In the four aspects of "more, fast, good, and provincial", Pinduoduo's own advantage is "province". With this advantage, Pinduoduo has become one of the largest e-commerce companies in China, with a market capitalization of US $45 billion. So, why are the goods of Pinduoduo cheap, can they continue to be cheaper, and can they be cheaper?

1. "cheap" is Pinduoduo's most important moat.

Pinduoduo reduces merchants' marketing expenses through the principle of traffic distribution.There is little difference in price among different platforms, but the difference in advertising fee is more obvious. If Amoy platform merchants need to spend money on advertising and traffic, the marketing expenses of some of Tmall's products are as high as 20% of the product price. But Pinduoduo advertisement and the recommendation column are few, as long as the merchant can create the popular style, Pinduoduo will give the flow tilt, whether to spend money to do the advertisement to the achievement promotion effect is not big.

Pinduoduo deduction rate (commission) is very low, businesses have the motivation to further discount.At present, the commission of Taobao e-commerce is mostly concentrated in 3-5%, Pinduoduo is about 0.6%, while JD.com, as a proprietary platform, is as high as 8%.

The way of subsidy is to directly reduce the price of goods, which can strengthen the comparative advantage of "cheap" and reverse the low-end brand image.The 10 billion subsidy program launched by Pinduoduo, on the one hand, subsidizes big brands such as iPhone and Dyson to achieve "cheap and good goods" and solves the pain point of first-and second-tier high-quality customers' demand for performance-to-price ratio; on the other hand, it subsidizes products with high consumption frequency and low unit price to meet the differentiation of consumer needs of first-and second-tier customers, and at the same time, it can also cultivate the habit of rebuying low-priced goods on Pinduoduo.

To sum up, the moat of Pinduoduo lies in the platform's ideas to help businesses save money, so that businesses will have the incentive to help consumers save money.Rather than spend money on advertising, merchants are more likely to create low-cost popular styles with small profits and quick sales.

2. It can continue to be "cheap" in the future, and there is still a lot of room for improvement on the income side.

"adequate self-cash flow + convertible bond financing" enables high subsidies to continue.On the one hand, as of the third quarter of 19, Pinduoduo had more than 40.3 billion yuan of available funds, including cash, cash equivalents and short-term investments; on the other hand, in September 2019, Pinduoduo successfully completed a convertible bond issue totaling US $1 billion with a 0% maturity yield and 0% coupon.

At this stage, the valuation of the company should take more account of user growth than profitability.In the early days of its establishment, Taobao also invested a lot of red packets and advertising marketing in order to get customers, and did not charge admission fees and transaction fees within three years, so that customers continued to shift from eBay to Taobao. Pinduoduo, which is only four years old, now has more than 500m active buyers, second only to BABA. At this stage, valuation should take more account of user growth rather than profit improvement.

What Pinduoduo earns is the difference in flow cost, and there is still a lot of room for improvement at the income end.On the one hand, the company obtains low-cost traffic through activities such as natural social portals and shopping, and on the other hand, it realises traffic by selling goods on the platform, depending on the difference between the two. At present, Pinduoduo's advertising revenue and transaction commission are very low, increasing these two items of income can quickly enlarge the volume of income.

"cheap" continues to bring a surge in users, and the counterattack on the first and second lines has also achieved better results.The improvement of Pinduoduo's own product quality, the improvement of performance ability and the habit of users gradually forming the habit of repurchasing low-cost goods have led to a surge in users, and ARPU has almost doubled compared with the same period last year. These achievements are commendable under the background that BABA and JD.com have entered the low-line market one after another.

3. Rely on reverse customization to really reduce the cost of goods and make them cheaper from the upper reaches.

Reverse customization (C2M) means that the purchase data fed back by the C side is transmitted directly to the manufacturing side, and then the products that match the needs of the C side are sent to the C side.

Reverse customization to compress the supply chain is expected to help businesses save channel costs.The general chain of traditional e-commerce is "production → brand → operating → logistics → consumers", while Pinduoduo's chain is "production → logistics → consumers", without intermediate links and layers of consumption, directly from the production end to consumers, can really achieve high quality and low price.

Create "white brand" goods and reduce costs by reducing brand premium.The pricing of many goods includes a high brand premium, and whether in the sinking market or in the high-line market, there will always be people who do not care about the brand, especially in the consumption of FMCG and clothing. By creating "white brand" goods, the brand premium can be effectively reduced, thus the product price can be reduced.

4. Summary

Generally speaking: first, "cheap" is Pinduoduo's most important moat, and platform ideas try to help businesses save money, so that businesses will have the motivation to help consumers save money; second, relying on good cash flow, "cheap" can be sustained; third, relying on reverse customization can make goods cheaper.