A decentralized, anti-brand, single-product-focused low-price e-commerce ecosystem.

Undoubtedly, Pinduoduo is a star company.

There has been much discussion about Pinduoduo in our public discourse. People focus on how it became China's fastest-growing internet giant, how it carved out a large piece of the pie under the noses of Alibaba and JD.com, its young founder who retired at his peak, and the consumer experiences it creates in our daily lives—sometimes amusing, sometimes infuriating.

This year, there is another reason to focus on Pinduoduo: How exactly did Pinduoduo develop its low-price capability?

2023 is the year of low prices in e-commerce. JD.com revived its "more, faster, better, cheaper" slogan and launched a 10-billion subsidy program; Taobao and Tmall proposed a "price power" strategic goal early in the year; Kuaishou E-commerce made "low-price good products" the operational benchmark for its trust-based e-commerce. Under new economic conditions and consumption trends, and with the new wave of industrial belt supply exploration that started last year, all e-commerce platforms are studying how to keep lowering prices. Almost without exception, their benchmark competitor is Pinduoduo.

A jewelry merchant from a leading industrial belt on Douyin E-commerce told "The Narrowcast": "The platform staff hinted that we should benchmark against Pinduoduo and lower prices." An insider at an e-commerce platform revealed: "Pinduoduo's penetration and control over industrial belts is indeed unmatched by other platforms." In discussions with platforms or merchants, when assessing a platform's low-price capability, almost everyone says, "Is it cheaper than Pinduoduo?"

Low price is Pinduoduo's foundation. From its inception, all of Pinduoduo's operational logic has revolved around low prices. Under this philosophy, all interaction design, traffic distribution, and operational rules serve low prices. Every action is like a bullet aimed at the same target—clear and without redundancy.

Starting with supply, Pinduoduo was the first to find white-label products that Alibaba and JD.com disdained but for which there was substantial redundant supply and vibrant demand. Through lenient entry requirements and friendly policies, it attracted a large number of small and medium merchants, overtaking competitors in lower-tier markets and opening a new battlefield.

Subsequently, with an initial user base, Pinduoduo began to adjust its product mix by introducing brands, gradually moving up to first- and second-tier city residents. This was a delicate game and a critical leap in Pinduoduo's expansion.

The algorithm and traffic distribution mechanism tightly bound to low prices serve as Pinduoduo's command center and nerve center for maintaining low-price capability. This direct, crude, yet highly precise and efficient traffic distribution logic, combined with Pinduoduo's dominant power in the platform-merchant-consumer triangle, allows Pinduoduo to maintain strong control over its ecosystem.

This control ultimately points back to supply, but to better and more efficient supply. Through various stringent terms, Pinduoduo accelerates ecosystem reshuffling, discarding merchants who cannot offer low prices.

After rounds of low-price competition, the merchants that survive and grow stronger are the supply chain Pinduoduo needs. These merchants, forced to develop strong supply chains, continue to offer low-priced products on the platform and keep triggering new price and supply chain wars.

In this endless battle, local industrial capabilities have been upgraded, and Pinduoduo has rightfully become the king of low prices.

In this article, we will review Pinduoduo's five links—"supply, users, algorithm, ecosystem, supply"—in five parts.

Article Preview: 01 Picking Up Low-Price Supply: Where Did White Labels Go? 02 Moving Up the User Base: How 10-Billion Subsidies Boost Profitability 03 The Nerve Center of Low Prices: Algorithms and Traffic 04 A Darwinian Business Ecosystem: The Decentralized Controller 05 Back to Supply: Selecting the Strongest Single-Product Supply Chain 06 Epilogue: Who Will Challenge Pinduoduo?

Picking Up Low-Price Supply: Where Did White Labels Go?

Looking back from today's vantage point, we can see how Taobao, Tmall, and JD.com's pursuit of brand upgrades in their product assortments gradually squeezed the living space of white-label small merchants and ignored the vast but less vocal consumer demand from lower-tier markets.

The two e-commerce giants may have disdained the small profits of low-price e-commerce, but white-label supply never truly disappeared from the consumer market. It continued to circulate and take root in various forms—sometimes in offline wholesale stalls, mom-and-pop shops, and street vendors, sometimes in corners of social e-commerce or large platforms.

