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e-commerce
A model as observed through
the case of Pinduoduo
Defining Interactive e-commerce
• Guiding principle
The Sushi Train • Core user need
Digital Carnival
Live
Stream Games
Page 43
Page 45
Team
Purchase
Page 34
Coupons
Page 21
Defining Interactive e-commerce
Table of Contents
I. Executive summary and Introduction 5
II. What is interactive e-commerce? 9
III. The Rise of Pinduoduo and Development of Interactive E-commerce 24
IV. The Pinduoduo Story 31
V. PDD & interactive e-commerce: results, potential, and limitations 46
VI. Conclusion 52
This report is researched and published by China Channel, in collaboration with Pinduoduo. Opinions, predictions, and interpretations expressed
Disclaimer and Methodology in this report are those exclusively of the authors and do not necessarily reflect those of China Channel or Pinduoduo. Research for this report
was conducted through literature review, interviews with Pinduoduo management and users, as well as independent research by the authors.
Executive Summary
This paper seeks to define and explore the Interactive e-commerce humanizes the online
concept of “interactive e-commerce,” as shopping experience. It is an approach that
illustrated through the rise of Pinduoduo. recreates the enjoyable experience of
Interactive e-commerce can be understood shopping in the physical world for the digital
as an integration of consumer-facing age.
elements of user experience:
recommendation, community and
entertainment - enabling supply-side While aspects of this model have been
optimization to offer increased value to the applied in a number of ways throughout the
consumer. digital economy, Pinduoduo’s rise provides
perhaps the clearest case of a company
whose success is directly tied with the
Interactive e-commerce can be viewed as an application of interactive e-commerce. It is
extension of the popular “Disney and Costco” the largest and most prominent e-commerce
characterization: “Disney,” as it provides an company to build its business model
entertaining, engaging, and socially purposefully around the notion of interactive
connected user experience. “Costco” in that it e-commerce: combining community,
can leverage insights drawn from users and entertainment, and recommendation to
5
direct relationships with manufacturers to provide more value for money to the
achieve efficient economies of scale, and thus end-user.
superior value for money.
Defining interactive e-commerce
Introduction Introduction
E-commerce has come a long way from experience for the shopper along with
the Yellow Pages-style online catalogs with improved value for money.
a fax number to the one-click, same-day
delivery to which consumers in some
markets have become accustomed. The development of e-commerce until a
few years ago has largely been driven by a
It is in China, home to the world’s most focus on efficiency, wider choice, and
advanced e-commerce industry, that the convenience. It has largely neglected the
move away from the legacy search-based broader recreational and emotional role
model of e-commerce continues at an that shopping has traditionally played in
accelerated pace. Replacing the old is a societies.
new interactive experience that more
faithfully represents how people shop in
the physical world, offering a fun
Modern mobile
e-commerce
interfaces are
lively, dynamic
7 and interactive
Defining Interactive e-commerce
8
Interactive e-commerce is a model that
humanizes the online shopping experience.
It is an approach that takes the enjoyable,
social, and psychological experience of
shopping in the physical world, and applies
it to the digital age.
What is interactive
e-commerce?
9
Defining Interactive e-commerce
Interactive e-commerce can be In traditional e-commerce, platforms This approach has led to an
understood as a philosophy toward are often designed under the integration of tools from elsewhere
online shopping that humanizes the assumption that shopping is a task to in the digital economy:
online shopping experience, be crossed off a to-do list, that what recommendation, community, and
applying insights and design ultimately motivates the user is entertainment together with one
approaches that have been more efficiency, price, and convenience. In core proposition: value for money.
traditionally associated with gaming, contrast, interactive e-commerce
social media or entertainment platforms are designed with the
10
platforms. notion that online shopping can itself
be a leisure activity, as offline
shopping has often been.
