2 Years to $6 Billion Monthly Sales — A Growth Hacking Story
Growth does not come easily when you have strong competitors. Yet, a startup in China earned a valuation over $1.5 billion and acquired 200 million users in 2 years.
What startup is this?
Pinduoduo (拼多多), which translates to “group buy more”, is a group deal app where users can find a variety of discounted products. However, the only way to redeem discounts is by sharing them to friends on social media.
The startup was founded by ex-Google employee Colin Huang in September 2015. It only took the team one year to reach $160 million yearly sales. By March 2018, Pinduoduo had an estimated $6 billion monthly sales and became one of the most popular e-commerce apps in China.
Okay, but how did they hack their growth?
In a nutshell, Pinduoduo is like a combination of Facebook, Wish and Groupon. Users shop low-priced products as a group by sharing them on social media. These behaviors are naturally prone to viral growth, but I think Pinduoduo did especially well in 2 areas: viral media and loop design. Let’s look into each of them.
1. Viral Media
“The first (and last) choice you have to make is where people are going to receive an entryway into your viral loop. That might be e-mail, Facebook newsfeed, or blogs.” — Andrew Chen
Finding the right media for your product is crucial to hacking growth. From Zynga’s history with Facebook to Airbnb and Craigslist, many successful growth stories are similar in this way. Pinduoduo, too, leveraged the biggest social media app in China — WeChat.
WeChat has over 1 billion active users and is the largest mobile payment platform in China.
WeChat is the ideal growth medium in China because of its highly engaging social features and mobile payment ecosystem.
For example, Pinduoduo users can post deals on Moments, a newsfeed feature only for strong, intimate connections. WeChat users spend on average over 1.5 hours in the app everyday, and about 61% of them would interact with Moments every time they open the app. This leads to a significant amount of exposure to shared Pinduoduo content.
In addition, Group chat is effective for sharing information to weaker connections, including those that share similar interests, but may not be connected as friends yet. By having exposure among both types of connections, Pinduoduo quickly accumulated traffic to its platform.
WeChat’s strong engagement lays the foundation for Pinduoduo’s traffic.
Another feature that pushed user acquisition is WeChat’s mini-program. The idea is simple: it is built inside WeChat, where users have the same experience as in the app. More importantly, users can complete payment using WeChat Pay. Integrated with the largest mobile payment platform in China, Pinduoduo reduces friction to purchase as users do not need to download an additional app.
Just having exposure and low friction is only part of the formula. To make users complete the viral loop is key to hacking growth.
2. Loop Design
Loop design is the steps that users take to get what they want, and some are designed to promote the product. Pinduoduo’s design focuses on two aspects to increase completion of viral loop: strong incentives and easy, fun workflow.
When new users open the Pinduoduo app for the first time, they receive a red packet, which can be claimed after sharing it to a group chat.
Because Pinduoduo helps users save money, offering cash reward can easily persuade users to do what is asked. This design starts its virality before any conversion even happens.
As Steven Krug writes in Don’t Make Me Think - a great product should never make users think too much. Pinduoduo’s loop includes 4 steps to deliver products that customers want at a low price.
At this point, many users have completed the viral loop for the first time, but the real growth happens afterwards. The number of viral loop completion from existing and new users is the driver to exponential growth.
“Viral growth rate is a compounding process, so the difference between a 80% dropoff and a 50% dropoff is huge spread over 1000s of viral loops.” — Andrew Chen
Pinduoduo introduced gamification techniques to drive engagement for that purpose.
The above are all different bargain categories, such as Flash Deals, ¥9.9 deals, New-user Bonus, Check-in Cash Bonus, Everyday Red Packet, and Free Items, etc. Each of them offers different selection of products and requires different action steps to complete. Similarly in mobiles games, different actions result in different rewards, and thus users become more engaged with the product out of curiosity.
Essentially, all bargain categories follow the same 4-step funnel design, but each creates a different feel to keep users interested.
Free items? ¥9.9 items?
You probably noticed there are deals that say “¥9.9 deals” and “Free Items”. Usually, no retailer is willing to sell items below cost or give them out free. However, with the size of potential user traffic, vendors on Pinduoduo are willing to take a short-term loss, so that they can be featured on top of the traffic funnel in Pinduoduo.
During the limited-time sale, if the vendor is capable of handling the volume spike, it will be featured on top within its category. These vendors then regain their control over price, together with majority of user traffic.
Deals like this do not incur cost on Pinduoduo, and they are very effective at gaining traffic. Higher traffic leads to higher willingness from vendors to invest, and thus attracting more users to the platform.
The Verdict — is Pinduoduo all perfect?
No, growing like this creates problems. With low standard for product and vendor selection, Pinduoduo has not been able to offer consistent quality and fulfillment. Consequently, bad reputation among users has caused high attrition in urban customers who value quality over price. As for now, majority of users are from low-income regions in China, where price sensitivity is high and attention to quality is low.
Growing without retention of core customers will not go far.
With rising issues and attention from competitors, Pinduoduo’s future is very unclear. Moreover, their achievements also depended on many external factors, including endorsement from WeChat and high penetration of mobile payment in China. Nevertheless, there are two learnings that stood out the most to me from their story:
- Finding the right media and using it right. This translates into three questions. Which medium can empower your product the most? How does your product fit into this medium? Does this medium engage your target users? If we look at Pinduoduo, their growth would not have happened without WeChat’s payment infrastructure and social features.
- Designing a relevant and engaging viral loop for your product. A great product can market itself, if users understand and like what it does. Pinduoduo only serves one goal: to buy products at low prices. Every step of Pinduoduo’s user journey is a reminder of that. The more frequent users go through the viral loop, the more value they realize from the product, and thus more likely they will repeat the process.
For those interested, WeChat is now the #2 most popular mobile messaging app, with over 38 billion messages sent everyday. WeChat is also more than just messaging, offering features across transportation, dining, e-commerce and entertainment. One can socialize with friends, check newsfeeds, and run errands all without exiting the app. You can read more here.