by Ker Zheng
In mid-May, over one million Chinese consumers tuned into Pinduoduo's livestreaming of its six bonded warehouses, located in free trade zones across China. Hosts gave viewers a tour of the inner workings of each warehouse, showing off popular imported items such as imported milk powder, diapers, and more.
The livestreaming session was designed to spur spending for the Duoduo Parent-Child Festival, during which 1.5 billion RMB in subsidies and discounts were given out for products in the mom & baby category. Over 900 brands and 30,000 SKUs were involved.
But why would so many customers want a tour of a warehouse, out of all places? We take a deeper look below.
Why Livestream a Bonded Warehouse?
Under cross-border e-commerce regulations, international retailers and brands park their imported goods in bonded warehouses in Chinese free trade zones and sell them on consignment; that is, goods are shipped and pass through customs after customers make an online order and pay. Think of it as a reverse-FBA type of logistics model in which the items are located closer to end Chinese customers.
The primary issue that many customers have with cross-border e-commerce is the prevalence of fake goods. There have been many quality control scandals over the past few years, in which goods purchased on cross-border e-commerce platforms have turned out to be fraudulent or shoddy products. Kaola in particular faced a PR scandal in January 2019, during which a customer reportedly received a fake Canada Goose jacket.
Livestreaming helps to alleviate some of these concerns, which is why Pinduoduo went so far as to give their customers a live tour of its bonded warehouses and how operations work there. Such added visibility gives consumers more peace of mind, with them knowing that Pinduoduo isn't selling fake products.
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Why Pinduoduo is Pushing their Cross-Border Import Business
As of late, Pinduoduo has been intensifying its foray into the cross-border e-commerce industry.
The company first launched the business in early 2019, announcing that it planned to work with large suppliers such as Nestle, Unilever, Swisse, Biostime, Gerber.
And then late last year, PInduoduo announced that Amazon would be setting up a "pop-up store" on its platform for Black Friday promotions in November and December, seling over 1,000 products from the likes of Timberland and Swisse.
Why the sudden interest in cross-border e-commerce?
Pinduoduo historically has focused on customers in lower-tier cities, but that's starting to change as growth in those areas slow down. A Pinduoduo customer's average basket value per transaction was US$6 in 2018, just a tenth of that of its competitor JD.com. This makes it difficult for Pinduoduo to justify marketing spend as customer acquisition costs go up.
Thus, Pinduoduo's new cross-border e-commerce business is designed to target more premium customers in China's Tier 1 and 2 cities, who have more spending power and are likely to be the beneficiary of Chinese economic growth.
Will LIvestreaming Help Improve Pinduoduo's Brand Image?
And yet it's difficult to tell whether Pinduoduo will be able to improve its brand image amongst China's wealthier consumers. It has a reputation for selling lower-quality items to poorer customers, and it's much harder for a brand to go up the value chain and suddenly start selling premium products.
For products such as milk powder and food, many people aren't willing to take the risk of buying shoddy products since their health could potentially be at stake.
And to be frank, it's difficult for any cross-border e-commerce platform to completely root out any risk of fakes or even the notion that products could be fake.
Platforms secure inventory from distributors and wholesalers from all over the world, and it's impossible to check every product coming in.
Even products that are real could look different because different versions are procured from suppliers in different countries; for example, a bottle of hand lotion could have different packaging if sourced from Thailand rather than Europe, despite it being the same brand and product.
Subtle differences may lead customers to question whether or not a product is authentic.
Nevertheless, Pinduoduo's entrance into the cross-border import market is important after Netease's Kaola business was sold to Alibaba, giving the company a roughly 60% share of the market. Pinduoduo's channel gives merchants more options than Alibaba and JD.com, and since it's a new entrant, commercial terms could be better for brands and retailers who elect to sell on the platform.
1. Pinduoduo gave over one million of its customers a livestreaming tour of its six bonded warehouses across China. The video session was designed to promote spending on mom & baby products for the Duoduo Parent-Child festival.
2. Pinduoduo has been investing heavily in its cross-border import business to appeal to wealthier customers in China's Tier 1 and 2 cities. The average basket value of transactions on its platform was just one-tenth of that of JD.com's in 2018.
3. Pinduoduo still faces an uphill battle in improving its brand image. However, sellers may benefit from superior commercial terms as Pinduoduo tries to attract more brands and retailers from around the world.