news

Grabbing market share remains the current focus of competition for e-commerce.

By Shen Fangwei
Editor: Guan Yiwen

Pinduoduo is recognized as one of the Internet companies with the highest labor efficiency, but the company's core management recently emphasized internally that domestic business still needs to further improve labor efficiency.

We understand that Pinduoduo adjusted its business focus in the second quarter of this year, shifting from pursuing commercialization and increasing profits to putting GMV back as the top priority. Faced with fierce competition, Pinduoduo needs to consolidate its domestic business base and maintain its own advantages.

Since 2022, Pinduoduo has gradually shifted from its early pursuit of GMV and user scale to commercialization and increasing monetization rates. In the fourth quarter of 2023, Pinduoduo's stock price surpassed Alibaba, and in the first quarter of this year, it set a record high in profits, with an operating profit margin that even exceeded that of luxury giant LVMH.

In the first half of this year, Alibaba, JD.com and Douyin all turned to low-price competition. They invested a lot of subsidies and sacrificed profits to grab market share in the market that was already not growing much.

The growth of Pinduoduo's domestic business was lower than expected. We learned that the GMV growth rate of its main e-commerce site was below 30% in each quarter in the first half of the year. During major promotions such as 618, competitors invested heavily, and Pinduoduo's GMV growth rate in the second quarter was lower than that in the first quarter. Prior to this, Pinduoduo had maintained a GMV growth rate of more than 40% for a long time.

Pinduoduo's other domestic business, Duoduo Maicai, previously focused on reducing losses and improving operating efficiency, and has now achieved nationwide profitability. We understand that since June this year, similar to the domestic main site, Duoduo Maicai has also shifted its business focus from pursuing profits to growth.

Pinduoduo responded to this: All the data about Pinduoduo and Duoduo Maicai in the article are seriously untrue, including GMV growth rate, subsidy rate, average daily order volume, net profit margin, number of people, etc.

Pinduoduo is not the only company that has adjusted its goals and put GMV first. Douyin e-commerce recently adjusted the priority of its business goals, with "price power" no longer at the top, and GMV growth becoming the focus of the second half of the year; Taobao downplayed its price power strategy after 618 and no longer benchmarked Pinduoduo, with GMV becoming the most concerned indicator for its business.

At present, Alibaba's Chinese retail GMV is about 8 trillion yuan, accounting for 40% of the market; Pinduoduo's is 4 trillion yuan, JD.com's is 3 trillion yuan, and Douyin's e-commerce is 2.6 trillion yuan. Before the outbreak of the new crown epidemic, Pinduoduo's GMV was only 1/6 of Alibaba's, and Douyin had not yet started its own e-commerce. The companies' shift to pursuing GMV shows that these platforms have returned to the most fundamental and cruel competition in the retail industry and continue to grab the market.

Pinduoduo Main Site: From Pursuing Monetization Rate to GMV Growth

The situation that Pinduoduo's domestic e-commerce business is facing now is: on the upward side, it needs to expand more brands and increase the richness of products; on the downward side, it has to maintain its own low-price competitiveness.

In order to cope with the competition, Pinduoduo has launched a series of countermeasures this year, such as making efforts in investment negotiations, signing betting and underwriting agreements with more brands, and increasing investment in 10 billion yuan subsidies. We have previously written that the budget and actual expenditure of Pinduoduo's 10 billion yuan subsidy have been reduced for two consecutive years, but in the second quarter of this year, the budget of 10 billion yuan subsidy was raised to more than 10 billion yuan.

The products with 10 billion yuan in subsidies can be divided into three categories according to the subsidy method: the first category is purely self-subsidized by merchants, the second category is co-subsidized by the platform and merchants, and the third category is purely official subsidies from the platform. In the early years, most of the products with 10 billion yuan in subsidies were subsidized by Pinduoduo. Now, only a very small number of products such as Dyson and Apple are subsidized by the platform or jointly subsidized, and the rest are borne by merchants.

After the 10 billion subsidy budget was raised, Pinduoduo increased the subsidy intensity for the latter two categories of goods. In the categories where competitors focus on subsidies, such as 3C digital products and beauty products, Pinduoduo also increased the subsidy rate by 20% to 40% on the basis of the previous 5 to 8 percentage points. At the same time, Pinduoduo also began to provide additional subsidies for some merchants' purely self-supplemented products.

Pinduoduo is also investing more resources in the promotion. The registration for the autumn promotion opened at the end of June this year. For specific categories, merchants can register to participate in the event even if their products are not the "lowest price on the entire network". In addition, the cost of the coupons for the promotion is borne by the platform and the merchants at 50% each; in contrast, Taobao's 618 promotion this year is borne by the merchants themselves, and the category coupons, including the 88 VIP coupons, are borne by the platform.