Defining Interactive e-commerce
Recommendati Recommendation
• Intent driven
• Type carefully refined search term
• PC or desktop friendly
• Longer continuous session times
• Careful price or feature comparison Interactive E-commerce
behavior. In an example “Except for when you are sphere. Rather than
recognizable to most e- out of toilet paper or pasta assuming that the shopper
commerce shoppers, such and need to replenish largely knows what they are
recommendations will supplies at the supermarket, looking for beforehand and
Traditional e-commerce has suggest complementary much of shopping in the pursuing an efficient
been largely designed products, such as physical world is more experience, the assumption
around a search-based, accessories to accompany serendipitous. Like spotting behind the interactive e-
intent-driven experience. the purchase of a a particularly nice dress commerce model is that the
This goes along with the smartphone, or a new novel while passing by a window shopper does not always
assumption that the from an author whose shop, or a tip from a friend have a clear idea of what
shopper has a clear idea of previous works the user had for a bargain buy, or a great product they are searching
what product they are purchased. review of the flat-screen for specifically, but that
looking for, and will seek television by a co-worker,” through the shopping
out that product, typically While certainly successful, process, they can find the
through typing terms into a this model of search and It is that notion elusive item that they did
search bar. When recommendation fails to of “serendipity,” so key to not yet know they needed
recommendation has been provide users with what the pleasureful shopping and find the deal that will
integrated into such search- many of them enjoy most experience in the physical make their day.
based platforms, it often about the shopping world, which interactive e-
draws primarily from experience. As a Pinduoduo commerce aims to
insights based on past representative puts it: . introduce in the digital
purchases or search
12
Defining interactive e-commerce
Recommendation Analogy
Restaurant Menu
Traditional Search E-commerce
Entertainment Entertainment
“
in the physical world. stimulus to the user, while
Carnival games and involving a sense of novelty
Whether in the form of live performances of all types are regarding such a
streaming, games, flash sales, popular aspects of traditional howstimulus will be applied.
or countless other methods,
The shopping revolution
night and weekend markets will combine e-commerce
the second component of in communities throughout
interactive e-commerce and entertainment, where
the world. Shopping malls In China in particular, the both are equal in
prioritizes fun and include not just retail outlets, intertwining of entertainment
stimulation for the user, but cinemas, arcades, and and e-commerce is seen as importance. Toss in
attracting them to the playgrounds. In the case of an essential aspect of online gamification and boom.
platform, lengthening the Minnesota’s famous Mall of shopping, as gamification,
duration of their visits, and
”
America, such amenities live streaming, flash sales,
incentivizing regular and even include mini golf, and holiday shopping galas
active involvement. museums, and roller coasters. are commonplace.
Connie Chan
While an emerging General Partner
The essence of the
phenomenon in the digital entertainment component of Andreessen Horowitz
sphere, the concept of interactive e-commerce lies
Defining interactive e-commerce
Entertainment Analogy
Contrast this with the night market. The atmosphere is lively and bustling - music fills
the air. A stall owner calls you over to take a closer look; the smell of tasty street snacks
makes your stomach rumble. Entertainment is on every corner, such as simple games
for young and old. Throw hoops, shoot the balloon, test your strength and strike the
bell.
Community Community
• Sharing non-essential
• Solitary purchase experience
• Limited integration with
social platforms
• Purchase history private Interactive E-commerce
• Limited or no live stream
• Sharing activity incentivized
• Team purchase for a lower price
• Seamless experience across
social platforms & native app
• Share purchase history w/ friends
• Livestream interact with buyers
Defining Interactive e-commerce
In order to compose a large friends, family and other social interactive e-commerce:
enough group of buyers, contacts. Buyers on our Through sophisticated
With interactive e-commerce, Pinduoduo’s users were platform actively introduce us recommendation,
the involvement of a broader encouraged to recruit and share products offered on entertainment, and
social component not only members of their social our platform through social community, interactive
provides insights for improved network to join their group. networks in order to take e-commerce blurs the lines
recommendation, but also advantage of attractive lower that have traditionally
creates a digital shopping product prices available under separated the digital economy,
environment that meets the In their 2019 F-1 filing,2 the "team purchase" option, offering an engaging and fun
innately human need of Pinduoduo explained the and new buyers in turn refer shopping experience.
connecting with others. multifaceted benefits of their our platform to their broader
team purchase feature, saying: networks of friends and
In the early stages of families. This interactive
Pinduoduo’s rise, this was “We leverage social networks feature also transforms online
done by leveraging Tencent’s as an effective and efficient shopping into a fun and
popular WeChat app. tool for buyer acquisition and interactive experience.”
