There are many people who are unbearable to share links on Pinduoduo, and some are disgusted by the high imitations on Pinduoduo. In this era of social closure and giants overwhelming, Pinduoduo seems to always be good at doing the opposite, advancing with the doubts and ridicule along the way.
However, the market has not yet fully understood the logic of the rise of Pinduoduo. Most people attribute the rise of Pinduoduo to "cheap" and "consumption degradation". Others believe that Pinduoduo's "low prices" mainly come from platform subsidies and counterfeiting.
The five-year rise of Pinduoduo may be one of the most worthy of in-depth research business cases in China's Internet industry in recent years. It is true that this analysis is very difficult. We will only do a small attempt here and welcome more people with insights to join us in the discussion.
Lecturer | Qiu Suchuan Chaos University Innovation Leader
Editor|Chaos University Business Research Team
Support｜Zhong Dou, Director of Innovation Frontier Course
This article is an original article by the business research team of Chaos University
Pinduoduo is a very familiar and controversial company.
Its controversy mainly comes from two points:
1. Does Pinduoduo's success come from its opportunism or from its innovative practice?
2. Is Huang Zheng an innovator or an entrepreneur who, backed by opportunities and resources, cannot replicate his path to success?
With this question, we try to review the entire innovation path of Pinduoduo and what enlightenment it can bring to us today.
Pinduoduo has not been established for a long time. We can divide it into three stages.
1. Direction exploration.
In 2007, Huang Zheng quit his high-paying job at Google and returned to China to start a business, but it wasn't until 2015 that the hard work he founded broke out in one fell swoop. At that time, the e-commerce industry had risen for many years, and giants such as Taobao, Tmall, and JD.com had firmly occupied the market, but Pinduoduo had squeezed into this almost saturated market with its special business model. How did Huang Zheng do it?
2. Pinduoduo goes public
In 2016, Pinhaohuo and Pinduoduo were formally merged, and they were listed on the Nasdaq in the United States in July 2018, with a market value of US$24 billion. It took less than two years for Pinduoduo to go from a startup to the NASDAQ listing. What is the logic behind Pinduoduo Miracle?
3. Pinduoduo transformation
After listing, Pinduoduo has faced tremendous pressure from all parties. One of the most controversial issues is the issue of fakes. Looking back, Pinduoduo is advancing all the way amidst doubts and ridicule. From now to the future, how will Pinduoduo's transformation path be unfolded?
Next, we will focus on the above three issues and cut through the four stages to bring you a recap of the Pinduoduo growth model.
1. Seek direction: break the constraints of the existing market space (direction innovation).
2. Edge cut: low-end market matches low-end supply chain (market innovation).
3. Connection Reengineering: From goods-centered to human-centered (model innovation).
4. Inclusive value: Pursue high quality and low price at the same time (innovation of value creation).
Finding direction in a saturated market
In 2007, after Huang Zheng left the Google headquarters, he was not in a hurry to start a business.
The first thing he did was to go to the counter of the 3C small commodity market station to 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 Okuo against JD.com. Judging from the limited information available, this company has been in operation for a total of 3 years. Although its annual revenue is several hundred million, the price of the mobile phone market is already very transparent, so almost no money has been made. The gap is widening.
At an event attended by Liu Qiangdong and Huang Zheng, Huang Zheng mentioned his transformation ideas-with my age, qualifications and team, I would never beat Liu Qiangdong.
This sentence sounds like surrender at first, but the latter sentence is very intriguing.
Huang Zheng said that he (Liu Qiangdong) and I are two generations. "Two generations" is not a ridicule, but it means that different generations naturally have different ideas and ways of playing. I will not compete on the same plane as the previous generation. I will look for a new dimension of competition.
Since Huang Zheng believed that Okuo would easily fall into a meaningless war of attrition with Jingdong in the future, when Lanting Jishi issued a takeover offer to Huang Zheng in 2011, Huang Zheng sold Okuo to Lanting Jishi at a good price. , Only retained the technical team.