The extremely low operating threshold has attracted a large number of merchants, which has created Pinduoduo's low-price advantage. Since 2023, competitors have snatched small and medium-sized merchants and industrial belt merchants on the Pinduoduo platform by reducing commissions, lowering entry thresholds, and optimizing traffic distribution rules. According to our understanding, from the third quarter of last year to the first quarter of this year, about 1.1 million Pinduoduo merchants flowed to Taobao, and these merchants currently have stores on multiple platforms at the same time.

In response to the outflow of merchants, Pinduoduo's strategies include increasing investment in industrial belts, providing more traffic and subsidy support to leading brands in sub-segments, well-known domestic first-line brands, and internationally renowned brands, supporting big-name substitutes and industrial belt manufacturers, continuously simplifying various operating tools to reduce operating difficulties, and using new advertising products to improve promotion efficiency.

Pinduoduo launched the "Automatic Price Tracking" tool in May and upgraded it again in late June. Previously, the activation of this function meant that merchants authorized the platform to directly change the prices of active products. After the upgrade, the platform can change the prices of all products in the merchant's store.

In order to encourage merchants to actively compete, after the 618 promotion, Pinduoduo also imitated Douyin and launched the "Order Grabbing Tool" tool. After activating this function, merchants can push their own products to consumers who have recently consulted, collected, or browsed the same products from peers. The products will be exposed in multiple scenarios such as when consumers search for peer products and browse product details pages, thereby grabbing traffic from peers.

In addition to providing more traffic support to merchants willing to offer the lowest price, the platform will no longer display the historical sales of a single product, but will instead present a label of the product's cumulative sales across the entire network to help them increase sales.

In terms of advertising products, Pinduoduo previously used two products: "site-wide promotion" and "standard promotion". The former was launched in 2022 when Pinduoduo accelerated its commercialization process. It can recommend products to all pages of the platform through simple operations; the latter is a merger of the search ads and event resource ads launched earlier, and is provided to merchants with medium and high unit-priced products.

In the past, “full-site promotion” may cause conflicts between different brands and white-label products in the same scene, affecting the advertising effect, and “standard promotion” may have a low input-output ratio for some categories. The platform hopes to improve advertising tools to ensure that merchants’ advertising costs are used more efficiently.

At the end of 2023, Pinduoduo tested a new advertising product, "Product Promotion", which inherited the "Full Site Promotion" function and increased accuracy. This product completely replaced the above two advertising products on July 29 this year. A Pinduoduo person said that compared with the past two advertising products, "Product Promotion" pays more attention to accurately matching products with consumers, further improving conversion rates.

The above-mentioned person believes that although Pinduoduo is willing to appropriately increase the proportion of free traffic in some categories in pursuit of GMV, the platform does not consider directly reducing the promotion costs of merchants, but hopes to make merchants' paid promotion more efficient to ensure the growth of Pinduoduo's commercial revenue.

We also learned that Pinduoduo is considering reusing Temu's business experience in its domestic business and trying a "full trusteeship" model for some categories, where merchants are responsible for supply and the platform determines the retail price, in order to achieve an extreme low price.

Duoduo Maicai: Returning to the growth path after profitability

Due to its high investment and low return, community group buying was once regarded as a "bad business" by Pinduoduo's management. In the past few years, Pinduoduo has been trying to make this business lighter.

We have previously written that after Duoduo Maicai and Meituan Youxuan realized that the market was no longer growing significantly in the fourth quarter of last year, they both shifted from pursuing scale to reducing losses, adjusted their product structure, raised prices to increase gross profit margins, and continued to cut subsidies to make every order a profitable business.

The reduction in losses once caused Duoduo Maicai's average daily order volume to drop by more than 20% in the first and second quarters of 2024, but its profit performance also improved significantly. By June this year, in most markets where it is still competing fiercely with Meituan Youxuan, Duoduo Maicai's net profit was about 5%. In cities such as Beijing where Meituan Youxuan has withdrawn, Duoduo Maicai can achieve a net profit of 10%-15%.

Duoduo Maicai is ahead of Meituan in terms of loss reduction progress. On the one hand, this is due to its more efficient and flexible organization, which can iterate quickly according to the complexity of local markets. On the other hand, Pinduoduo has significantly reduced costs internally. In the past two years, core employees of Duoduo Maicai have been transferred to Temu many times. After Temu launched its semi-hosting business in February this year, the number of employees at Duoduo Maicai has been reduced again.

Excluding outsourced employees who maintain the operation of the warehousing and logistics system, Pinduoduo currently only has 700-800 employees directly employed to support its Duoduo Maicai business - while Meituan Youxuan still has about 12,000 employees during the same period.

Previously, under the business focus of reducing losses and improving operating efficiency, the internal attitude was that in order to achieve profitability, a certain degree of market share decline was acceptable. From the fourth quarter of last year to the second quarter of this year, the loss reduction of nearly half a year has enabled Duoduomaicai to achieve national profitability.