Pinduoduo’s team purchase engagement. This feature
feature (explained in greater provides us with low-cost The early success of the team
detail in section III of this organic traffic, rapid growth of purchase feature
paper) offered discounted buyer base, and active social demonstrated the
prices on everyday goods like interaction as our buyers share effectiveness of many of the
produce and household their purchase experience and key features that have gone
staples for group-purchasers. product information with their on to become indicative of
19 2SEC Filings
http://investor.pinduoduo.com/financial-information/sec-filings
Defining interactive e-commerce
Community Analogy
Contrast this with the girls’ day out shopping. “Oh my. You guys, come over. Look at this!”
Susan had discovered the perfect gift for Karen’s upcoming birthday. Loud squeals and a
group hug followed. The best friends were not even mid-way through their shopping
spree and the bags were already piling up.
Defining Interactive e-commerce
Value
the interactive e-commerce approach. model, outlined below, delivers
It is less a direct interactive aspect of exceptional price value to the end
user experience and refers more to a consumer by simplifying the value
principle core user need. The chain. Middlemen distributors, retail
mechanisms for delivering value are outlets and other channels are
various, including the consumer to removed facilitating a “direct to
ˈvæ ljuː
manufacturer model, lower priced team consumer” relationship.
purchases, and limited time
promotional coupons.
Price is always the best vector of
competition and the most direct
method to delight consumers
Defining Interactive e-commerce
Consumer to Manufacturer
23
The Rise of Pinduoduo &
Development of Interactive
E-commerce
Although the approaches and features radically different from that of its more
characteristic of the interactive e-commerce established industry peers. Pinduoduo as a
model have achieved widespread adoption young company entered the e-commerce
among myriad players in the digital economy landscape uninhibited by the baggage and
worldwide, there is perhaps no one firm legacy of traditional models.
whose philosophy, growth story, and impact
is more tightly intertwined with interactive e-
commerce than Pinduoduo. Both the time and location of Pinduoduo’s
ascent offered unique circumstances to
facilitate its rise. The technological and
Founded in 2015 by former Google engineer business landscape at the time which enabled
and gaming entrepreneur Colin Huang, the Pinduoduo’s interactive e-commerce model
24
digital environment in which the Shanghai- included the following.
based startup came to prominence was
Defining Interactive e-commerce
25
Defining Interactive e-commerce
26
Defining Interactive e-commerce
27
superb logistical infrastructure,
Defining Interactive e-commerce
Mobile payments
Thirdly, by rising when it did and how it While the prevalence of credit card access the web via smartphones.
did, the unique payments ecosystem in ownership in the developed world This imbalance has driven the growth of a
China opened the door to e-commerce provided a clear mechanism through QR code-based mobile payments system
and digital retail business models that which to process online transactions, credit spearheaded by Tencent’s WeChat Pay
would not be feasible in other card usage in China is remarkably low, and Alibaba’s Alipay, a system so popular
environments. with only 21 percent3 of the population in that it became the preferred method of
ownership of a charge card. This is a payment for the majority5 of Chinese
fraction of the over 850 million4 Chinese consumers within four years of its launch.
internet users, the vast majority of which
3 The World Bank Global Findex
https://globalfindex.worldbank.org/#data_sec_focus
4 Xinhuanet: China has 854 mln internet users: report
http://www.xinhuanet.com/english/2019-08/30/c_138351278.htm
5 PWC India: The continued momentum of e-commerce growth in China, Gustavo Arora
https://www.pwc.in/consulting/financial-services/fintech/fintech-insights/the-continued-momentum-of-e-commerce-growth-in-china.html
Defining Interactive e-commerce
“
recommendation AI. Pinduoduo’s of entrepreneurs recognizing the
founding year of 2015 coincides with what potential of applying sophisticated AI-
is considered a watershed moment for AI, enabled recommendation to the existing
when Google’s AlphaGo defeated three- digital economy. We are more like Facebook than
time European Champion Fan Hui in a Google in the e-commerce
match of the traditional Chinese board world. We push our product
game, often thought to be the world’s recommendation feeds to the
most complex. consumers rather than wait for
them to search on our platform.
