Click "Read the original" for details -01- Pinduoduo's Overlooked Core Advantage New Distribution reported an interesting recent event involving Pinduoduo that highlights its core competitiveness in community group buying. Here it is: A case of 1x24 Red Bull: distributor's landed cost is 115 yuan/case, supply price to stores is 120 yuan/case. After Duoduo Maicai (Pinduoduo's community group buying) launched, it directly priced at 99 yuan/case. A bottle of 1.128kg White Cat dishwashing liquid: distributor's landed cost is 6.4 yuan/bottle, supply price to stores is 7.2 yuan/bottle. Duoduo Maicai launched at 4.6 yuan/bottle, now 6.6 yuan/bottle, with an additional 10% commission for group leaders. Mr. Li Hua told New Distribution: For Mengniu Telunsu, general community group buying platforms get a purchase price of 48 yuan/carton, while the manufacturer requires platforms to sell at 52.9 yuan/carton, and local KA stores can sell at 49.9 yuan/carton. Before Duoduo Maicai entered Shijiazhuang, our prices were similar to Xingsheng and Meituan; we dared not price arbitrarily because we had to consider long-term cooperation with brand owners. But with Duoduo's launch, the direct selling price was 44.8 yuan/carton, driving both consumers and store owners crazy. Distributors and local supermarkets were stunned! According to New Distribution's current research, the FMCG standard products most impacted are mainly the following categories: 1. Beverages; 2. Milk; 3. Baijiu (white spirits); 4. Snack foods; 5. Daily chemicals. In these categories, the focus is mainly on first-tier brands, such as Mengniu, Yili, Wrigley's, Daliyuan, Red Bull, etc. In the community group buying war, to gain traffic and win consumers, they often target first-tier standard products. With brand recognition and price awareness, only low prices can break through consumers' psychological defenses, leading to platform preference. What does this mean? It means Pinduoduo uses brand and distributor resources to empower itself, uses brands to endorse itself, expands categories, and most importantly, breaks through prices to attract users. How do ordinary players do it? Simply by direct subsidies. Let's calculate: assuming the store price of Red Bull is 120 yuan/case, reducing it to 99 yuan, a general platform would directly trace back to the manufacturer or first-tier distributor to obtain price differences, plus subsidies. Pinduoduo leverages channel differences and distributor differences to find price gaps, commonly known as cross-regional selling (channel stuffing), or uses distributors' needs to clear inventory or meet targets to help Pinduoduo find price gaps. In this case, Pinduoduo obtains larger price gaps. Therefore, Pinduoduo's subsidies are definitely lower. The essence of this approach is to use brand and distributor resources to achieve extreme price differences, rather than simply reducing layers to find price gaps. Moreover, Didi and Meituan cannot follow suit in the short term because Pinduoduo built its business on this. From Apple phones to toilet paper, Pinduoduo has "played" with everything, all as Pinduoduo's resources. Beyond the impact of price on users, this has a huge impact on expanding categories, SKUs, and enhancing brand effects. Many community group buying platforms sell internet-famous products (unstable, non-replicable) or white-label products (unstable, poor replicability, long cycles). Pinduoduo directly sells first-tier brands and core categories, which are very stable, highly replicable, with high user acceptance and short cycles. This is significant for rapid expansion and scale growth in the mid-to-late stages. How high is the barrier to this approach? A staff member from a giant company I communicated with said they had contacted brand owners, but due to offline system control, they could only contact first-tier agents. Their feeling was that the offline system is strictly controlled, with no opportunity to do such things. But Pinduoduo achieved it, not only due to cognition and experience but also industry resources. Internet outsiders cannot even imagine it. In short, Pinduoduo's operational capability for products and supply chains is far stronger than Meituan and Didi, and this capability will have a huge impact.** I previously said that the essence of community group buying is retail, which is rich and complex, not something that internet traffic games and subsidies can solve. What others can do, you cannot. Even if you can do something like subsidies, those who understand can leverage subsidies more efficiently. **-02- Brand Owners' Choices and Distributors' Survival Industry insiders interpret Pinduoduo's behavior as cross-regional selling, affecting offline distributors' price systems and product sales. Will brand owners block it? I think not; they will guide and control, but not block. First, cross-regional selling implies channel changes. The behavior mentioned in New Distribution's article is indeed cross-regional selling, but it also reflects that new channels and forces are forming, and these channels have stronger power. This power comes not only from giants but also from the community group buying model. The core role of distributors is sales channels + capital advance. That is, distributors help brand owners develop markets and capture market share through a multi-tier agency system, and help brand owners recover cash flow by advancing funds for inventory. Brand owners drive distributors to fulfill these roles through price differences at different agency levels. The problems arising here are:
