Internet companies use A/B testing as the basis for all product adjustments. Pinduoduo goes further, testing all participants in every aspect of its business, re-exploring how fast a company can grow and how far business rules can be bent.
Each step starts with innovation that benefits all parties, then gradually becomes an extreme test of participants' endurance.
'Cut a knife' is an extreme user growth tactic: users invite others to order for discounts, cash, and AirPods, helping Pinduoduo surpass Taobao in user numbers, until it becomes a game of decimal places where the final cut never comes.
'Group buying' is extreme sales efficiency: merchants and companies lower prices for volume, with zero marketing costs generating millions of orders, until algorithm-driven advertising tools appear.
'Benfen' drives employees to never stop: Pinduoduo employees receive salaries that outshine peers, work in a distraction-free environment, until late-night overtime becomes the norm and stock options become harder to cash in.
'Scale' is the ultimate temptation for partners: suppliers in promotion, logistics, and various industries seize the last high-growth company in China's internet industry, breaking long-established industry patterns, until payment cycles stretch longer and longer.
Similar practices and shifts appear in every aspect of Pinduoduo's business, enabling faster and more agile roller-coaster growth. By 2021, when GMV reached 2.4 trillion yuan, Pinduoduo still had fewer than 10,000 employees—Alibaba had more than twice that number at a similar sales scale. Silicon Valley once championed and then faced widespread resistance to 'Move fast and break things,' which is perfectly embodied in Pinduoduo's growth.
When Pinduoduo was founded in 2015, China's e-commerce infrastructure was already mature. From day one, it faced comprehensive supply and relentless competition. This agile company maximized and even transformed every market rule, squeezing past giants to become a company with a market value of over $100 billion. When scale changes, power relations change. Only those who make the rules can say 'survival of the fittest,' while those caught in 'full competition' have little choice but to continue participating.
This year, some changes are occurring. In March, many small and medium merchants on Pinduoduo, posing as consumers, placed bulk orders in Pinduoduo's self-operated stores in a short time, then quickly applied for refunds and 'refund only without return' to vent their dissatisfaction.
During the same period, Pinduoduo's user numbers also declined. According to third-party data services, from late February to late March, Pinduoduo's daily active users dropped from 386 million to 352 million, falling behind Taobao again.
To regain growth, Pinduoduo launched cross-border e-commerce platform TEMU last year. Now over 10 million people in the U.S. open TEMU daily, bringing new growth space but also the attention it hoped to avoid. As a result, global attention on this Chinese e-commerce platform and its parent company has reached unprecedented levels, uncovering more of its issues.
Even at Pinduoduo's Jinhongqiao headquarters, the work atmosphere is changing. In some departments, young employees are starting to clock in at 10 a.m. and leave at 10 p.m. on time.
When all parties are pushed past one tipping point after another, some changes occur.
From White-Label to Brand: Compressed Time, Accumulated Contradictions
Taobao, founded in 2003, rose rapidly with a free store-opening policy favoring small merchants. Ma Yun called the free strategy a 'red handkerchief waved in hand,' attracting a large number of small merchants. But five years later, Taobao began brand upgrades, bringing in many brands and raising annual technical service fees and breach deposits across the board. A group of small merchants with limited competitiveness angrily 'left Taobao,' with over 10,000 forming an 'Anti-Taobao Alliance.'
Taobao's brand trend accelerated after Alibaba's IPO in 2014. In 2015, Alibaba's advertising revenue was 37.5 billion yuan, with GMV of 3.092 trillion yuan, meaning merchants spent an average of 1,213 yuan in advertising for every 100,000 yuan in sales. By 2017, that cost rose to 1,657 yuan. This was the gap Pinduoduo seized.
Pinduoduo caught these small and medium merchants 'ignored' by Alibaba, along with their relatively low-priced, diverse white-label goods, and rose rapidly. Pinduoduo's 'red handkerchief' was almost identical to early Taobao, including policies like 'zero-threshold store opening' and 'only 0.6% technical service fee.'
