Pinduoduo Emerges Stronger as Rivals like Alibaba and Douyin Struggle with Low Prices

Pinduoduo Dominates with Low Prices, Forcing Rivals like Alibaba, Douyin, Tmall, and Taobao to Rethink Strategies.

Summary:

In recent months, the landscape of Chinese e-commerce has undergone significant changes, with Pinduoduo PDD 0.00%↑ solidifying its position as a dominant force in the market. Pinduoduo, a latecomer to the scene, has captured substantial market share from established giants like Alibaba and JD.com, while newer players like Douyin and Kuaishou have also entered the field. All these platforms feared Pinduoduo because of its ability to offer the lowest prices, prompting them to adopt similar low-price strategies. However, they are now finding it increasingly challenging to sustain this approach and are shifting back to prioritizing GMV.

Pinduoduo’s Rise

Pinduoduo has long been known for its ultra-low prices, attracting price-sensitive consumers and growing rapidly. Its success lies in leveraging group buying and a straightforward pricing strategy that resonates with a broad customer base. This has allowed Pinduoduo to capture a substantial market share, especially among consumers looking for value deals.

Shifts in Strategy Among Competitors

Earlier this year, BABA 0.00%↑ Alibaba’s Tmall and Taobao, along with others like JD, Kuaishou and Douyin E-commerce, adopted aggressive low-price strategies to compete with Pinduoduo. However, this approach has proven unsustainable for several reasons:

1. Increased Costs: Unlike traditional shelf models, live-streaming e-commerce—prevalent on platforms like Douyin and Kuaishou $01024.HK —involves additional costs. These include payments to influencers and service providers, which add to the overall cost structure and make it difficult to sustain low prices.

2. Operational Challenges: Platforms have struggled with maintaining quality while reducing prices. Lower-quality products often end up being pushed to consumers, leading to higher return rates and dissatisfied customers.

3. Economic Pressures on Merchants: Many merchants have found it challenging to operate under the constant pressure to lower prices. The financial strain of having to buy traffic and reduce prices simultaneously has led to an unsustainable business model for many, forcing some to reconsider their presence on these platforms.

Impact on Douyin E-commerce

Douyin E-commerce, initially putting low prices at the forefront, experienced a notable decline in GMV growth. In the first quarter, while it managed to meet several price competitiveness targets, it never quite matched Pinduoduo’s low prices. Consequently, Douyin has now shifted its focus back to GMV growth, recognizing that the ultra-low price strategy is not feasible in the long term.

This strategic pivot involves:

• Reducing the emphasis on aggressive price comparisons for non-standard items.

• Encouraging merchants to offer unique bundles and higher-quality products, even if they come at a slightly higher price.

• Focusing on increasing GMV rather than merely pushing for high order volumes through low prices.

Alibaba’s Adaptation

Similarly, Alibaba’s Tmall and Taobao have begun prioritizing sales volume and average consumption over low prices. This strategic change aims to improve profitability and long-term sustainability. By de-emphasizing the low-price competition, Alibaba hopes to attract and retain merchants who can offer quality products without the constant pressure of undercutting prices.

Conclusion

The shift in strategies among China’s major e-commerce players highlights the challenges of maintaining ultra-low prices in a competitive market. Pinduoduo continues to thrive by sticking to its low-price model, while rivals like Douyin E-commerce, Tmall, and Taobao are adjusting their approaches to focus on sustainable growth and profitability. This is a very strong signal for Pinduoduo, indicating that others cannot keep up with their business model. In a time when Chinese consumers are looking to save money, this is a significant advantage for Pinduoduo.

There are some really two good articles in Latepost that also discuss these issues in great detail, however written in Chinese.