In terms of domestic production capacity, low-price supply is largely abundant. China has many excellent factories that do OEM work for global consumption upgrades. Also, because China has experienced consumption upgrades over the past decade or more, white-label low-priced products have largely decoupled from low quality, and consumers increasingly accept the concept of "pingti" (affordable alternatives).

Therefore, under the objective conditions of post-pandemic foreign trade obstacles, the transfer of this production capacity largely sowed the seeds for Pinduoduo's prosperity.

Even today, when all major e-commerce platforms are supporting small and medium merchants (the main suppliers of low-priced goods), Pinduoduo is still one of the most friendly platforms for small and medium merchants. "Friendly" does not mean it is easier for them to make money here, but rather lower entry barriers and more lenient e-commerce rules.

When we talk about small and medium merchants, we should first clarify who they are. They often lack complete and efficient supply chain capabilities, meaning they lack stable sources of goods and have weak control over supply; they are highly mobile, with a considerable portion running e-commerce as a side business, migrating between traffic dividends of different platforms; they have weak operational capabilities and are unfamiliar with platform e-commerce rules, standardized advertising language, and efficient pre-sales and after-sales processes.

For such small and medium merchants, Pinduoduo is a simple and easy business:

First, Pinduoduo's commission is only 0.6%, almost just the payment withdrawal fee; the single-product logic reduces the need for overall store operation, as merchants only need to maintain information for a single product; the rough review system and lower consumer expectations make quality control less urgent and important.

While established e-commerce platforms and later live-streaming e-commerce platforms have begun to impose 72-hour and 48-hour shipping time limits, Pinduoduo still maintains a mechanism that does not urge shipping (which is especially important for small merchants of non-standard agricultural products that depend on weather).

Moreover, for certain special categories, such as sexual health and health supplements, Pinduoduo does not restrict promotions, and the review standards for advertising copy are much more lenient.

Pinduoduo has thus attracted a large amount of low-price supply that had nowhere else to go online. This is also why, even as Pinduoduo has become increasingly competitive, many merchants still rely heavily on this platform.

Moving Up the User Base: How 10-Billion Subsidies Boost Profitability

User scale expanded rapidly alongside supply. During this period, Pinduoduo's supply characteristics could be summarized as "low price, low quality." Although it sounds unpleasant, in the early expansion phase, gossip related to "low quality" actually served as a marketing anchor for "low price," repeatedly reinforcing Pinduoduo's budget positioning in consumers' minds.

By the 618 shopping festival in 2019, Pinduoduo's DAU (daily active users) growth rate ranked first among the three major e-commerce platforms, up 48% year-on-year, with DAU increasing from 91.38 million to 135 million. In the same year's Double 11, Pinduoduo's DAU reached 220 million, a net increase of 101 million from the same period last year, a growth rate of 84.8%.

Once the user base stabilized, the next consideration was how to maximize value. There is no dispute that the ceiling of white-label e-commerce cannot accommodate an e-commerce giant comparable to Alibaba or JD.com, and value-for-money users are among the most fickle consumer groups. For long-term and stable development, Pinduoduo had to incorporate a large number of branded goods and reach more upper-tier users with more stable consumption habits.

So, in 2019, Pinduoduo officially launched its "10-billion subsidy" program, gradually introducing branded goods. From then on, Pinduoduo began a long game with brands. No brand pursuing brand image and premium pricing was willing to tie itself to Pinduoduo, but equally, no brand was arrogant or complacent enough to completely ignore this visible huge cake.

Pinduoduo's response was "inducement."

"Low prices bring high traffic. Pinduoduo uses this method to induce brands to match the platform with low-priced products," said a KA brand on Pinduoduo.

Inducement is the art of compromise. In consumers' minds, Pinduoduo already equals low prices, and a brand always has discounted products—such as near-expiry food, old-season clothing, and warehouse surplus. As many brands and distributors have proactively lowered growth expectations under the pandemic and become more accepting of thin margins, discounting and clearing inventory have become routine, whether voluntarily or forced. Thanks to unlimited shelves, low entry barriers, and access to all consumers, this low-price supply is relatively easier for online platforms to absorb.