Chen Ming, a large fruit seller who moved from Taobao to Pinduoduo, told LatePost that in 2018, the deposit for Pinduoduo's fruit category was 10,000 yuan. Spending 1,000 yuan on an official promotion tool for a product link could generate 70,000-80,000 yuan in sales in one day, with over 70% from the tool and the rest from natural traffic. Chen Ming still remembers the first day he listed dandelion. 'Southerners eat it as a wild vegetable. Without advertising, I sold 300 orders and was so happy I couldn't sleep all night.' At 5 a.m. the next morning, before dawn, he got up and continued monitoring the backend.
When merchants and partners depend on the platform, the platform naturally imposes stricter conditions.
To improve consumer shopping experience, Pinduoduo relaxed its review of 'refund only' requests starting in 2020. This is an unfavorable clause for small merchants.
One merchant told LatePost that before 2020, if a consumer used 'refund only' due to quality issues, the platform strictly reviewed both sides' statements and required evidence. After 2020, the platform clearly sided with consumers, with over 90% of 'refund only' requests approved. Often, when consumers merely asked store customer service about product details, the interface would directly pop up a 'refund only' option.
The merchant said that small merchants' product quality fluctuates more than brand merchants with stricter quality control, so looser 'refund only' approval means merchants may bear more unexplained losses.
Most small merchants like Chen Ming find it hard to directly contact Pinduoduo's business development managers to express their concerns. 'Only if sales are good and they notice you will you be pulled into an industry group.' He recalled one time when people in the group kept complaining about the unreasonable 'refund only' rule, and the manager directly said: 'Include 'refund only' in your operating costs, or if you don't want to do it, don't.'
The rule 'deduct money for delayed shipment' also troubled Chen Ming. During the pandemic last year, Chen Ming paid a 5,000 yuan deposit to participate in a platform activity, but then encountered lockdown, and his fruit was sealed in place. Chen Ming repeatedly submitted materials for backend review to withdraw from the activity or delay shipment, but the platform not only deducted his deposit but also fined him '3 yuan per order for delayed shipment.'
In 2019, Pinduoduo started its own branding process. After the IPO, Huang Zheng said in an interview: 'It's not that we're unwilling to use the Tmall model to fight counterfeits; I mean, if we did the Tmall model, we might die before we even get to fight counterfeits.' He believed that recreating Tmall would be too inefficient. 'So I have to think of another way to do so-called brand upgrades; it should be different.'
Brands and white-label goods are inherently mutually exclusive, as Huang Zheng well knew, especially since Pinduoduo always advocated small profits and quick turnover, squeezing product profit margins for sales volume; it also excels at using recommendation algorithms to boost single 'explosive products' and weaken the presence of merchant stores. But the logic of branding is the opposite, requiring brands to have stronger pricing power and store operation rights.
Huang Zheng's answer came quickly. The summer after the interview, Pinduoduo started with the easiest 'hard currency' and launched brand products like Moutai and Apple through the 'billion-dollar subsidy' activity. This method was most efficient and indeed quickly drove platform sales and user growth—by the end of fiscal 2020, Pinduoduo's average spending per buyer rose from 1,551 yuan at the beginning of the year to 2,115 yuan.
Starting in 2021, Pinduoduo awarded 'black label' and 'gold label' to official flagship stores opened by brands. That year, Pinduoduo internally formed the 'Superstar Project Team,' mobilizing over ten first-level managers, whose main tasks were to attract brands, provide brand agency operation services, and sign betting agreements with brands.
LatePost has learned that brands participating in 'Superstar' can enjoy additional subsidies on top of the 'billion-dollar subsidy,' with a maximum subsidy of 15% per item (including the 'billion-dollar subsidy'), and the annual subsidy cap per brand is roughly 2% of order value.
Pinduoduo is the e-commerce platform with the highest 'traffic efficiency' in China. The most effective way to attract brands is to offer the most conversion-effective resource positions (in-site exposure opportunities), while the traffic available to small merchants correspondingly decreases.
