How Temu is taking the Pinduoduo playbook overseas

PDD Holdings, the parent firm of Pinduoduo, recently released its fourth-quarter and full-year 2022 earnings. While the company missed its Q4 expectations, its revenue growth of 46% for the quarter dwarfed that of rival Chinese ecommerce platforms Alibaba and JD.com.

The question is where the next phase of growth will come from, and management believes it will be from overseas customers. That means Temu, PDD’s new budget shopping app that’s already available in several countries, has a big role to play going forward.

Image credit: Timmy Loen

To gain some insight into what may lie in store for Temu, let’s look at the three big contrarian bets its China-based sister company made when it was a fledgling platform.

1. Customer base

When Pinduoduo first launched, observers doubted there was room for a new entrant to the ecommerce sector due to Alibaba and JD’s dominance.

The increased spending power of Chinese consumers also pointed toward higher-ticket items driving growth for these companies. As a result, Alibaba and JD invited large international brands to their platforms, looking to book higher ad revenue and take rates.

The two firms deprioritized smaller and long-tail merchants and, ultimately, bumped them off the platforms – but there were problems with this approach.

Not all of China’s consumers were participating in the upgrade in consumption. People in first-tier cities such as Beijing and Shanghai were seeing their incomes and purchasing power grow, but many other citizens were in different financial circumstances.

See also: Why SEA should watch out for Shein’s top rival Temu

Case in point: In 2016, Alibaba’s Taobao mobile shopping platform had 369 million monthly active users, while Tencent’s WeChat had over 700 million. Pinduoduo targeted the 331 million consumers with less income and more free time during their day than their urbanite peers.

These consumers are perfect for the firm’s price-conscious merchandise, gamified shopping features, as well as group-buying and referrals-for-discounts incentives. Also, the company gave a new and much-needed sales channel for small and long-tail sellers – now out of favor on Alibaba and JD’s platforms.

These customers and merchants shaped Pinduoduo, pushing it to look for innovative ways to cut costs to keep prices low.

That focus on “cheap” turned into a positive branding exercise for Pinduoduo. Today, Chinese consumers see the platform as the place to find the best-value products available in the country.

2. Customer acquisition

Pinduoduo’s second unconventional move was combining “social” and “commerce” by launching on WeChat. Leveraging the largest social platform in China, Pinduoduo grew its user base by promoting group buying, which incentivized users to invite friends and family to the app to get discounts.

3. Consumer-to-manufacturer selling

What does all this mean for Temu?

Opportunities

Challenges