Pinduoduo, seizing the moment, thus took the first step in brand cooperation. This also served as a stronger endorsement: on Pinduoduo, not only are white labels cheap, but even brands are cheaper.

This is the cleverness of Pinduoduo's mechanism: Although branded goods are increasing, it has not followed the path of Taobao and Tmall in steadily raising average order values; Pinduoduo remains cheap. On this platform, no one can rebel against low prices.

For Pinduoduo, adjusting its product mix from white labels to brands is a critical move. It not only means richer supply but also an upward shift in user demographics. Marx once likened the conversion of commodities into money to a "dangerous leap." By introducing low-priced branded goods and expanding its user base to first- and second-tier city consumers, Pinduoduo made its own "dangerous leap."

If it failed, the platform's growth space would be forever confined to the low-price market, earning only hard-earned money; if it succeeded, Pinduoduo could leap over the dragon gate, using efficient leverage to achieve a positive business model.

A positive cycle of "supply, mindshare, users" thus began: the more low-priced branded goods, the stronger the low-price mindshare, the more people buy branded goods, which in turn encourages brands to invest more effort. An expert briefing shows that in Q1 of this year, brand stores (flagship, specialty, and exclusive stores) on Pinduoduo accounted for over 50% of total GMV, while the 10-billion subsidy GMV accounted for about 17% of the total.

Functional food brand BUFF X has treated Pinduoduo as an important sales channel since its inception. Founder Kang Le has observed a clear shift in user demographics on Pinduoduo over the years. "Previously, consumers were mainly from third- to fifth-tier cities, but this year we see more students and first-tier white-collar workers joining."

Successfully moving up the user base may be Pinduoduo's moat compared to other low-price e-commerce platforms. The aforementioned KA brand believes that Pinduoduo appears to target lower-tier users but actually "cuts across all demographics." In contrast, similar products launched by giants in response to Pinduoduo's success, such as Taote and Jingxi, are not as cunning in this regard; they "target truly lower-tier groups, and once subsidies are removed, user stickiness is weak."

We can see that for both Taote and Jingxi, earning money through online activities (exchanging active time for red packets) is almost the biggest growth path; but Pinduoduo, in addition to such activities, also places a large amount of advertising budget on platforms like Bilibili, where young users from first-tier cities gather.

"Pinduoduo acquired middle-class users through the 10-billion subsidy, and then through more brand introductions, it solidified the stickiness of these users. In this way, these users are won over," said the KA brand.

The Nerve Center of Low Prices: Algorithms and Traffic

Ms. Wu planned to sell her homegrown perfume lemons on Pinduoduo. When she uploaded the product and prepared to set the price, Pinduoduo's backend system automatically popped up an activity prompt, inviting her to sell at a recommended price. At this price, daily views could reach hundreds, with ten to twenty transactions, but the gross profit per order was only one yuan. Once she changed the price back to the normal market price, the product immediately lost all traffic.

This is a typical scenario where Pinduoduo's low-price-oriented traffic distribution mechanism comes into play. It is easy to imagine the principle of this traffic distribution mechanism: the platform encourages low prices; the lower the price a merchant offers, the more traffic is allocated. Under this baton, whether a big brand or a small merchant, all are equal and must obey the rules, and the rule is small profits but quick turnover.

The logic sounds so simple and crude that this year various platforms have launched their own price comparison systems. But in practice, people find that almost no platform can replicate Pinduoduo's mechanism pixel by pixel.

Pinduoduo's price comparison capability is first precise; it can identify products across e-commerce platforms by recognizing images and text, which is the basis for comparison. More importantly, product prices are directly linked to traffic; low prices bring all activity resources and traffic, and once a lower-priced identical product appears anywhere on the internet, Pinduoduo's system immediately kicks the product out of the 10-billion subsidy and flash sales.

In comparison, price comparison on other channels is less satisfactory.

Take JD.com as an example. In its 10-billion subsidy launched this year, despite claiming the lowest prices across the internet, in actual tests not all products achieved this; a considerable number of products only achieved the lowest price within JD.com, which merchants call "fake subsidies" that do not receive real traffic support.

