Is Yunji a pyramid-marketing company?

After years of controversies, Yunji (Nasdaq: YJ) – a ‘leading social ecommerce platform in China’, has finally completed its IPO.

While many found it already challenging to understand the model of Pinduoduo (Nasdaq: PDD), Yunji seems to be even more puzzling. It has faced a number of hurdles with regulators in China and has been subject to hefty fines before.

However, what exactly is its S2B2C model? 

The model is often attributed to Ming Zeng, Chief Strategy Officer of Alibaba. S2B2C stands for “Supplier to Business to Consumer”, basically flattens the chain of any consumer good from the factory to the hands of consumers.

The “B” here are often individuals who actually sell the goods through ecommerce platforms, social media and other channels where it has direct reach to consumers. Yunji solves the upstream supply chain and downstream logistic issues for the small sellers, allowing the latter to focus on the business of actually selling.

A crucial part of this success is the fact that the sellers No Longer have to worry about inventory.

All about timing

The first general of social selling collapsed when the inventory levels of the sellers became no longer sustainable – resulting in mass closures of shops and the sudden availability of sellers who are looking for low-cost means to restart a business.

Yunji seized this opportunity very well. With a sudden surge of sellers, its ranks of members started swelling very quickly.

Pyramid marketing?

Yunji faced some fines by the government in China because of a pyramid scheme they used in the beginning. However, pyramid schemes are omnipresent in China, although it is mostly illegal.

Yunji’s membership and incentive schemes are fairly sophisticated – in the past, it had multi-level of incentives, which sparked the government’s crackdown. However, this risk has largely been mitigated.

In fact, with the current crackdown of offline pyramid schemes, many of the sellers and multi-level marketers are suddenly out of work – this could provide another fertile ground for Yunji or its competitors/copycats to recruit new ranks.

Not Costco

Yunji and a few other companies running similar models often position themselves as the Costco of China. In fact, aside from a membership scheme, none of them is similar enough to Costco.

For example, Yunji’s product selection is not necessarily the best value for money – in fact, its price is not always competitive: often, it is more expensive than big ecommerce platforms such as JD and Tmall. Its social advantages help it sell well.

That said, Chinese ecommerce players are known to be agile and flexible with their business models. And we would not be surprised if we see more interesting innovations coming out of Yunji and its copycats very soon.