1. After layers of markup, the cost to the market terminal is high, and consumers pay a significant price.
2. Multi-level distribution leads to inventory backlog across the entire chain, harming overall industry efficiency and wasting social resources. Community group buying solves these two problems to some extent and fulfills the functions of offline distributors. Community group buying uses a pre-sale system to obtain cash payments from consumers and pays suppliers with shorter payment terms, completing the entire transaction. This model has higher efficiency than the traditional model, reflected in money as a discount of about 10% in purchase price and selling price. Furthermore, pre-sale enables production based on sales, achieving zero inventory for the platform, further improving efficiency, reflected in a discount of about 5% in selling price. Finally, because community group buying operates as a platform, directly connecting with a large consumer base, it does not need multi-level distribution, reducing channel costs. And because it is larger and more concentrated, it positively improves upstream efficiency. Community group buying innovates in delivery models, business models, settlement and payment models, supply chains, etc., and drives market and consumer choices. In this process, community group buying replaces traditional terminals and lower-level distributors, providing sales channels and financial support for brand owners and higher-level distributors. Therefore, the current conflict is not simply cross-regional selling; it is an inevitable manifestation of channel changes. And channel changes will definitely bring adjustments to the distributor system. Two things need to be distinguished: price reductions due to model efficiency and price reductions due to offline cross-regional selling. These two will intertwine. Second, why does community group buying conflict with offline channels rather than online channels?**** At the terminal level, because community group buying's product structure, consumer demographics, and consumption scenarios highly overlap with offline channels, and less with online. Community group buying's general product structure is fresh produce + standard products, which is basically consistent with supermarkets and stores: fresh produce attracts consumers, and standard products drive revenue and gross profit. This product structure leads to the same consumer demographics and scenarios, such as housewives and family consumption. But online product structures are completely different; online basically lacks fresh produce for daily needs, and people consume beauty, clothing, 3C, home appliances, etc., online. Therefore, community group buying inevitably conflicts more with offline channels and less with online channels. On the supply side, community group buying generally uses next-day delivery, so it must use local supply chains and warehouses, which also determines that community group buying affects the offline distribution system. Note: Community group buying will affect the online system, but the effect is not as obvious; I won't elaborate here. Third, must community group buying target first-tier brand owners?**** Community group buying will definitely play the first-tier brand product card. Currently, community group buying has many internet-famous products and white-label products (no brand or weak brand), leading to long cultivation cycles, instability, and poor replicability. For example, selecting 50 products to get one hit product, spending 3 months, generating some sales and brand awareness locally, but in another province, it doesn't sell. This severely restricts large-scale expansion. Giants will definitely not spend time cultivating brands like Xingsheng Youxuan and other entrepreneurial players. In a competitive period, the most efficient approach is to play the first-tier brand product card. First-tier brand products have wide recognition, stable sales, good brand effects, and price recognition, quickly forming the platform's product structure. With model efficiency and capital support, giants can effectively use brand products and price weapons to attract users and expand scale. Therefore, for brand owners and distributors, this is inevitable, and they must be prepared. Fourth, how much impact does community group buying have on the offline system?