”
Lei Chen
Pinduoduo Co-founder & CEO
29
Defining Interactive e-commerce
Finally, perhaps the single most Yet what enabled developers and
essential app for China’s smartphone entrepreneurs to more fully utilize the
users, its combination of widespread value of the WeChat platform was
use among nearly every online firstly official accounts and later the
demographic in China, dominance introduction of mini programs: a light,
over social networking and app-like feature, requiring no
communication in the country, and download and accessible only within
early positioning as a leading the WeChat app. For an e-commerce
processor of mobile payments made it startup such as Pinduoduo, this
one of the most valuable digital combination of factors provided the
platforms on the planet. application, social network, payment
system, and development model upon
which to jumpstart their growth.
31
Defining Interactive e-commerce
Defining Interactive e-commerce
33
Defining Interactive e-commerce
Team purchase
The single feature most frequently Team purchase was based on the
credited with Pinduoduo’s early- simple concept of group buying 1. A Auser
useris isoffered
offeredtwotwoprices
pricesforforanan
stage success is team purchase, a but designed in a way uniquely item
itemononPinduoduo’s
Pinduoduo’splatform:
platform:one one
group-buying feature that quickly suited to Pinduoduo’s market for
foran
anindividual
individualpurchase,
purchase,another,
another,
became synonymous with the conditions and overall vision. The discounted
discountedprice pricefor
foraateam
team
company’s brand itself, as process was straightforward: purchase.
purchase.
Pinduoduo’s official English-
language slogan emphasizes, 2. The
Theuser
usercan
caneither
eitherchoose
choosetotojoin
join
an
anexisting
existingteam
teampurchase
purchaseororinitiate
“Together, More Savings, ainitiate
new one themselves.
a new one themselves.
More Fun.”
3. The
Theuser
usereither
eitherinvites
invitesfriends
friendsand
and
family
familytotojoin
joinvia
viasocial
socialnetworks
networks
such
suchasasWeChat
WeChatororwaits
waitsforforaateam
team
formation
formationwithin
withinthe
thenext
next24 24hours.
hours.
4. The
Theteam
teamformation
formationis isconfirmed,
confirmed,
the
theproduct
productisisshipped,
shipped,andandthe
theuser
can
userreview their purchase.
can review their purchase.
34
Defining Interactive e-commerce
While the group buying process for the platform and the consumer. growth strategy on attracting down-
bears some resemblance to long- Rather than focusing on taking market users, those who had only
standing group-buying models, it existing market share from its recently begun using smartphones
was placed within conditions where established e-commerce competitors, and not yet become habituated to e-
its impact was greatly enhanced both Pinduoduo oriented its early-stage commerce.
Defining Interactive e-commerce
Interactive e-commerce,
together with the
technologies which
facilitated its arrival, makes
e-commerce more widely
accessible. It’s worth
considering for a moment
the barriers that would
prevent people from
partaking in e-commerce
and how interactive e-
commerce addresses these.
We’ve broken the barriers
down into three broad
categories.
38
Defining Interactive e-commerce
• Internet - the spread of cheap • Download an app - this may sound • Try something new and unfamiliar -
mobile internet meant that trivial but can actually be a significant through the team purchase model
everyone could be online every day. obstacle for less savvy mobile users current customers recruit new ones,
unfamiliar with app stores. Mini educating and explaining the
• A way to pay - the prevalence of programs helped in reducing this issue benefits are natural parts of the
mobile payment solutions in China by removing the need for an app process.
meant people were familiar and download.
comfortable with paying on mobile. . • Overcome fears of wasting money -
• Find a compelling product for me - low price, high value and accessible
PDD’s team purchase model harnesses products reduce these concerns.
the power of social product
recommendations to solve this issue,
as friends will find the product for you.
39
Defining Interactive e-commerce
40
Defining Interactive e-commerce
Below: (left) e-commerce item to item filtering, vs. (right) collaborative filtering
The behaviors can be explicit such as
making a purchase or sharing an item to
friends, but are also just as likely to be
implicit, such as watching a product
demo video or spending more time
browsing certain categories.