We learned that since June this year, similar to the domestic main site, Duoduo Maicai has also shifted its business focus from pursuing profits to growth. People close to Duoduo Maicai said that the bottom line of the current grocery business is to maintain profitability, and all profits can be used to increase GMV and market share.

After this adjustment of its business direction, Duoduo Maicai began to proactively reduce prices and issue subsidies since June, and its order volume has quickly rebounded to the level before the loss reduction at the end of 2023, that is, an average daily order volume of 40 million to 45 million orders.

The business shift of Duoduo Maicai caught Meituan off guard. Meituan had previously formulated a plan to significantly reduce losses in its premium business by about 8 billion to 10 billion yuan in 2024, and control the annual loss to 10 billion to 12 billion yuan.

"What Meituan was most worried about happened." In the view of a Meituan person, after both Duoduo Maicai and Meituan Youxuan reduced their losses, the market was originally going to enter a stalemate phase, but Duoduo Maicai was the first to make a profit and quickly returned to pursuing market share and increasing investment, which means that the rhythm of Meituan Youxuan's ongoing loss-reduction plan has been disrupted.

An organization still running wild: Pinduoduo needs to continue to improve labor efficiency

Based on the 2023 revenue and number of employees to calculate labor efficiency, Meituan’s per capita contribution to revenue is 2.41 million yuan, Alibaba’s per capita contribution is 4.29 million yuan, Tencent’s per capita contribution is 5.77 million yuan, Byte’s per capita contribution is about 6 million yuan, and Pinduoduo’s per capita contribution is 14.56 million yuan.

This calculation method cannot fully reflect the efficiency differences of companies. Compared with other companies, Pinduoduo has the fewest and most focused businesses, and highly emphasizes the reuse of personnel and resources. Content platforms such as ByteDance have a large number of auditors; Alibaba has 210,000 employees, including 86,000 offline retail business staff such as RT-Mart.

If we compare the labor productivity of Alibaba and Pinduoduo's retail businesses in China, Alibaba's core e-commerce business Taobao has only 26,800 people (Taobao, Tmall, Tmall Supermarket, Tmall Global, Xianyu), with an average contribution of 16.23 million yuan per person in the year ending March 2024; HSBC once estimated that Temu contributed 23% of Pinduoduo's total revenue in 2023. Based on this, the average contribution of Pinduoduo's domestic business (main site e-commerce + Duoduo Maicai) exceeded 18 million yuan per person.

Pinduoduo's financial report disclosed that it had a total of 17,403 employees as of December 31, 2023. As far as we know, Duoduo Maicai and Temu's overseas localization business have nearly 7,000 employees, and Pinduoduo's domestic e-commerce entity employs about 10,000 formal employees, including a production and research team of nearly 3,000 people who also support Temu's research and development.

We understand that Pinduoduo's core management recently emphasized internally that domestic business still needs to further improve labor efficiency.

In the e-commerce main site and grocery business, most employees still maintain the standard work rhythm of 11-11-6 in the early years, and occasionally need to work overtime. In Temu, front-line employees work longer hours, and some investment and buyer employees often get off work at 2-3 in the morning.

Incentives are essential to maintaining the operation of this super organization. In the first quarter of this year, Pinduoduo issued more than 1 billion yuan in incentives to employees on top of the 1.2 billion yuan incentives at the end of 2023.

Not everyone feels this incentive. Although the opportunity for a pay raise twice a year is still there, some employees clearly feel the reduction in rewards. An observation by a Pinduoduo person is that the company followed a 2-7-1 performance evaluation standard in the early years, that is, the top 20% received more pay raises, 70% received basic pay raises, and 10% received no pay raises. In the past two years, the number of employees who received pay raises has decreased, and the pay raises have not been as large as before. Some Duoduo Maicai employees were told after transferring to Temu that the rental subsidies they had previously enjoyed when they transferred from the main station to Maicai had been cancelled.

When Pinduoduo was expanding rapidly from 2018 to 2020, the salary premium for employees was often 1.5 to 2 times or even higher than that of mainstream Internet companies. This year, some employees who received offers from Pinduoduo, Alibaba, and ByteDance found that the salary offered by Pinduoduo was only slightly higher.

In March of this year, some employees of Pinduoduo's main site received notices from business managers and HR requiring each of them to claim recruitment quotas and recommend internal personnel for interviews, otherwise their year-end performance might be affected.

Many fresh graduates who participated in the recruitment of Duoduo Maicai or Temu told us that the most common questions they were asked in the interviews at Pinduoduo were: Can you accept long-term overtime? Can you adapt to conflicts between work and life? These questions screened out a lot of people.

Title image source: Visual China