoduo, they complete a ‘daily check-in’, which gradually earns them points towards a money off voucher. Pinduoduo also hosts fully-fledged mini games, such as Duo Duo Orchard, where users earn real fruit by taking care of virtual trees; and DD Bank, through which they can earn virtual coins through completing tasks, inviting friends, and browsing products.
The ecommerce platform for agriculture
Pinduoduo’s low prices and WeChat prominence helped it take hold among China’s poorer rural communities, who were historically under-served by platforms like Alibaba and JD.com as they predominantly sold higher-end and luxury goods. However, it’s not just rural consumers that Pinduoduo appeals to.
Pinduoduo has made agricultural products core to its offering from the word ‘go’ – not just by providing a platform, but by offering training, resources, information and funding.
In 2022, Pandaily wrote that, “Pinduoduo is the first major internet company to use its e-commerce platform to improve the efficiency of moving agricultural products from rural areas to cities.”
Pinduoduo has championed the digitalisation of agriculture in various ways, including through its Smart Agriculture Competition, which has been held annually since 2020 and offers a considerable prize pool to contestants who can demonstrate the best use of innovative farming techniques to cultivate a given crop. In 2021, Pinduoduo unveiled a 10 billion yuan ‘agriculture initiative’ to “face and address critical needs in the agricultural sector and rural areas”, pledging to put its profits from Q2 2021 onwards into the initiative.
These efforts were particularly valuable for farmers during the Covid-19 lockdowns, when they struggled to find buyers for their produce. Pinduoduo launched an initiative called “Help the Farmers” in February 2020 to address this problem, visiting rural areas to teach farmers how to sell on Pinduoduo, and many of these sellers have stayed with the platform long-term.
With all of this said, Pinduoduo wasn’t the first major ecommerce player to provide economic opportunity and support to rural parts of China. In 2014, Alibaba launched ‘Rural Taobao’, a programme aimed at cultivating talent and building infrastructure in rural areas to support ecommerce businesses.
Thousands of towns and villages across China have also become known as ‘Taobao villages’ because they represent clusters of sellers who primarily make a living through selling goods on Taobao.
However, a report from the Financial Times has suggested that Alibaba is losing ground in this area: merchants in some of the most established Taobao villages are resorting to listing with competitors like Pinduoduo, JD.com, and Douyin (China’s TikTok counterpart) to stay afloat. One seller negatively compared Alibaba’s hands-off approach to Pinduoduo’s more direct support, saying, “Ali people didn’t care about us at all.”
But neither is Pinduoduo a silver bullet for sellers, as some find it difficult to sell higher-quality items on the platform, or make enough sales margin to earn a profit. Many sellers now hold the philosophy that the only sustainable strategy is to sell across multiple platforms and thus maximise their customer base.
China’s ecommerce players are now vying with one another to support rural and agricultural sellers. For example, during the fifth annual Chinese Farmers’ Harvest Festival in 2022, shopping platform Meituan offered online sales promotions and hefty subsidies alongside Pinduoduo, which pledged 5 billion yuan worth of subsidies, according to the South China Morning Post. Alibaba and JD.com also offered discount coupons and pledged to source products from agricultural belts.
Video platforms Douyin and Kuaishou were also present to offer exposure to Chinese farmers through live-streaming sessions: a key avenue for ecommerce sales in China.
Economic uncertainty brings budget ecommerce to the fore
While cheap products are only one prong of Pinduoduo’s success alongside its effective use of social connections and catering to an under-served market, its pricing has undeniably been an advantage as Chinese shoppers spend more cautiously.
Inquirer.net published an article in September 2023 describing how middle-class Chinese shoppers are forsaking shopping malls for wholesale markets due to economic anxiety and job uncertainty; while a joint study by Bain & Company and Kantar Worldpanel found that spending on FMCG products in China dropped by 0.9% year on year during Q3 2023. In the same quarter, Pinduoduo enjoyed a 314% jump in transaction revenue to nearly $4 billion, representing a year-on-year increase of 90%.
Giants Alibaba and JD.com are undoubtedly reluctant to be drawn into a price war, but the success of Pinduoduo has prompted some defensive moves, particularly as the economic climate grows tougher.
Alibaba originally launched its discount app, Taobao Special Value, in 2018 as Pinduoduo’s rise was truly starting to take hold. Last year, it also pioneered a new initiative on Taobao called 99 Temai, which featured budget goods costing between 1 and 9.9 RMB, with free delivery.
JD.com, which has historically invested in logistics infrastructure to keep overheads low rather than specifically lowering prices, has also begun throwing its weight behind discounting. In 2023, it announced an initiative to bring more competitively-priced products to consumers through welcoming smaller merchants onto its platform, which had previously been home to a tightly-controlled list of established brands.