After selling Okuo, Huang Zheng also successively founded an e-commerce agency operating company "Leqi" and a game company "Xunmeng". But the idea of entering the e-commerce market has never disappeared.
The question is, is there still room for China's e-commerce market like Rizhongtian?
In 2011, JD.com and Ali actually accounted for more than half of e-commerce.
By 2016, the market share of the two giants further expanded.
At that time, many people in the industry tended to think that the competition in the e-commerce track had settled down.
What can not be done in 2011, can we still do in 2016? Among the electric light and flint, Huang Zheng came out with a prototype of Pinduoduo "Put a Good Good".
Liang Ning once divided the portraits of Internet users into three categories: Da Ming, Ben Ben and Xiao Xian. The so-called Da Ming is a user with a clear shopping goal. Stupid users, many of our female friends, went to Taobao to buy a sweater. After shopping for a long time, they didn't buy any clothes, so they ordered a favorite lipstick. Another example is our Xiaoxian users, who don't even have a clear shopping requirement, they just find something good by accident and complete the order.
Compared with the shopping scenes of searching for items on Taobao and JD.com, what Pinhaohuo aims at is undoubtedly the consumption scenes of the latter two types of users.
This strategy can be seen in some of Huang Zheng's later speeches.
Huang Zheng said that Pinduoduo will combine Costco and Disney to integrate entertainment scenes with consumer scenes. From the later statistics, Pinduoduo's shopping scene is indeed the case.
Nearly half of Pinduoduo users believe that shopping on Pinduoduo can make it cheaper to join acquaintances and recommend each other. There are also a large number of people who think that shopping on Pinduoduo is like shopping. You can buy what is suitable and invite friends to join in the order and bargain.
Borrowing the huge traffic of WeChat, Good Goods will greatly reduce customer acquisition costs while enriching the shopping scene, creating a phenomenon-level Internet growth of "social e-commerce" and "fission growth".
However, behind the phenomenon-level growth, we believe that the most fundamental reason for social e-commerce to run through is because this approach has reached "Pareto Optimal" in marketing.
Generally speaking, if traditional e-commerce companies want to obtain traffic, they must spend a lot of advertising fees, while social e-commerce companies use the model of group social networking to facilitate the placing of orders through friends’ recommendations and credit endorsements, thereby saving a lot of advertising costs. .
The platform can return part of the vacant advertising costs to the platform merchants and users, which will ultimately benefit multiple parties.
In contrast to market feedback, eight months after Pinhaohuo was officially launched in April 2015, its cumulative users have exceeded 10 million. In less than a year, about hundreds of companies that copied the Pinhaohuo model went online. With strong operational strength and product iteration capabilities, Huo has made a great effort.
In the face of the explosion of hard goods, I believe many entrepreneurs will have this idea-why we can't see good opportunities in the market, but when others have done it, we think, why didn't we think of it at the time?
Borrowing a sentence from Mr. Lu Xun by a netizen-ordinary people open the business book, and each page has the words "market saturation" written on it. The innovator couldn't sleep anyway, and after looking carefully at midnight, he could see from the crevices that "new markets" and "new opportunities" were written all over the book.
The word seam here is a new perspective of observation. When we look around and see that the entire market is the Red Sea, it may indicate that the time has come to change the rules of the game. Instead of looking for opportunities in the original plane, it is better to look for the possibility of changing the market structure.
The fringe market is always fertile ground for new entrants
The MVP who put together a good product succeeded, and it seems that Huang Zheng has found a new avenue. But if we compare today's Pinduoduo and the then Pinhao products, we will find that there have been many differences between the two.
From MVP to giant Pinduoduo, what adjustments has Huang Zheng's business logic made?
Looking back at 2015-2016, several important changes have taken place in the Chinese e-commerce market.
1. Cheaper internet and mobile phones.
Xiaomi's release of the first Redmi mobile phone began, announcing the end of China's copycat market. The continuous reduction of 4G network tariffs, coupled with the launch of cheap and high-quality mobile phones on the market, has provided Chinese netizens with a large number of cheap and accessible Internet access tools.