A recent research report from Zhongtai Securities explains that brand goods naturally refuse to appear in the same space as white-label goods. As David Hume said, humans naturally associate and compare things related in 'time and space.' Displaying alongside white-label goods would harm brand premium.
In mid-2022, Pinduoduo officially launched a full-site promotion tool, which also meant the platform commercialized all natural traffic that previously had no monetization targets. Before this, Pinduoduo only had two advertising tools: 'Duoduo Search' (search resource positions) and 'Duoduo Scene' (themed activity resource positions), and 30% of in-site sales still came from free natural traffic.
The full-site advertising tool brought higher conversion rates for merchants, but it also meant small merchants would face more difficulties on Pinduoduo. Small merchants could no longer rely on sufficiently low prices to launch explosive products; they had to compete for ad positions with brand merchants with thicker profit margins to gain more exposure. The already thin profit margins of small merchants were further compressed.
It is understood that Pinduoduo's brand sales currently account for about 20%, while Taobao and Douyin each have twice that share.
'It's really a carrot cut at both ends,' Chen Ming lamented that the platform takes all the benefits.
From Small Startup to Billion-Scale Listed Giant, Still Not Bound by Principles
A senior advertising industry insider told LatePost that Pinduoduo has hired many suppliers for short-video content placement to acquire customers.
From the main site to overseas business TEMU, Pinduoduo has always been willing to 'spend heavily' to exchange for user growth in the early stages of platform construction. The main force for Pinduoduo's overseas user growth was transferred from the main site, with no prior experience. Initially, overseas influencer content placement relied on suppliers. TEMU would negotiate a fixed price with suppliers, including the cost for suppliers to find overseas influencers for content placement, with the remainder as supplier service fees. TEMU pressured service providers to lower influencer quotes by compressing the total package price.
One overseas advertising industry practitioner said: 'Large advertising agencies only charge a 1% service fee for TEMU, doing click-and-exposure ads. They lose money but do it for the scale of orders.'
Even suppliers sometimes don't get paid on time. A former Pinduoduo employee witnessed suppliers owed money hanging banners downstairs at Jinhongqiao. This is not uncommon in Chinese business, but a cash-rich internet giant listed on Nasdaq usually treats rules more cautiously.
'There are cases where suppliers turn hostile and stop cooperating, but after a week they come back. After all, Pinduoduo is a big platform; everyone wants to find scale business here,' said the advertising industry insider.
Facing larger partners, Pinduoduo is equally flexible.
J&T Express was founded in 2015 by Li Jie, the founder of OPPO's Indonesia business, and grew into Southeast Asia's second-largest express company in four years. In the second half of 2019, J&T decided to return to China. In his public letter upon return, Li Jie promised to 'enter the top 3 in China's express industry within 3 years.' Three years later, J&T achieved fourth place in China, which was inseparable from Pinduoduo's push.
From 2019 to 2020, Pinduoduo was in a high-growth phase. Unwilling to be constrained by the 'Three Tong and One Da' logistics system backed by Alibaba, Pinduoduo chose to support J&T. Similar to Pinduoduo, J&T's initial market expansion method was also 'subsidies.' From 2019 to 2021, J&T created the lowest price in major express production areas like Yiwu, Zhejiang—0.8 yuan per order nationwide.
In the early cooperation period, Pinduoduo's balance tilted significantly toward J&T. In 2020, Pinduoduo gave J&T a daily subsidy of 3 million yuan, totaling about 1 billion yuan for the year. Combined with its own subsidies, J&T's nationwide price was on average 20%-30% lower than the Three Tong and One Da, attracting many small merchants to switch from them to J&T.
In the merchant backend's advertising resources, Pinduoduo also recommended J&T. Platform recruitment also recommended J&T in merchant WeChat groups. In the logistics system, J&T was ranked first. Merchants could also use the electronic face sheet launched by Pinduoduo and J&T for shipping.
In 2020, a consensus of 'favoring J&T' emerged among merchants: as long as merchants shipped with J&T, they could avoid penalties for false shipments, false tracking, and false pickups.
