- Social ecommerce models – how Pinduoduo and Shihuituan are reshaping online sales in China
China’s social ecommerce platforms remain largely unknown outside of the country, but the models have had a big impact on China’s ecommerce sector — lowering the acquisition cost for tech companies and bringing affordable goods to Chinese consumers — especially in lower-tier cities.
3rd largest: Pinduoduo is the third-largest ecommerce player in China behind Alibaba and JD.com, and is growing faster than its major rivals. Average monthly active users rose to 643 million in 2020, according to Bloomberg.
Group buy: Nearly all of Pinduoduo’s sales are group buys — created by sellers but initiated by consumers — who create or join a group of at least two people to access a deal. Chinese consumers use the platform for mostly everyday products such as fruits, vegetables, and consumer goods, but also apparel.
Lower-tier cities: Where JD.com and Alibaba dominate China’s tier 1 cities such as Beijing and Shanghai, a large percentage of Pinduoduo’s user base is from smaller cities. In lower-tier cities, prices are often higher, because of distances and logistics inefficiencies, and customers are price conscious and more in contact with lower quality products.
Social media: The more participants, the lower the prices, and buyers are eager to share product links and QR codes with friends and family on social media platforms such as WeChat and microblogging site Weibo. The platform has also introduced a price reduction or Price Chop feature — allowing users to get products for free by sharing a custom link with their friends.
Shihuituan: Like Pinduoduo, Shihuituan sells consumer goods such as fresh fruits, vegetables, and packaged goods — targeting lower-tier Chinese cities with less competition.
Community leader: The community leader is central to the success of the model, and responsible for placing the order, receiving the goods, and last-mile delivery. Community leaders are often stay-at-home moms or local neighbourhood stores, who act as influencers and community marketers and earn a commission of 10 per cent on average.
Cold chain: Shihuituan reduces the need for a full cold chain logistic model, by moving goods efficiently from warehouse to customer. The company employs a 12-hour delivery schedule for fresh produce across China, with goods in transit for 5-7 hours in cold and iceboxes. Community leaders also use their own fridges, and freezers to store goods before collection or for last-mile delivery later in the day.
Value proposition: Pinduoduo and Shihuituan’s group buying models create bulk orders and reduced prices for shoppers — leading to economies of scale and increased profits for manufacturers. For Shihuituan, community leaders also bring significant cost savings for last-mile delivery, and reduced prices for customers living in lower-tier cities.
Acquisition costs: Most ecommerce businesses need to invest approximately $10-20 or more to gain a customer, but with these models, the acquisition cost is close to zero. Users become unofficial recruiters for the platform — lowering acquisition cost and attracting more customers to the platforms.
2. A South Africa informal business taking advantage of the COVID-19 lockdown
3. Nestlé partners with Nomanini and Standard Bank to empower informal retail traders across East and Southern Africa
Nomanini: South African based Nomanini provides a retail point-of-sale device — allowing informal traders to sell digital goods such as electricity and mobile airtime. The startup tracks sales and can connect traditional micro-retailers with financial service providers for loans and credit.
Data collection: Nomanini’s data is collected from prepaid services or bill payments such as airtime and electricity. It analyses transactions and unlocks credit flows from financial institutions. According to Standard Bank, with only prepaid airtime data, they can calculate the risk and create a financial profile for an informal trader.
Finance gap: Micro, small, and medium enterprises (MSMEs) face a $5.2 trillion funding gap, according to the IFC. Cash strapped informal traders struggle to stock sufficient inventory. Stock-outs create many unhappy customers — missed sales and often lost customers.
Cash based: The majority of retail transactions in Sub-Saharan Africa are cash-based and occur in informal retail channels, according to IFC research. As they mostly trade in cash, financial institutions don’t typically work with small retailers, as they have no financial footprint to determine their creditworthiness. Assigning a credit score is difficult and extending a loan is risky.
Nestle partnership: According to Bruno Olierhoek, Chairman and Managing Director of Nestlé ESAR, Africa is one of the fastest growing retail markets and the potential lies firmly within traditional trade or the informal retail market.
Nestle plans to leverage Nomanini’s technology to unlock business opportunities, drive economic growth, create jobs, and improve ways of doing business in the informal retail sector.
According to Vahid Monadjem, CEO and Founder of Nomanini, Nestlé will be able to provide informal retailers much-needed access to working capital — allowing them to stock a wide range of products and reducing stockouts. Nestle will provide the capital in the form of physical stock rather than cash.
4. Other news
Kirana stores: Kirana King in India aims to modernise the traditional neighbourhood stores or kiranas, with its retail-as-a-service RAAS software. The model enables store owners to digitise their processes and provide consumers with a more organised shopping experience.
Jumia logistics: Jumia is looking to spin off its logistics business and enter new countries. It has opened its African logistics network to third parties — reducing costs and helping to negotiate better prices with shipping companies. The company has also benefited from a reluctance so far by industry giants Amazon and Alibaba Group to expand in African markets.
Fresh produce platform: South African startup Nile has launched a tech-enabled sourcing platform that facilitates wholesale trade of fresh produce — connecting farmers directly with buyers. The B2B ecommerce platform aggregates the supply chain across the SADC region and provides buyers with high quality fresh produce at transparent prices.
Nigeria retail: A look at how TradeDepot is transforming Nigeria’s retail landscape. TradeDepot is a B2B distribution platform that connects FMCG companies with micro-retailers in Africa. The company is servicing a network of more than 40,000 informal retailers in Nigeria.