In this sense, JD.com's 10-billion subsidy is more like a sales resource slot, while Pinduoduo's 10-billion subsidy sells real traffic. This is precisely due to the strict, smooth, and direct transmission between price and traffic.

Kang Le's BUFF X is a frequent participant in Pinduoduo's 10-billion subsidy activities. He told "The Narrowcast": "If your price is not in the lowest range, you cannot qualify for the 10-billion subsidy." Once the product is included, it faces continuous automatic price comparison across the entire internet.

BUFF X's flagship product is a caffeine-containing chewable tablet called "Red BUFF" for alertness. In Pinduoduo's system, this product must pass two tests: first, whether "Red BUFF" is the lowest price on Pinduoduo; second, whether "Red BUFF" is the lowest price in the entire category of caffeine-containing chewable tablets.

"This is really terrifying," he exclaimed with awe.

The traffic allocation capability of the low-price algorithm is indeed a core advantage that Pinduoduo prides itself on, but the technical capabilities among internet companies are not vastly different. The fundamental reason for this physical difference is the difference in the underlying logic of traffic distribution between platforms.

Founder Huang Zheng once detailed his vision for supply-demand matching. He believed that overly fragmented demand is the biggest obstacle to supply-side efficiency improvement. The efficiency of the group-buying model lies precisely in concentrating downstream fragmented demand, using scale to force upstream supply upgrades.

In traditional e-commerce, brands are the main path for concentrating demand scale, but brands tend to favor premium pricing over low prices. Therefore, on Tmall and JD.com, platforms must delicately balance traffic distribution among different channels and merchants. Every traffic in and out undergoes complex rule evaluation and is the result of games among various parties. Low price is merely a new rule attached to these original standards.

Pinduoduo does not need to consider brand feelings too much. People often overlook that Pinduoduo is actually more like a recommendation-based e-commerce platform than a search-based one, and recommendation algorithms often mean full-scale horse racing—and, crucially, horse racing centered on low prices. Some brands say that 70%-80% of their transaction traffic comes from recommendations, not active user searches. Pinduoduo's display logic is single-product-based rather than store-based, so there is little repeat purchase, and even if there is, it mostly comes from "previously purchased" associative recommendations.

This shows that Pinduoduo's internal logic is actually "de-branding." Merchants find it difficult to accumulate store assets, and each SKU requires equal resources to compete in the market. Therefore, in the path of concentrating demand scale, traffic algorithms replace brands. Whether a brand or a small merchant, all are equal, all straining their necks, staring at the low-price red line.

A Darwinian Business Ecosystem: The Decentralized Controller

In 1859, Darwin published "On the Origin of Species." Since then, many sociologists have attempted to apply evolutionary theory to the social sphere, using the mindset of survival of the fittest and natural selection to understand power relations in human society. Although social Darwinism was soon revised by later thinkers, one must admit that in the business domain, the law of the jungle remains the path to maximum efficiency.

Pinduoduo is undoubtedly a platform that takes this brutal competition to the extreme. We do not intend to judge on moral grounds, but rather to say that Pinduoduo's "de-branding," or "decentralization," underlying logic inevitably leads to an unbalanced power structure.

The so-called decentralization is essentially algorithm-centric—that is, centered on the platform's traffic baton. From an objective standpoint, Pinduoduo as a platform is clearly the power holder in the platform-merchant-consumer triangular ecosystem.

If Taobao and Tmall are venues that provide transactions and connections for consumers and merchants, then Pinduoduo is a knot tied on the merchant-consumer line, stuck in the middle, using various special interaction and operational mechanisms to distance merchants from consumers. Merchants have no private domain, and users have no brand loyalty; facing them is only Pinduoduo.

The essence of this approach is to weaken merchants' operational initiative and increase their dependence on the platform. On the consumer side, the principle is the same; Pinduoduo acquires and retains users with extreme low prices and favoritism. To some extent, this is a second-sale logic: Pinduoduo forces or induces merchants to sacrifice interests, sells them to consumers, and then sells the consumers attracted (i.e., traffic) back to merchants.