**** As mentioned, community group buying impacts offline more than online, but how much? In the short term, the impact is highly correlated with category, but overall impact is limited, and brand owners have significant control; in the long term, the impact is generally significant. In the short term, if product consumption is scenario-based, the impact is smaller, such as Wanglaoji. Consumers typically consume Wanglaoji when dining at restaurants or encountering convenience stores on the street; community group buying cannot satisfy such consumption scenarios. If product consumption is somewhat planned and less scenario-based, the impact is greater, such as laundry detergent. This impact is not only on offline channels but also on online channels, and the supply chain is local offline. In this case, lower-level distributors and terminals will be significantly affected or lose survival space, while higher-level distributors and new community group buying terminals have greater scale and voice. For a period, due to the lack of lower-level suppliers and terminal inventory pressure, brand owners' sales and capital will be somewhat affected. Finally, community group buying is both a risk and an opportunity: 1. Market share expansion P&G and Unilever's related brand products are unbeatable in the FMCG industry, but what are their awareness and market share in towns and villages? Even P&G and Unilever are like this; can other brand owners claim to do better? Under the current distribution system, do brand owners really have the ability to capture this market? Will they continue to fight in the fierce red ocean market with targets, ignoring new consumer groups and demographics? Community group buying is currently the channel that can reach the lowest-level consumers, even deeper than Pinduoduo. If this market is not occupied, will it be given to competitors and new brands? Will they be fattened up to fight you? Seizing the community group buying channel is both offense and defense, an opportunity that must be grasped. 2. Channel system improvement **As mentioned, the current offline distributor system lacks industry efficiency, is not consumer-friendly, and for brand owners, it lacks control and transparency. If a new channel can solve brand owners' sales channel + capital problems, and also improve the vast, dispersed, multi-tier agency system, increasing transparency and control, it may not be a bad thing for brand owners. Overall, in the short term, community group buying will make survival harder for some lower-level offline distributors, and may have a limited temporary impact on brand sales and capital, but the impact is relatively limited, and brand owners have significant control. In the long term, structural changes in channel replacement, distribution systems, and terminals will have a significant impact on brand owners. For example, new channels and terminals emerge, the chain of brand owners, distributors, and terminals becomes shorter and more transparent, and distributors and terminals become more concentrated and have more voice, similar to e-commerce platforms. I believe brand owners should pay attention to community group buying and focus on long-term impacts rather than short-term ones. I think community group buying brings more positive than negative impacts to brand owners. **-03- Brand Owner Response Strategies First: Frontline, establish a frontline sentinel mechanism as soon as possible. **The new retail department or local sales units should dispatch new retail sentinels at each location. Collect information on local community group buying and O2O companies, understand the product's listing and price control on platforms; coordinate the supply system, designate distributors for supply, and jointly monitor the platform with distributors to maintain price stability. Second: Headquarters, quickly initiate dialogue mechanisms with platforms. **The new retail department should proactively contact and communicate with platforms like Xingsheng Youxuan, Meituan Youxuan, Duoduo Maicai, and Chengxin Youxuan. Establish immediate communication windows: products can be adjusted, expenses can be invested, but prices cannot be chaotic, regions must be unified, and promotions should follow a rhythm. Third: Headquarters, the consumer insights department should conduct in-depth analysis of shoppers behind new retail. **Clearly understand who the consumers are on new retail platforms, what the shopper profiles are, how they differ from consumers in offline mainstream channels, and whether differentiated flavors, specifications, and packaging are needed. Fourth: Headquarters, the marketing department should carry out JBP (Joint Business Plan) with new retail platforms. **Whether it's existing business or incremental business, the huge traffic behind new retail platforms itself has brand communication value. Even without direct sales, as a marketing position, the cost is still relatively low at this stage. Note: Thanks also to New Distribution's editor-in-chief Yuan Lai and Mr. Ren Xiaodong, founder of Mofang Yunxiao Consulting, for providing partial viewpoint support for this article. —end— Add the editor's WeChat to join the community group buying community for in-depth discussion and exchange