Pinduoduo Case Analyse | Course Paper

Pinduoduo: Case Analysis Report

Q1. What are the key trends driving China’s retail market, and the role of digital

technologies in the future development of the retailing industry?

Answer: I would like to use the PEST model to analyze the key trend in the retail market, and

then conclude the influence of digital technologies mainly from the new business model of

Alibaba, JD, and PDD.

· Political: No direct political-trend is shown in the materials, but it still could notice

that the government would gradually support the rural area’s development

(including potential support policy in boosting consumption.

· Economics: Macro-background is fast growing. China’s per capita gross domestic

product (GDP) reached USD8,830 in 2017. The total retail sales of consumer goods grew

from CNY20.7trn in 2012 to CNY36.6trn in 2017

· Social: living standards of China customers are rising. Also, the pursuit of high-

quality products was a trend currently pursued by China’s e-commerce players.

Between 2007 and 2017, household consumption in both urban and rural China expanded.

Rural consumption grew from CNY3,538 to CNY11,704, more than 330%, versus an

increase in urban consumption at 249% over the same period

· Technology: Digital infrastructure and 4G are well-established in China in most areas,

even in the rural area. Until December 2017, the China Internet Network Information

Center (CNNIC) estimated there were 772 million internet users in China, of which 753

million were mobile internet users as well. Mobile internet penetration was as high as 97.5%

among internet users in China

· Further influence of digital technologies:

· Shape the customers’ retail-shopping habits: Consumers are more likely to rely on

mobile digital shopping to do the price comparison pricing, and endless shopping.

· Change the e-commerce’s (supply-side) ability of customer analysis. According

to the three giants’ business innovation, I could conclude that the biggest impacts of

digital technology in e-commerce platform is the data analysis and exploitation: The

technology applied for this purpose allows us to know the models and patterns of

consumption, so we can hyper-segment customers and design strategies and

campaigns tailored to each consumer. In addition, Predictive Analytics allows

companies to anticipate user tastes, trends and habits.

Q2. What are the opportunities and challenges for e-commerce startups in China?

I would like to use Porter’s Five-Force model to identify the challenges and opps for startups

· Industry Competitors (high)

For start-ups, the competitors mainly are the other small e-commerce platform selling some

kind of products, instead of the giant Alibaba or JD. However, even there are many product

categories that are the potential to develop a direct e-commerce platform, such as the second–

hand recycling area and so on, the innovative-ability of the giant and updating ability of existing

e-commerce categories are high, hence, the competition is everywhere.

· Potential Entrants (moderately high)

Building up smaller and more focused e-commerce is not difficult in China. However, setting

up an online market as Alibaba and JD requires initial large investments and strong distribution

channels worldwide. Hence, the threat of new entrants depends on the start-up’s scale.

· Substitutes (moderately high)

The substitutes of e-commerce startups would be the physical retail stores that are also offering

low price goods, and also some suppliers who build their social websites. Many companies

have also set up their own retail websites offering the same prices as e-commerce, to save the

membership costs.

· Buyer Power (moderate-high)

For start-up e-commerce, the buyers are both individual customers as well as businesses. Before

a new startup building its brand-image and user-base quantity, buyers can choose and switch to

any other giant platform for better shopping experiences and frequency. However, if a startup

can offer lower prices and wider varieties to customers due to its low-cost on brand image

building, most buyers will stay on it. They will have to buy at higher prices if they switch to

the large platform.

· Supply Power (moderately low)