2. There are a large number of new Internet users in third- to sixth-tier cities.
Driven by the decline in the cost of mobile phones and networks, China’s third- to sixth-tier netizens have increased dramatically. What are the characteristics of these new generation of netizens? These people already have access to the Internet, but they are not yet skilled in online shopping.
As shown in the figure below, there is always a larger GAP between active WeChat users and active Ali users.
3. The increasingly mature payment technology.
The popularity of WeChat Pay and Alipay provides the most important support for mobile shopping.
4. Low-end supply chain overflow.
In 2015, Taobao launched a severe anti-counterfeiting campaign, claiming that "240,000 counterfeit businesses were offline in one second." In November of the same year, JD.com announced the permanent closure of its second-hand platform "Paipai" business.
A large number of low-end supply chain companies that once relied on Taobao and JD.com lost their footholds.
When the supply (low-end supply chain spillover) and demand (the rise of netizens outside the Fifth Ring Road) and even (the payment technology matures) have undergone tremendous changes. How to integrate the supply and demand of netizens outside the Fifth Ring Road and the low-end supply chain becomes the edge The inevitable way for the rise of style.
In September 2015, after Pinhaohuo’s social e-commerce logic has been verified, Pinduoduo’s app was quickly launched.
In two weeks, the number of fans exceeded one million, and four months later, the number of paying users exceeded ten million. After that, many people are familiar with it. Pinduoduo has become the third pole of China's e-commerce market as a dark horse, and its data has been rising steadily, even surpassing many mature e-commerce platforms.
In 2018, the two brands of Pinhaohuo and Pinduoduo were officially merged. After Pinhaohuo completed its mission, it retreated to become a sub-brand of Pinduoduo.
What can we learn in this process? I think there are two very important revelations.
1. From MVP to business model, it is not scaled up.
The core role 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. From the cases of Pinhaohuo and Pinduoduo, we can see that Pinduoduo is actually re-evaluating the market's supply and demand relationship, and finally decided to enter the market from the low-end market.
2. The fringe market will always be fertile ground 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 is there no opponent? Because Pinduoduo's user pool is almost independent of the traffic of Taobao and JD.com, and does not affect each other. Mainstream e-commerce companies have no energy or willingness to interfere in this part of the market.
There was a report by Tiger Sniff that commented on Pinduoduo, and I think it is very relevant. This article said that it is not so much that Pinduoduo has robbed the original users of Taobao, as it is that Pinduoduo has actually expanded the user plate of the entire e-commerce and achieved true popularity in a marginal sense.
Therefore, for most of our entrepreneurs, if we want to circumvent the blows of the giants, we may have to do a period of time that the giants find worthless, low-profit, bitter and tiring work.
When we integrate these inefficient things that everyone is unwilling to get involved in, it is possible to open a new business model and gain a new market.
The reengineering of connection logic is the fundamental reason for Pinduoduo's rapid growth
After completing the establishment and layout of the business model, many of our entrepreneurs have indeed achieved small achievements in their own fields, but there is still a big gap between becoming bigger and stronger.
On the other hand, Pinduoduo's performance after its listing has lived up to expectations. GMV from 0 to 100 billion, Jingdong spent ten years, Taobao spent five years, Pinduoduo only two years.
In this world, there are many hard-working and smart people, but few have reached the top. Behind the miraculous growth of Pinduoduo, what is worth thinking about.
Like Zhang Ruimin, Chairman of the Board of Directors and CEO of Haier Group, said, "There are no great companies, only companies of the times." Those who climbed to the top must have stepped on the beat of the times. What beat did Pinduoduo step on?
I think that the old and new logic of e-commerce has undeniably switched.
Under the old connection logic, supply is scarce, so people have to find goods.
Under the new connection logic, the supply is sufficient, so the goods have to find people.
