Click to read the original article for details. Before Pinduoduo's IPO, in interviews with multiple print media, I always mentioned two core keywords: one is the social chain; the other is channel sinking. This article uses Pinduoduo and Gome Meidian as primary cases to deeply analyze how social chains and channel sinking have contributed to the success of social e-commerce. What problems does the listed Pinduoduo want to solve with money? Whether it is new retail, shared retail, borderless retail, or smart retail, they are all more or less related to the social chain. The online social system and offline social system have begun to show a trend of integrated development in various retail e-commerce models. Pinduoduo has merely ignited this trend ahead of time and, with its IPO as a starting point, has pushed social e-commerce into deep waters prematurely. Pinduoduo's core problem is that its supply chain management and service system construction lag seriously behind its social system. The media jokingly refer to Pinduoduo as just a "mini-game" based on WeChat, which relies on commodity trading and is not a strict retail e-commerce platform. This is actually because its supply chain management is still at a preliminary stage and it has not yet built a service system. This does not seem to affect Pinduoduo's successful listing on the U.S. stock market, after all, in the eyes of Wall Street and investors, things that can be solved with money are trivial. After listing, Pinduoduo only needs to spend money to improve its supply chain management and service system to gain strong competitiveness. For example, in logistics, it could learn from Alibaba and establish a Cainiao-style logistics alliance. The important value of Pinduoduo's listing is: It is the first social e-commerce platform to achieve user and sales volume growth within a social system like WeChat, and the rapid growth of users and sales is not just a problem that "money" can solve. If rapid growth in users and sales could be solved with money, then wealthy commercial real estate tycoons like Wanda would have long used money to crush JD.com and Alibaba! So can supply chain management and service systems be solved with money? I think we need to add the dimension of "time": JD.com's supply chain and logistics system took ten years to reach its current level; Cainiao's logistics platform also took years to build; Gome's supply chain construction has lasted more than 30 years, and building a complete retail e-commerce service system including logistics, customer service, and installation took the same amount of time. "All roads lead to Rome" and "Rome was not built in a day"—the former gives people confidence and courage for innovation, while the latter reminds us to be in awe of "time"! Social Chain and Retail E-commerce Against the backdrop of a significant slowdown or even negative growth in e-commerce user growth, grafting onto social platforms and social media is becoming a standard configuration for e-commerce platforms.
The three traditional e-commerce giants are accelerating the formation of social e-commerce matrices:
In March 2018, JD.com increased support for JD Pingo, which had been launched in 2016, providing entrances in the channels of its six major business divisions;
In the same month, the social e-commerce platform Weixuan, launched by the joint venture with Meili United Group, went online;
In mid-March this year, Taobao quietly launched an app called "Taobao Special Edition," focusing on small, low-priced items. JD Pingo and Weixuan's social e-commerce development relies more on social platforms like WeChat, while the Taobao system relies on social media like Weibo. Whether it is a social platform or social media, everyone links to more people, forming a "social chain." It can be said that the study of the "social chain" is also the study of niche psychology. Based on the study of the "social chain" and niche psychology, analyzing whether social e-commerce can be established and whether the Pinduoduo model can last are actually two different questions. Whether it is Pinduoduo or JD Pingo, the group-buying model versus the fixed-price purchase model, without in-depth analysis, one can conclude: for ordinary consumers, the efficiency of fixed-price is obviously higher than the former, after all, the efficiency of a single person making a quick purchase decision is the highest, while group buying obviously involves multiple people making decisions; for merchants, it is the same. Then why can the group-buying social e-commerce model develop rapidly? First, the target audience after channel sinking does not value purchase efficiency but rather the social entertainment of shopping; second, low prices. After Pinduoduo's listing, I wrote a brief commentary "Ten Discussions on Pinduoduo," mentioning a key thought: group buying is just a supporting tool, and we can look forward to its new gameplay; if there is none, then we can start to criticize Pinduoduo. Thinking deeper, Pinduoduo is very similar to companies like Tencent that rely mainly on game revenue. Without the ability to continuously develop new games, game companies will fall into crisis within a year or two. Rather than calling Pinduoduo social e-commerce, it is better to call it mini-game entertainment e-commerce. More social e-commerce platforms treat "people" as key nodes, continuously find and cultivate their own KOL groups, and then build a broader retail e-commerce network through the "social chain," combined with supply chain management and service systems, to form a sustainable and healthy social e-commerce platform. Gome's "Meidian" and Weidian are also platforms based on the "social chain," but they represent different directions of social e-commerce. Weidian was originally a new e-commerce product incubated from Pocket Shopping, and it was also a typical example of "lean startup" products at that time. Weidian's entry