It is an extremely rational machine that directly allocates resources in the most efficient way. The losers in the jungle are the wear and tear caused by efficiency. Under absolute control, Pinduoduo has initiated a process of survival of the fittest. We can see two main measures:

First, it uses various harsh terms for merchants to catalyze and accelerate ecosystem reshuffling.

These harsh terms include but are not limited to: unclear criteria for "refund only," inducing consumers to initiate refund-only during normal after-sales communication, unreasonably blocking negotiation between merchants and consumers, and the platform deducting money from merchant accounts without consent to compensate consumers.

The result was that in the first half of this year, a large number of small and medium merchants on Pinduoduo finally reached their limit and launched a "store bombing" campaign against the platform and the KA merchants it values. The fierce revenge is just the tip of the iceberg; beneath the surface are many small and medium merchants who cannot survive and are forced to close. It is hard to say whether the harsh terms are intentional on Pinduoduo's part; at least until months after the store bombing incident, we have not seen any sign of policy softening from the platform. Moreover, in the cross-border new business TEMU, this tough stance toward merchants continues.

Pinduoduo's second measure is to find the ultimate winner in this ecosystem reshuffling.

During our interviews, regarding "refund only," small and medium merchants and large merchants showed starkly different attitudes: small merchants were mostly angry and full of complaints; large merchants tended to view it as a normal business practice. From a scale effect perspective, large merchants have better quality control and higher tolerance for refunds; they are the winners in the jungle.

The platform continuously lowers prices, forcing merchants to engage in supply chain involution, from which it extracts and separates merchants who can better adapt to the ecosystem for tiered operations. Those who cannot survive the low-price competition are ruthlessly discarded.

This is exactly what Pinduoduo wants—through a battle-royale-like fierce competition, to find the strongest supply chain.

Back to Supply: Selecting the Strongest Single-Product Supply Chain

How should we define the so-called "strongest supply chain"?

First, it should be clear that low prices brought by efficiency improvements are different from pure price involution. The latter is a systemic harm, while the former requires complex system capabilities including supply, distribution, and organizational efficiency improvements. It is also one of the basic driving forces for retail evolution and may give rise to new retail formats.

The strongest supply chain is the product of low prices brought by efficiency improvements. In a fierce price war environment, to profit and develop long-term, merchants must examine and review every link in the entire chain for opportunities to optimize efficiency and costs. This optimization often leads to the overflow of bubbles in traditional value chain distribution, redivision of interests, and even the formation of new supply-demand relationships.

In the article "Internet Seizes Industrial Belts: Low Prices, Traffic, and Grading," we compared and discussed how different domestic e-commerce platforms intervene and explore industrial belt supply—in other words, how they find and shape the strongest supply chain:

JD.com connects with large suppliers through its private brands, earning product price differences, following the path of a large retailer empowering upstream manufacturing; Alibaba's Taofactory transforms into an industrial belt service provider, adopting a trusteeship model and earning service fees.

If the above methods more or less reflect platforms' investment in the physical industry, using a "visible hand" to explore supply, then Pinduoduo is an outlier. It resolutely and conservatively plays only the role of an internet company, using traffic operation methods, guiding upstream competition and upgrades with an "invisible hand."

Agricultural e-commerce is a typical window to observe Pinduoduo's invisible hand. In the article "Agricultural Product Merchants Entering the 'Second Stage' of Competition," we observed how Pinduoduo promotes the horizontal and vertical development of origin agricultural merchants. These merchants leverage origin resource advantages and Pinduoduo's traffic leverage to quickly scale up in the early stage. As they grow, they take on the task of integrating resources from the origin and traditional distribution channels, achieving higher distribution efficiency.

After scaling up, Pinduoduo uses tiered operations, such as launching special columns like "Xunxian China," to give these strong agricultural merchants better resource slots and traffic support.

This logic also holds in the industrial sector. On Pinduoduo, those with supply chains survive; those without die. Small merchants using the drop-shipping model find it hard to last three months. All merchants who achieve top sales in their categories and sustain operations on Pinduoduo have self-built or deeply cooperative factories.

A top-3 category merchant on Pinduoduo told "The Narrowcast" that even with their own factory and many deeply cooperative OEM factories, they can only achieve a gross margin of 3-5 percentage points. "Doing Pinduoduo, unless you reach TOP1, it's hard to make money."