JD.com has reportedly also put billions of yuan behind a subsidy programme for merchants – a move that Pinduoduo itself used in 2019 as it fought to gain headway against incumbents Alibaba and JD.com. The move initially sent JD.com shares into decline as investor confidence faltered (the same situation that befell Pinduoduo after it launched its own subsidies) but JD.com’s stronger-than-expected Q4 2023 results suggest that the strategy is working.
Cut price competition
Founding figures at both JD.com and Alibaba have made comments urging their companies to rally against rivals such as Pinduoduo. In November 2022, JD.com founder Richard Liu Qiangdong gave an internal speech in which he urged the business to get back to basics and focus on low prices and quality service.
Alibaba founder Jack Ma went a step further in November 2023, replying to a comment on Alibaba’s staff forum with shock praise for Pinduoduo and a call (Chinese-language source) for Alibaba to “correct its course” and refocus on the company’s mission and vision.
Newer competitors are also looking for a slice of the discount pie, with Douyin opening an online store called “super cheap little shop” on its ecommerce platform, Douyin Mall, in 2023. Douyin also operates an agricultural store – further encroaching on Pinduoduo’s territory. Meanwhile, Cheng Yixiao, CEO of Kuaishou, has said that the company will focus on providing low-price, good products.
Lü Qian and Chen Yangyuan, writing for Yicai Global, noted that, “Industry insiders predict that the rush of new [discount ecommerce] players will have no big impact on Pinduoduo in the short term because building supply chains and user influence will take a long time but in the long run, Pinduoduo’s competitive edge might weaken.”
An emphasis on cheap products often brings issues of quality control with it; Pinduoduo has long been known for having a problem with shoddy and counterfeit goods listing on its marketplace. In 2019, it was placed on a blacklist by the US trade representative’s office as a high-profile marketplace that plays host to intellectual property rights violations. Pinduoduo made a statement saying that it disagreed with the move and had taken steps to remove counterfeit products from its platform.
While shoppers tend to accept the possibility of shoddy goods as a consequence of buying cheap items, Pinduoduo’s reputation has led to a reluctance among shoppers to purchase more expensive products. Speaking to Nikkei Asia, Jacob Cooke, co-founder and CEO of Beijing-based WIPC Marketing and Technologies, said that, “Some brands have gone onto Pinduoduo as a means of reaching new customers and to shed inventory, kind of like a digital outlet mall, but the volume remains low.”
Can Pinduoduo’s tactics guarantee success for Temu overseas?
Pinduoduo’s parent company, PDD Holdings, has now branched out overseas with the launch of Temu, an online marketplace that – like Pinduoduo – offers a vast array of goods at rock-bottom prices. At the time of writing, Temu is present in 49 countries, most recently launching in South Africa in January 2024.
Temu might be hoping to draw in shoppers initially with low prices, but it wants to use gamification and social sharing to keep them coming back. Shoppers can play a roulette wheel to win coupons, or be rewarded with discounts for actions like turning on app notifications. In-app games, like ‘Fishland’, present the potential to win real items by making progress in the game, something that’s often helped along by referring other users.
Rest of World profiled one avid gamer in the United States who had drawn friends and colleagues into the game via referral codes in order to get more fish food, even setting up a group chat to exchange gaming tips. Other users, without a network of immediate family and friends to invite, might exchange codes over social networks like Reddit.
Referring other users to Temu can also earn credit that can be spent on free items. This strategy may have enabled Temu to gain an initial foothold in regions like the US, but it has downsides: many people began to complain about being bombarded with a deluge of referral codes from hopeful friends, family, and online acquaintances. This may be one reason why Temu switched its strategy to emphasise top-of-funnel marketing and advertising, changing its slogan from the Pinduoduo-esque “Team Up, Price Down” to “Shop Like a Billionaire”.
Temu is experiencing strong growth but also criticism as attention is drawn to its track record on fulfilment and product quality; the North American Better Business Bureau gives Temu a rating of C+, while customer reviews give it an average of 2.5 stars. The BBB’s page for Temu notes that, “BBB does not accept complaints regarding copyright infringement.” US government representatives have also warned about the possible use of forced labour in Temu’s supply chain, accusations that the company has repeatedly denied.
Pinduoduo is experienced in dealing with these concerns for its Chinese business, but is now competing in 49 additional regional markets, each with its own unique ecommerce landscape and competitors. Will its distinctive characteristics prove to be universally appealing, or will Temu be forced to reinvent itself to succeed?
Temu’s initial growth is bringing increased attention to its Chinese counterpart, Pinduoduo, as its star continues to rise – but it’s early days, and Temu’s ambitious expansion will give way to a long road towards becoming as established in its new markets as Pinduoduo is in China.
For further trends in social commerce and APAC, Econsultancy members can consult our Ecommerce Quarterly trends report or Digital Shift webinar. Econsultancy runs global marketing academies and offers training in ecommerce.
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