point was very clever: social e-commerce inevitably needs to use WeChat's relationship chain for dissemination, and this premise requires a standardized one-stop solution. Weidian built an e-commerce sales platform for every ordinary user, a set of underlying infrastructure, allowing everyone to open a store, become a WeChat store owner, and sell from their Moments and WeChat groups. It can be said that "success is due to Xiao He, failure is also due to Xiao He." Weidian relied on helping small and medium merchants to start, but ultimately, due to over-focusing on the needs of small and medium merchants, it gradually missed greater social sharing power and potential opportunities. Gome's "Meidian" product, which has many similar functions and user scenarios to Weidian, is currently one of the important platforms in Gome's retail business model. It uses sharing as the core to reconstruct the interpersonal relationships of Gome's hundreds of millions of users, establish a decentralized, multi-sided, and infinite-sided new business model, and capture users' social sharing psychological experience and emotional needs. Based on the benefit sharing of social e-commerce, as a medium for product promotion, it enables various roles in the Gome platform (such as merchants and platform, users and friends, Meidian owners and buyers, etc.) to form harmonious shared interest relationships. For example, Meidian owners are both WeChat business sellers and good product buyers in their own circles of friends. In addition, whether ordinary users, Gome employees, or brand sales personnel can own a Meidian without barriers and become Meidian owners. At the same time, Gome has also unlocked a high commission model to support quality Meidian owners, with tiered commission rewards. While Meidian owners receive generous returns, all users and merchants participating in Meidian purchases, sharing, and social interactions also benefit to varying degrees. For example, customers purchase guaranteed discounted quality goods, merchants' specialty products get maximum exposure and promotion, and different types of users participate in product dissemination and commission rewards through social sharing. The biggest difference between the two is that Gome has offline entities, allowing its strong supply chain management and service system to be more solid in terms of sales model and brand effect when entering social e-commerce retail, with the deep practice of the "shared retail" model and clear strategic positioning. Of course, I do not doubt the rapid rise of new forces in retail e-commerce, but I equally respect the trust thickness and resilience brought by the "time" dimension in retail e-commerce. In addition, Gome's "Meidian" product is also continuously experimenting with new business and new technology methods under the entire internet new retail model. I learned from authoritative insiders at Gome that in the just-concluded July-August period, Gome's "Meidian" product, without any third-party promotional platforms or advertising, relying only on the word-of-mouth of its own employees, conducted experimental promotions of new regional specialty products and small daily items using a "Pinduoduo-like" two-person or multi-person group model. In just a few weeks, it achieved remarkable order results, with a large number of single items and hot products experiencing explosive growth, bringing extraordinary business results to some brand manufacturers, and attracting the attention and vigilance of competitors. Unlike Pinduoduo's product channels, which are broad but not strict, Gome's 31 years of channel accumulation has established deep cooperative relationships with major brands, ensuring better product quality. At the same time, Gome's product differentiation capability also provides more possibilities for Gome to explore the social e-commerce market. Gome uses various business forms such as exclusive sales and customization, OEM, ODM, one-step pricing, and reverse customization to meet users' diversified product needs with differentiated products. Take the customized product "Shuxiangfeng Series Air Conditioner" jointly launched by Gome and Gree as an example. In 2017, sales of this product exceeded 160,000 units, with annual sales of nearly 1 billion yuan. As of the first quarter of this year, Gome upgraded its own smart products through ODM/OEM, involving a total of 518 models across 10 major categories, further increasing the proportion of personalized product customization. This trust thickness and resilience brought by the "time" dimension have led to impressive financial report data: On August 29, Gome Retail Holdings Limited (hereinafter referred to as "Gome", 00493.HK) released its 2018 interim results report (hereinafter referred to as the "financial report"). During the reporting period, Gome's overall GMV reached RMB 70.9 billion, a 15% increase year-on-year; platform GMV reached RMB 26.9 billion, a 67% increase year-on-year; among which, mobile GMV increased 53% year-on-year; shared retail GMV reached RMB 2.6 billion, showing good development momentum; comprehensive gross margin was 17.3%, with operating capability continuing to lead. Channel Sinking and Service System Every year, many people ask me to predict the development trends of retail e-commerce. From now on, in the next 5 years, unmanned retail in first- and second-tier cities will be the trend; social e-commerce in third-, fourth-, fifth-, and sixth-tier cities will be the trend. In fact, over the years, the two traditional e-commerce giants JD.com and Tmall, and retail giants Gome and Suning, have all been trying to sink channels. Rural wall-painting advertisements sparked a rural e-commerce boom. However, traditional e-commerce companies headquartered in first- and second-tier cities have never accurately grasped the pulse of channel sinking. Rural e-commerce has always been superficial or has become a testing