Group or collective buying is defined as an online group auction activity in which the increasing number of buyers lowers the price of a product. Collective buying is heavily dependent on timing and quantity (Wang, Zhao, and Li, 2013).
Technology enabled the development of platforms that support the collective purchase of goods. Groupon, LivingSocial, and Wowcher were the first companies that successfully implemented this model, empowering customers to formulate groups and achieving extreme discounts. Due to low customer retention, this strategy seemed faulty and unprofitable (Williams, 2018). However, in China, Pinduoduo, a company operating since 2015, revolutionized group purchasing. The company achieved rapid market and economic development (Weinswig, 2020). Pinduoduo’s valuation exceeds the value of major corporations, such as Shell and HSBC (Sweney, 2020). But, how did Pinduoduo manage to expand so rapidly?
Pinduoduo’s success is primarily attributed to two reasons: the engagement of the low-end consumer market and the use of social media. Pinduoduo managed to gain the trust of the consumers that could not afford to buy expensive products (Williams, 2018). The application is notably popular in rural areas. Customer demographics show that Pinduoduo’s main customer segment includes women around 30 years old (Williams, 2018). Also, the company was the first from its competitors to extensively utilize social media, namely WeChat, to boost its sales. Using WeChat, customers can select a product and invite their friends and relatives to negotiate a better price collectively (Sweney, 2020). Based on the number of invited friends, the discounts on the application can even reach up to 90% of the product’s initial price. Also, Pinduoduo’s strong integration with WeChat allows the company to achieve low customer acquisition costs (Weinswig, 2020). Pinduoduo sells an enormous variety of products, from daily disposables to luxury goods. Consumers even attempted to buy Tesla cars via the Pinduoduo application. Although Tesla initially refused to accept the order because it sells solely from its website, the consumers eventually obtained the Tesla cars (Sweney, 2020).
Even though Pinduoduo has achieved tremendous success, the company experiences several concerns. In particular, Pinduoduo has focused its efforts on increasing its customer base instead of generating significant profits. To expand its customer base, the company frequently provides subsidies to its customers. Also, customer complaints do exist regarding the delay in delivery and the sale of counterfeit goods. Pinduoduo now attempts to resolve these issues, providing higher quality and luxury products (Sweney, 2020).
Pinduoduo’s success made other companies in China to target the lower-tier market, including Jingxi (JD.com) and Suning.com, and Xiao’e Pinpin (Tencent) (Weinswig, 2020). Similar initiatives do exist in other countries such as United Consumers in the Netherlands (Williams, 2018). What do you think about the revival of the group buying trend? Will companies adopting group buying strategy gain significant market share in e-commerce, or is collective buying a strategy destined to fail?
Bibliography
Sweney, M., 2020. A Bubble? The Stellar Growth Of China’s E-Commerce Upstart Pinduoduo. [online] the Guardian. Available at: <https://www.theguardian.com/business/2020/aug/22/a-bubble-the-stellar-growth-of-china-e-commerce-upstart-pinduoduo> [Accessed 5 October 2020].
Wang, J., Zhao, X. and Li, J., 2013. Group Buying: A Strategic Form of Consumer Collective. Journal of Retailing, 89(3), pp.338-351.
Weinswig, D., 2020. Tencent Eyes Pinduoduo’s Turf · Technode Insider. [online] TechNode. Available at: <https://technode.com/2020/06/10/tencent-eyes-pinduoduos-turf/> [Accessed 6 October 2020].
Williams, D., 2018. Is The Group Buying Market Becoming Mainstream?. [online] TranslateMedia. Available at: <https://www.translatemedia.com/translation-blog/group-buying-market-becoming-mainstream/> [Accessed 5 October 2020].