In the agricultural era, due to low productivity, our social products can only meet the consumption needs of some people. Good food and handicrafts are exclusively for the nobles and royal families, and the ordinary people cannot use good things. At this stage, the quality and quantity of our products are scarce.
During the Industrial Revolution, we liberated manpower with machines and carried out large-scale social production. A large number of low-cost standardized products were delivered to ordinary people, such as Ford’s Model T cars. Only after the production of the product is standardized can the cost be lowered and every ordinary family can drive a car. This is the logic of supply and demand in the industrial age. At this stage, the quantity we 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 miraculous growth of Pinduoduo is the logical change of Chinese retail from TBC (people looking for goods) to DCB (goods looking for people).
As Huang Zheng said, Pinduoduo is the logic of "people". We learn about "people" through group joining, and through "people" recommendations, we will gradually transition to machine recommendations later.
Taobao is traffic logic, and the main body is search. Users have to find products by themselves, so they need a large number of SKUs to meet long-tail needs; Pinduoduo represents matching, recommending products to consumers, SKUs are limited, but they must meet the structural richness.
Social e-commerce is actually a human-centric business logic for finding people. Therefore, Huang Zheng said that Pinduoduo should create a unique shopping platform, a platform for group segmentation based on the human dimension.
I think this sentence has not been fully explained. More precisely, Pinduoduo is not only a platform for people to divide by 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 outdated. In the future, the market of Pinduoduo will continue to rise. As Huang Zheng said, what Pinduoduo should do is to pursue high cost performance. Users of our platform can be very generous when buying luxury goods, or compare the price of a box of fruit.
Therefore, we can see that Pinduoduo used a very typical low-end destruction mode when it innovated in the second step. But when it reached the third step, we found that its value dimension had a new derivation-using the "social + AI" distribution and matching mechanism to meet the "cost-effective demand" of consumers at all levels. This is what we think 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.
Pinduoduo's sea of stars: the pursuit of inclusive value
In addition to looking for a new value network, Pinduoduo has also faced pressure from all parties after its listing. Labels such as fake and low-end products are still affixed to Pinduoduo.
Many organizations have put forward suggestions on the development path of "Tmall" for Pinduoduo. In fact, Pinduoduo has indeed launched the anti-counterfeiting campaign and launched its own brand gallery, which is considered by the industry to follow the conjecture of the path of Tmall.
But if we think from Huang Zheng's perspective, we have to go back to a core question-does China need a better Tmall? The answer is obviously no.
Pinduoduo's definition of its future vision is the keyword "Puhui".
What is Pratt & Whitney?
First, inclusiveness needs to allow Internet technology to benefit more people and more scenarios.
According to the latest statistics, there is still a big gap between China's total online retail sales and total social retail sales. In other words, the seemingly thriving Internet e-commerce still has a long way to go before the real penetration of the whole society.
Second, Pratt & Whitney should be a cost-effective Pratt & Whitney. Use high-quality and low-cost methods to realize the inclusive 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 prices can feed back product development and promote the continuous iteration of products.
This logic does sound fine. But if we expand our perspective, starting from the agricultural era, when the social product technology was rough, and slightly better things could only be provided to nobles and royals, and they were expensive. In the industrial age, machines have liberated manpower, and large-scale standardized cheap and high-quality products have entered the homes of ordinary people. In the information age, this trend will undoubtedly continue.
The core factor that drives high quality and low price is not the cost of enterprise research and development, but more importantly, the improvement of industrial chain collaboration efficiency.
An example once cited by Huang Zheng.
Someone had a foreboding that this winter would be a cold winter in the summer, so he placed an order for 1,000 down jackets 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 entire order. Where does this 30% discount come from?
Those familiar with factory cost management may know that if the order can be confirmed a long time in advance, the factory can actually use leisure time or low time to produce some products that are not rushed. This scheduling mechanism can effectively help manufacturers save cost. Including upstream material ordering, if the order is given in advance, the cost will be reduced accordingly.