ground for unmanned logistics. The physical store model of traditional retailers is clearly unable to sink quickly, but this process has allowed traditional e-commerce and retailers to build the service systems necessary for channel sinking. I have already mentioned the service system JD.com built during channel sinking in my analysis articles, so I will not elaborate here. Let me share some service data from Gome's channel sinking process, which may be more analytically valuable: In terms of logistics warehousing and distribution, according to the report, Gome currently has 428 warehouses, over 3 million square meters of warehousing space, and tens of thousands of logistics distribution personnel. It can achieve same-day delivery in 2,536 cities, next-day delivery in 5,321 cities, and scheduled delivery in 37,322 city-level towns. It has completed next-day delivery in over 1,400 districts and counties, plans to complete over 900 more in the second half of the year, and aims to reach 2,400 in total in 2018. In addition, integrated delivery and installation (expanding from home appliances to household products: sports equipment, massage chairs, furniture, etc., and home appliance delivery and installation) covers 608 cities. Bundled products can be automatically consolidated into a single order based on recipient information for one-time door-to-door delivery and installation. The praise rate reached 90.3%, and logistics complaint rate dropped by 50%. Such high satisfaction is closely related to Gome's internal logistics evaluation management methods: a praise rate exceeding 99%, an evaluation rate exceeding 40%, and no complaints within the week, with a reward of 4 yuan per order. Gome's goal is to form a layout of 7 parallel warehouses + store warehouses + unmanned warehouses in small-item logistics. In the second half of the year, it will continue to strengthen warehousing intelligence, especially for large items. Currently, in four logistics warehousing bases: Xi'an, Ningbo, Shenyang, and Shanghai, drone delivery will be implemented, with test flights + unmanned delivery vehicles completed before Double 11. Gome simultaneously launched AGV robot warehouse operations in Tianjin and Guangzhou. Ultimately, it will form a service system of one sky network + three ground networks + two major platforms: one sky network - technology network; three ground networks - large item network, small item network, cold chain network; two major platforms - same-city logistics order-grabbing platform and intelligent supply platform. At the same time, it has built an intelligent research institute with Amazon scientists as technical support. In the external business of the logistics platform, it has already achieved that Xiaomi's large-item logistics warehousing, transportation, and distribution are 50% undertaken by Gome;
Competition and cooperation with RRS: first- and second-tier large-item logistics are handed over to Anxun, and rural areas to RRS;
Strategic cooperation with Meituan: pilot in Shenzhen, same-city distribution to solve the last three kilometers problem, solving same-city distribution of small items, focusing on warehousing and sorting links. Gome's logistics service system has become a full-lifecycle comprehensive service provider: it can provide full services from product factory exit to scrapping. In addition to the logistics service system, according to Gome's 2018 interim results data, Gome's total number of stores nationwide is 1,867, of which the number of county-level stores has reached 283. Gome stated that it is rapidly laying out county-level stores in third- to sixth-tier cities, with a target of 2,000 stores by 2020, creating new profit growth points. Gome opened a store in Pubei County, Qinzhou City, Guangxi Zhuang Autonomous Region, promoting channel sinking. The opening of county-level stores also allows Gome to export its capabilities in supply chain, logistics, warehousing, distribution, and installation downward. These are the service systems that Pinduoduo will need to spend money and time to improve next. Obviously, Pinduoduo's stock price performance after listing is worrying, and whether it has more money to invest in supply chain management and service system construction remains a big question mark. Pinduoduo truly needs to build a service system for channel sinking, which is clearly difficult to "speed up," and may even require more time than JD.com and Gome. However, on the other hand, Pinduoduo can form a cooperative relationship with Gome by leveraging Gome's already-built service system, using Gome's service system to enhance the merchant and user experience. If so, Gome would gain a ten-billion-level social e-commerce partner, which can be considered a win-win for both Pinduoduo and Gome. But Gome's social e-commerce has also been exploring a model suitable for itself. Financial report data shows that Gome Meidian's social e-commerce platform contributed RMB 2.6 billion in GMV in the first half of 2018! Against the backdrop of the rise of social e-commerce, Gome officially stated: Meidian will continue to focus on the strategic blueprint of "social + commerce + sharing." In addition to the "share and rebate" model, consumers can also open stores on the Meidian platform for free, realizing the role transformation from consumer to seller. Meidian will continue to use social sharing as a tool, seek to build an internet fission system, convert social traffic into sales, and further become a growth point for Gome to obtain new profits. From this perspective, Gome has not simply copied the "group buying" form like other traditional e-commerce and retail platforms after seeing Pinduoduo's staged success in social e-commerce, but continues to adhere to the "shared retail" model of "social + commerce + sharing." As I analyzed earlier, "group buying" is just one form of social e-commerce. Source: Zhuang Shuai Retail E-commerce Channel