1. Home
  2. Expert Article

Chinese Consumerism: Failing or Evolving?

  •   28 May 2019
  •    Glory Guo
  •  1720
  •   Post a comment
    Pinduoduo is an innovative and fast-growing e-commerce platform that provides a dynamic shopping experience using “Pin”, a group purchasing model that integrates social experiences with online shopping. Over the last 3 years, Pinduoduo has experienced huge growth, riding on the crest of China’s social media wave. In a financial report released in Mar.13, 2019, Pinduoduo reported that total revenues in 2018 had increased by 652% (up from RMB 1, 744.1 million in 2017 to RMB 13, 120.0 million (US$1,908.2 million) in 2018) primarily due to an increase in revenues from online marketing services [1].

    The success of Pinduoduo speaks to a new-found pragmatism amongst China’s youth. It has grown by leveraging their penchant for technology and innovative mobile applications while offering value and a competitive price point. Its success encapsulates much of the key themes driving growth in China’s consumer goods and e-commerce sector. Does its success also indicate a change in consumer preference towards cheaper products and a shift away from luxury?

    Figure 1: ‘Pin’, a team purchase format that integrates social experiences with online shopping experiences

    The Uptrend of Pinduoduo, and Concomitant Downtrend of Consumerism

    In the middle of 2018, Pinduoduo filed a prospectus to the US Securities and Exchange Commission (SEC). During this time Pinduoduo was also embroiled in a litany of negative press stories relating to poor quality control and dire customer service. Despite all this, in 2018 its active buyers still exceeded JD.com, who is now engaged in serious cost-cutting measures as it attempts to offset huge losses[2]. Under pressure from Pinduoduo, Taobao even launched its own low-price version, while Alipay launched a “Super value commodity” section on its front page.
    Figure 2: the Alipay APP launched a “Super value commodity” sector
    Pinduoduo targets demographics traditionally neglected by larger e-commerce platforms and is heavily reliant on purchases made by coupon clipper groups and middle-old aged women who like dancing in city squares(so-called Square-dancing grannies). Using Pinduoduo these groups can team up with friends to save money on bulk purchase of cheap goods such as toilet rolls and groceries. Trust me, in the aggregate hundreds of dancing grannies in squares all over China is a force to be reckoned with. It is also why the annual spending per active Pinduoduo buyer in 2018 was only RMB1, 126.9(US$163.9), much lower than both Taobao and JD’s users[3].

    Changing Economic Outlook: Optimism giving way to pragmatism

    Major changes in China are stressing China’s economy and leading Chinese consumers to tighten their purse strings. Growth in retail sales slowed in 2018 according to data from the National Bureau of Statistics of China [4].
    The optimism, penchant for luxury goods and indifference to premium price tags that hallmarked China’s upward economic trajectory over the last decade is giving way to a more cautious outlook and more pragmatic consumption habits. In many ways, Pinduoduo ascension parallels this change and Pinduoduo is now the poster boy for how to succeed while facing China’s consumption downgrade.

    Lumping all young people into the same boat and failing to recognize the nuances

    With the slowing growth of retail sales, it is now crucial for the enterprise to understand consumers. The post-eighties, the nineties, and noughties generations have been major drivers for the success of China’s emerging new economy. Take out delivery, new retail, personalized shopping, etc. have all been driven by young people and their penchant for convenience, new technologies, and new experiences. However, oversimplification of consumer stratification has led enterprises to underestimate the nuanced requirements of the various subgroups of China’s young consumers.

    Only enterprises that meet the diversified and personalized needs of these consumers can realize continued growth. Social e-commerce such as Pinduoduo is not the only new retail phenomenon in China and hybrid mobile applications which combine e-commerce with group purchasing, vlogging, reviews, user testimonials, and consumer feedback have become extremely popular. Just take a look at how well RED has done amongst young people in China. According to the market report published by Jiguang Big Data, RED has 200 million users and boasted the fastest rate of growth amongst all China’s main e-commerce platforms from 2017 to 2018 [5].  The e-commerce platform offers feedback and product reviews combined with group purchasing [6].

    Figure 3: The report represents the fastest growth speed of Red’s users according to Jiguang Big Data
    Platforms are now also refining their search and advertising algorithms to offer consumers personalized recommendations based on their past purchasing preferences, search history, etc. The 699 million mobile MAUs (monthly active users) of Taobao in December 2018 demonstrates the success of ongoing enhancements in personalized recommendations to cater to a broader base of users [7].

    China’s Young Consumers: Understanding is Key

    According to the global post-95 consumers’ research report released by Accenture, the post-95 consumers in China have unique consumption views, including different life needs, shopping habits, and shopping channels [6]. They are also willing to try the new products and look for new experiences particularly if it is promoted by their peers or KOLs (Key Opinion Leaders) in social media. Lifestyles of China’s younger generations deviate markedly compared to traditional values.
    Figure 4: A Snapshot of the Younger Generations Lifestyle
    This generation of young Chinese is a unity of contradictions. On the one hand, they are willing to buy cheap copies of higher quality goods. On the other hand, they are willing to pay a premium for novel products and new experiences involving cooperation between brands and popular IP. On the one hand, they have become jaded by the negative influences of mass consumption but on the other hand, they are receptive to creative ideas that recognize them as a unique and separate group.
    Figure 5: Limited Lipsticks Launched by MAC and Tencent’s game King’s Glory are popular with young women in China

    Consumer differentiation

    So, back to the question at the beginning of this article, is China currently in the grips of a consumption upgrade or downgrade? At ChemLinked we think the question is overly simplistic. A better question is how have consumers changed and how can we better understand these changes?
    In my next article, I will talk about some of the implications brought about by China’s “consumption differentiation”. Furthermore, we will discuss how to design marketing campaigns to help entrepreneurs to meet the needs of China’s younger generation.
    You are a visitor, Please Login or Sign up for free.
    Share this:
    COPYRIGHT: You may circulate web links to the web and contents, but they are intended for your personal, non-commercial use only. For other use of any materials, you can contact with cleditor@reach24h.com to seek consent. Find out more about our copyright policy here.
    CORRECTIONS: we do our best to provide you with accurate information. However sometimes errors slip under the radar. If you notice any errors contact us on: cleditor@reach24h.com
    Content sharing or co-authoring: just send messages to our editor team.