SHANGHAI/NEW YORK -- Pinduoduo, a company founded by a Google alumnus, has grown quickly from an upstart to a top player in a Chinese e-tail game long dominated by its two leading companies by tapping the power of social media and marrying it with bulk purchases.
"This is cute. Anyone else interested?" a 31-year-old Chinese shopper posted on WeChat with a link to a listing for children's clothing on the site of e-retailer Pinduoduo. If she purchased it on her own, the item would cost 26 yuan (about $4). But if she teamed up with three more people also willing to buy, she could get it for roughly one-third of the price, at 9 yuan.
This type of "team shopping" has helped the platform boast 683 million users, overtaking second-ranked JD.com and fast approaching industry leader Alibaba Group Holding.
Pinduoduo's group purchasing model is driven largely by such shoppers seeking "teammates" on WeChat, China's popular messaging app operated by Tencent Holdings. Tencent is also a leading shareholder in Pinduoduo.
"Some months, I make as much as eight purchases on Pinduoduo," the Chinese shopper said. "I like that you can get a discount if you shop together with your friends."
The New York-listed online retailer was founded in late 2015 by Colin Huang Zheng, an ex-Googler and serial entrepreneur who ran a game company prior to starting Pinduoduo. This background is reflected in Pinduoduo's gamification of its shopping experience, as well as its tagline "Together, More Savings, More Fun."
Pinduoduo displays two prices for products on its platform: one for an individual shopper, and another for a group buying in bulk. The threshold for unlocking the cheaper rate depends on the product but can take as few as two buyers.
Many people use WeChat to find such shopping teammates. A listing occasionally goes viral, leading to a flood of orders.
"Traditional e-commerce platforms were just placing items sold in physical stores on an online list," said Huang, who now serves as chairman. He founded the company in 2015, and its success has made him China's seventh-richest person.
By offering a group experience powered by social media, Pinduoduo instead replicates the experience of shopping with friends.
Low prices are another draw. Pinduoduo has partnered with over 1,000 small and midsize companies that produce a range of cheap, unbranded products from food to furniture specifically for the platform. This gave it an edge in smaller cities and rural areas, which tend to have lower income levels and were overlooked by Alibaba and JD.com.
Pinduoduo is cheaper for vendors as well. "It usually charges less than Alibaba for advertising and other services," a manufacturing executive said.
Like Alibaba's e-commerce business, Pinduoduo primarily generates revenue by selling marketing and advertising services to vendors.
The platform has increased its user base by 41% in the past year, nearing Alibaba's figure of 742 million. Alibaba has created a team dedicated to responding to Pinduoduo, a company source said.
"Right now, our top priority is how we compete with Pinduoduo," rather than longtime rival JD.com, the Alibaba source said.
Inspired by Pinduoduo's success, Alibaba also has introduced a group-buying option. But this has been slow to catch on, since the group has no affiliated social media platform, making it more difficult for users to form teams.
Apart from its social e-commerce model, much of Pinduoduo's competitiveness can be attributed to its aggressive marketing spending. In the past few years, the company has become known for its "10 billion yuan coupon" ($1.46 billion) campaign, where it splashes its own money to allow for massive reductions for shoppers.
These include markdowns on luxury goods, from Dyson to La Mer, which have won the hearts of many urban who previously shunned the platform due to its reputation of serving rural consumers.
In the April-June quarter alone, loss-making Pinduoduo spent 9.1 billion yuan ($1.3 billion) on sales and marketing -- equal to 75% of its revenue from the same period. The same ratio for Alibaba during that period was just 9%.
Last October, Huang, who was then still CEO, told employees that Pinduoduo investors firmly support the company's price markdown strategy despite its steep losses, according to Chinese business publication Late Post.
At the same time, he said that the company in the near-term will not have its own building -- as fellow Chinese tech upstart ByteDance does -- or even its cafeteria, as Pinduoduo is still in survival mode.
Indeed, despite its rapid expansion, Pinduoduo remains far behind Alibaba in financial terms. Transactions on the platform totaled 1.16 trillion yuan for the year ended in March -- a fraction of Alibaba's 6.59 trillion yuan, due to the latter's dominance in higher-priced products. Marketing costs that help keep prices down also squeeze Pinduoduo's overall results.
Pinduoduo has come under fire for listings of counterfeit goods as well.
"Items on the platform are cheap, so I'd expect a lot of them to be fakes," one user said. The issue was spotlighted when the platform listed on Nasdaq in 2018.