By the first half of 2021, Pinduoduo's scale was stable, with annual GMV heading toward 2.4 trillion yuan, making it a partner every logistics company wanted. At this point, Pinduoduo's balance in logistics gradually returned to normal. Even with J&T, merchants' goods without pickup records within 24 hours, no logistics updates within 48 hours, or excessive abnormal orders would be fined by the platform. During the 2022 'No Break During Spring Festival' activity, Pinduoduo added Yunda as a partner.
When cross-border e-commerce TEMU launched, J&T was no longer Pinduoduo's exclusive partner, and even encountered longer settlement cycles.
Generally, the settlement period in the freight forwarding industry is 45 days. A logistics industry insider estimated that TEMU now offers J&T a price of 40 yuan per kilogram—including cross-border dedicated lines and destination delivery—which must be a loss. J&T International responded that this is not in line with the facts.
The Environment Has Changed, and the Tipping Point May Have Arrived
At Pinduoduo's inception, Huang Zheng recognized the brutal competitive landscape of China's internet industry—'Every table is full. Those at the table don't want you up, and those under the table don't want you up either. I will inevitably face double blows. Plus, with rapid growth, we will face all the problems Taobao faced in ten years in a short time.'
For a long time, Pinduoduo's only goal was efficiency. Its core strategy was to use aggressive leverage to boost DAU and GMV, running faster than others to survive. In this process, it pushed every favorable aspect one step further, subjecting merchants, partners, and employees to extreme stress tests.
At 26, Huang Zheng attended a lunch with Warren Buffett alongside Duan Yongping, costing 4 million yuan. Huang Zheng said the biggest significance of that meal was realizing 'the power of simplicity and common sense.'
The simplest common sense in e-commerce is 'supply and demand,' which is the focus of all Pinduoduo's 'leverage' strategies. Huang Zheng knows exactly where the bottom lines of all parties in the ecosystem lie. In all ecosystems where supply exceeds demand, Pinduoduo dares to apply pressure and repeatedly test bottom lines, most typically on the merchant side, where China's industrial belts are rich and production capacity is sufficient. Next is the logistics side.
User mindshare is the most precious. From the user experience side, all of Pinduoduo's product designs point to extreme simplification of the shopping process. 'Low prices' are achieved through the most impactful cash subsidies. To attract new users, 'cut a knife' directly gives new users cash.
Employees' high-intensity work is the actual landing point for efficiency. During the high-growth period, Pinduoduo offered above-market salaries to attract talent. Other companies couldn't match the salary packages, and many employees were 'stuck' at Pinduoduo. Organizationally, Pinduoduo implemented centralized flat management, avoiding management issues caused by job levels.
But today, this once high-speed train is slowing down. Both Pinduoduo's own growth and the ecosystem's tolerance for it seem to have diminished.
Several former employees told LatePost that starting in 2021, the conversion rates of Pinduoduo's once-praised game-like scenarios like 'Duoduo Orchard' and 'Cut a Knife' no longer had 'obvious effects.' Starting in Q4 2021, Pinduoduo could no longer effectively invest all profits into new businesses and began to 'release profits'—from 2022, Pinduoduo's advertising business repeatedly surged, resulting in annual net profit exceeding 30 billion yuan. These are signs that Pinduoduo has entered a bottleneck period.
From September 1, 2022, when Pinduoduo officially landed in the U.S. market as TEMU, everything changed. The overseas industry chain is far from as mature as China's e-commerce in 2015. With longer transaction cycles, longer feedback cycles, and different user psychology and business environments, Pinduoduo did not 'test bottom lines' as many observers speculated, but instead accepted and achieved more 'unexciting' and relatively dull business growth.
From setting the record for the fastest internet company IPO in China in two years and eleven months, to entering the global market relatively cautiously, changing its habitual behavior. Its managers are not only adept at leveraging and understanding human nature, but also read the limits of endurance of all parties in different environments.
Cover image source: Atlas Shrugged by Midjourney