6 Towards Data Science: AI, Machine Learning, Deep Learning Explained Simply, Jun Wu
https://towardsdatascience.com/ai-machine-learning-deep-learning-explained-simply-7b553da5b960
Defining Interactive e-commerce
42
Defining Interactive e-commerce
Through playing Duo Duo real fruit comes from a farm in mother of two surnamed Lin similar to a typical interaction
Orchard, users could feel China as part of a poverty from China’s Inner Mongolia with an offline store’s customer
rewarded, incentivizing them to alleviation project by PDD.” province. “It is a habit for me. I service associate than watching
return to the platform and will open the app, and see a stand-up comedy special.
reinforcing the virtuous cycle something I want, or a game, Lower on glamour but higher
that propels Pinduoduo’s The focus on entertainment is or an interesting live streamer. I on engagement and
success. As one product not limited to gamification, have already received several authenticity, a typical
manager put it: however. Duo Duo Live, the boxes of fruit playing Duo Duo Pinduoduo live stream consists
platform’s live streaming Orchard.” of store owners displaying
feature, integrates both the products and answering
“Fresh produce is one of the entertainment and community questions from shoppers.
most popular categories on our components of the interactive Considerable media attention
platform. By introducing a e-commerce model. Users can has been paid to celebrity live “Live stream is about enabling a
game of planting and caring for follow live streamers selling streamers who delight massive direct connection between
a virtual fruit tree, we allowed goods, interact with them audiences with their charisma merchants and buyers,
users to have fun while earning through a chat feature, receive and headline-grabbing recreating the two-way
a reward (by gaining water special offers and discounts, showmanship, such as the communication present with
droplets for the plant). They and share them with friends. notable “lipstick king” Li Jiaqi.7 physical shopping,”
also feel good because when
they receive a box of real fruit Yet with Pinduoduo the live-
“I will often open Pinduoduo in stream experience is altogether explained one Pinduoduo
for free when their virtual tree executive.
bears fruit, they know that the my spare moments,” explains a more down to earth. More
44 7China Morning Post: Who is millionaire Li Jiaqi, China’s ‘Lipstick King’ who raised more than US$145 million in sales on Singles’ Day? , Alice Huang
https://www.scmp.com/magazines/style/news-trends/article/3074253/who-millionaire-li-jiaqi-chinas-lipstick-king-who
Defining Interactive e-commerce
As much of the world has found April 26, the town reached out to
their travel options in 2020 the platform’s many users. Wu
limited by COVID-19, live Xiao, the town mayor, dressed in
streaming has offered an his ethnic costume, taught
opportunity for those stuck at viewers the basic steps of their
home to satiate their wanderlust, traditional dance. He also played
and for retailers and tourism tour guide and took the viewers
businesses to reach tourist to visit the town’s famous
shoppers from afar. waterfall and other sights, such as
Baishou Hall and the street where
the famous movie, Furong Town,
For the town of Furong8, a was filmed 30 years ago.
popular historic location in
Hunan Province known for its Tu
ethnic traditions, they found live By leveraging e-commerce
streaming offered one solution to options, Furong was able to
the tourism slowdown. As the promote and sell its regional
subject of a seven-hour live specialty products to the live
streaming session on PDD on stream’s millions of viewers.
results, potential,
commerce model can achieve if applied
appropriately. In only its fourth full year of
existence, the company recorded a total
gross merchandise volume equivalent to
US$144.6 billion and boasted over 585
million active buyers on the platform.
46
entertainment and community are
universal, not specific to just China.
Defining Interactive e-commerce
The application of these parts in concert The framework whose name is drawn Acquisition: The transition when a
with one another has proven effective from its 5-letter acronym reminiscent of “person” becomes a “user,” engaging
at addressing the five metrics that the sound of a cinematic buccaneer, with the platform or business for the
compose the “AARRR, pirate funnel.”9 depicts the process of value creation in first time, registering, or downloading
the digital economy:
an app.
9Inc.com: AARRR! Dave McClure’s Pirate Metrics; And The Only Five Numbers That Matter, Walter Chen
https://www.inc.com/walter-chen/aarrr-dave-mcclure-s-pirate-metrics-and-the-only-five-numbers-that-matter.html
Defining Interactive e-commerce
https://about.fb.com/news/2020/05/introducing-facebook-shops/
Defining Interactive e-commerce
13Walkthechat: A simple guide to Douyin Store – Case studies and how to create one, Tingyi Chen
https://walkthechat.com/simple-guide-to-douyin-store-case-studies-and-how-to-create-one/
Conclusion
52
has traditionally offered.
Defining Interactive
e-commerce
Composition and Research
Matthew Brennan
Elliott Zaagman
Illustrations
Valentina Segovia