Kang Le's BUFF X is one of the brands forced to undergo a supply chain transformation. "Making something expensive is not difficult; you just stack concepts and premium raw materials. But making something cheap is hard; every step's efficiency must be pulled to the extreme to have some profit," Kang Le said.

Like most brands, BUFF X once found it difficult to profit on Pinduoduo. Starting this year, Kang Le found a new supply chain cooperation model: canceling the original upstream-downstream relationship with factories and raw material suppliers, changing to equal cooperation; not using the traditional quotation procurement path, but openly disclosing costs based on transparency, jointly giving way to consumers, creating a product with extreme cost performance; products are shipped directly from the manufacturer to consumers, without secondary warehousing and transportation; the final profit is split 50-50.

Under this new cooperation model, BUFF X "immediately became profitable on Pinduoduo," and some products can even be sold at one-tenth the price of similar products. "It's actually about huddling together for warmth. The upstream handles production and manufacturing, while our value is maximizing sales efficiency and awareness."

BUFF X's experience can be said to be a microcosm of enterprises that operate and survive on Pinduoduo. They scrutinize costs at every link, and if necessary, even reconstruct supply-demand relationships, only then forming healthy low prices and sustaining long-term in price involution.

"Many Chinese factories' upgrades and brand supply chain strength improvements are forced by Pinduoduo," said the aforementioned KA brand merchant.

Who Will Challenge Pinduoduo?

At this point, we can reconstruct the birth path of Pinduoduo as the "king of low prices."

This path starts with supply and ends with supply, leaving behind strong supply chains and strong merchants, filtering out those who cannot profit from low prices; in the process of supply grading, the decentralized mechanism, efficient low-price algorithm, and strong ecosystem control ensure the continuous operation of this survival-of-the-fittest cycle; the continuously rising, expanding, and sticky user base serves as a safety net for the ecosystem, keeping it fluid and active.

This looks like a perfect growth flywheel, with every gear driving Pinduoduo forward. An expert briefing shows that Pinduoduo's expected GMV growth rate for Q2 this year is 40%-50%, and it may remain at 30% in the second half of the year.

Will this flywheel ever get stuck? Where might the pebble that jams it come from?

Returning to the four elements of low-price e-commerce we proposed at the beginning—"supply, mindshare, algorithm, ecosystem coordination"—it is easy to think of the biggest variable that is hardest to control: mindshare; in other words, user migration.

Since its birth, every step Pinduoduo has taken has hit the right time, place, and people. The flywheel can turn only with uninterrupted user growth. Now, Pinduoduo's DAU has stabilized above 100 million. The era of internet stock has begun. Pinduoduo may delay this moment, but it will eventually face it. Once growth slows, the returns merchants get from fierce competition on the platform will decrease, leading to a decline in supply, thus slowing the entire flywheel.

People often compare Pinduoduo with Alibaba and JD.com. The latter two tend to get personally involved when exploring low-price supply. Due to heavier physical investment, they appear less agile and efficient than Pinduoduo. But it cannot be ignored that Alibaba and JD.com are facing a period of stagnant growth, and efficiency improvements can only be achieved through more fundamental means.

Pinduoduo has played the role of challenger to Alibaba and JD.com, but as it grows larger, it will also have its own challengers.

Douyin's developing shelf e-commerce may be a potential threat. It shares a curious similarity with Pinduoduo in mechanism: both are recommendation-based e-commerce with a single-product hit logic, decentralized, with the platform holding core discourse power over traffic distribution. All merchants, regardless of size, must find their way under the baton, showing intense horse racing.

From the perspective of traffic sources, Douyin shelf e-commerce is to Douyin what Pinduoduo was to WeChat back then—both have abundant traffic treasures to draw from. Douyin e-commerce also has the content attribute that Pinduoduo failed to develop, and it is investing huge resources in exploring industrial belt supply.

As the benchmark for low prices, when and by whom Pinduoduo's ceiling will be reached, we can only guess. But in times of peace, one must prepare for danger. Pinduoduo has not stopped; it is going overseas, going deeper into the supply chain, and continuously surpassing itself in pursuit of eternal growth.