PDD: e-commerce for the underserved
great wall of china
Article

PDD: e-commerce for the underserved

A Chinese online merchant at the crossroads
5 min.
February 2019
PRINTABLE PDF – Less than 1MB

On July 26, 2018, Pinduoduo (PDD), China’s social e-commerce company, launched its initial public offering on the Nasdaq market.

Known for rock-bottom priced products selling on its online platform, PDD had been the target of much criticism and even ridicule relating to the quality of its products. A nontrivial fraction of the products was found to be copycats of Xiaomi, Sony and other popular consumer electronics. And then there were the rotten fruits and leaking diapers, you name it.

Despite the controversies and seeming bad reputation, PDD’s stock prices shot up by more than 30% on the first day of trading and its market value reached nearly $USD 30 billion, or more than half of that of JD.com, the second largest Chinese e-commerce player behind Alibaba.

China’s fastest growing e-commerce start-up

Pinduoduo was founded in September 2015. PDD’s active user base went from zero to 100 million in the first year and then to 200 million in the second year. By the end of March 2018, PDD boasted 344 million active users on its platform, making it probably the world’s fastest growing company in terms of client acquisition. (According to its latest annual report, Alibaba had 552 million active users in 2017.) As PDD’s user base expanded, its trading volume also grew exponentially. In the twelve-month period ending 30 June 2018, PDD reported a GMV (gross merchandise value) of RMB 262.1 billion or USD 39.6 billion, which represented a whopping 583% increase from a year ago. Now in its fourth year of operation, PDD is a solid third in the fiercely competitive e-commerce market in China after Alibaba and JD.com.

A market unbeknownst to the middle class

According to the National Bureau of Statistics of China (NBSC), China’s per capita disposable income in 2017 is $USD 3,782 (the median number is $USD 3,263), which translates to slightly below $USD 300 per month. While in China’s affluent coastal regions income levels are much higher than nationally, its vast inland provinces and particularly their rural population are nowhere near $USD 300 per month. The reality is that there are approximately 1 billion Chinese living in small cities and townships and they are much more price sensitive than the shoppers you meet at a Gucci store in a first- or second-tier city. Indeed, at least two thirds of PDD’s customers come from outside of the target audience of a typical e-commerce outlet.

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