Huang Zheng explained that there are certain wasteful links in the traditional supply chain model. A large number of supply-side manufacturers actually have no way to obtain stable batches of orders, so their production is unplanned and fragmented, and often adjust their production rhythm at any time according to the uncertain demand passed from the front end. In this way, the cost of production must be the highest, and the cost cannot be lowered and the price cannot be raised. This has brought a vicious circle. A large number of low-end products are gradually flooding the so-called fake market.
The new supply chain can be more efficient. Huang Zheng gave this process a name, "Using a demand-side semi-planned economy to promote the realization of a supply-side semi-market economy."
On the one hand, Pinduoduo integrates a large number of scattered customer needs and delivers them to the supply side in a planned way, providing manufacturers with certain production certainty and planning.
Just like the down jacket example we cited above, because of this certainty, manufacturers can lay out and optimize existing production resources to minimize production costs. And part of the profit squeezed out by this cost reduction can even be used to feed back users, making the product ultimately achieve "good quality" and "low price".
On the other hand, manufacturers do not understand customer and market needs, and do not know how to innovate. The dilemma that they can only compete from the low-cost dimension will also be alleviated.
As a platform, Pinduoduo can package customer needs and customer portraits and deliver them to the supply side, helping the supply side improve product design, so as to truly mobilize the overall coordination efficiency of the industry chain. For example, Pinduoduo’s "New Brand Plan" is undoubtedly implicit This means it.
So we see that the early Tmallization is actually just a phenomenon in the process, we think it is a tactic. 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 the provision of good products and low-cost supply at the same time. Then finally realize the so-called inclusiveness that it puts forward in the mission vision, which can bring our users, our consumers, and our people, satisfaction, gain and happiness.
The answer to the opening question: look for opportunities in the gaps, and continue to evolve in uncertainty
Back to our original question at the beginning: Is Pinduoduo's success opportunistic or innovative practice? I think the capital market has given it the most honest answer. As for Huang Zheng himself, there are undoubtedly many places worthy of in-depth observation and thinking.
Finally, a few summaries to share with you.
1. Uncertainty is the basis of our business judgment.
Many entrepreneurs wailed in the face of the national epidemic. But in fact, there are so many uncertainties in society, and the anxiety caused by the epidemic may be a microcosm of the nature of this society.
Uncertainty is the norm in society. As an entrepreneur and entrepreneur, this is a prerequisite for us to acquire tomorrow's knowledge.
The world is uncertain and incomplete, and we have to take it as a basic judgment on which to construct judgments about future business.
2. How to benefit from uncertainty?
We can actually see that Huang Zheng and Pinduo's several important innovations are all after well capturing the clues of changes in the general environment and stepping on the rhythm of the changes to achieve rapid growth in a short time.
Any great company is essentially iterative, and the essence of business is also a process of continuous innovation. Continuous innovation and evolution is the only way we can deal with uncertainty.
3. Innovation needs anchors.
If we want to do continuous innovation, we cannot innovate as we want. First, we should establish an innovation anchor point, a long-term benchmark, and focus on the pursuit of long-term value.
Duan Yongping once warned Huang Zheng that fast is slow and slow is fast in doing things. Do things with peace of mind and consider the improvement of your long-term value. Although various uncertain factors in the external environment can lead to deviations between prices and values, in the long run, prices will definitely tend to value. If your value increases, then you will eventually get the price you want. So we must focus on the pursuit of long-term value.
So my third point of insight is that we must carry on continuous evolution and continuous innovation. We must have an anchor that can anchor us firmly. It is an investment in long-term value, awe of business common sense, and The grasp of every moment of the moment.
4. A sense of mission has never been so important.
It is not difficult to find that the new generation of entrepreneurs, whether it is Huang Zheng, Wang Xing, or Zhang Yiming, embodies a strong sense of social mission. They regard long-term social value as their personal mission to gather a large number of followers. , To complete a great cause together.
A great company will definitely consider its value from the perspective of social value. Only with in-depth thinking about social value can we promote the endless multiplication of our company and make our team more determined and long-term.