On July 20th, Pinduoduo posted a promotional advertisement on its homepage. 

The push shows that the flagship store of YiAuto on Pinduoduo launched the “Tesla China Model 3 2019 Standard Endurance Rear Drive Upgraded Edition” 10,000 people group purchase activity, and declared “10,000 people group price ¥251,800”.

The starting price of the car on Tesla’s official website is 291,800 yuan (42,187 USD), which means that buying on Pinduoduo can save 40,000 Yuan (5,783 USD).

In this regard, Tesla issued a statement on the same day: “Our company has not cooperated with YiAuto or Pinduoduo on this group purchase, nor has any form of entrusted sales service, nor has it sold any to them for this event. Our company produces vehicles.”

However, consumers did not seem to care about Tesla’s official statement. On July 26, the group-buying activity officially began. In the end, 5 users grabbed the qualification to place an order and then asked Pinduoduo’s group-buying organizer YiAuto. Merchants fully paid more than ¥250,000 in-car purchases.

Then things changed unexpectedly.

On August 15th, one of the “lucky guys” of the group purchase was refused by Tesla to deliver the car because he mentioned to the Tesla staff that “the car is paid by the staff of YiAuto”. This violates the “No Resale” clause in Tesla’s subscription agreement, so Tesla chose to refuse to deliver vehicles to users.

As soon as the incident happened, it caused heated discussions on the internet. Many people believed that “Pinduoduo subsidizes users to buy cars, why does Tesla not deliver them”.

Subsequently, Pinduoduo played the emotional card again, believing that Pinduoduo subsidized users ¥20,000 to buy cars, and its car purchase process was carried out on Tesla’s official website and did not violate the “No Resale” clause. 

In the end, they mocked Tesla’s “shop bullying” saying they should actively treat consumers and express support for consumer rights protection.

Pinduoduo voicing made this incident a wave of public opinion. Netizens suddenly turned their focus from the incident itself to consumers’ bad luck, and therefore expressed their incomprehension about Tesla’s refusal to deliver. There was even news that the “lucky ones” planned to sue Tesla for the delivery of vehicles.

On August 17, Tesla officially issued an official statement on the matter, stating as follows: “If consumers are willing to re-order through Tesla’s formal channels, we will provide corresponding compensation for the loss of time and energy incurred by consumers.”

Legal or illegal?

Pinduoduo teamed up with YiAuto in this group buying event. First of all, Tesla did not authorize and entrust it. Secondly, only 5 users can place an order for the entire group purchase, so in name Tesla can pursue Pinduoduo for “trademark infringement” and “false publicity”.

But the problem is that Pinduoduo’s showcased product is indeed a genuine Tesla vehicle, so “trademark infringement” is not mentioned; in addition, there is no mention of cooperation with Tesla in the poster leaflet, so “false publicity” is also difficult to be identified.

In essence, the group buying activity itself does incur clear “illegal” behavior.

However, the group purchase, from the surface, looks like “When users buy Tesla vehicles, Pinduoduo and YiAuto will subsidize ¥20,000″, but it is actually equivalent to “Pinduoduo and YiAuto buy Tesla at a regular price. Take vehicles and sell them to consumers by taking ¥20,000 off.

In terms of rules and operations, Pinduoduo’s group purchase did not touch the “resale” clause, but in terms of actual results, Pinduoduo did not produce the vehicle and secondly sold Model 3´s without the authorization or commission of Tesla (going against their direct sales model). In essence, Pinduoduo’s “250,000 yuan purchases of Tesla Model 3” is a typical free-riding behavior. 

The entire group buying activity can be summarized as follows: Pinduoduo and YiAuto spent ¥100,000 (5 cars, ¥20,000 subsidies for each car), they used Tesla’s name to get consumer traffic and many consumer information; the YiAuto car company is known by the market and appears in the public eye as “selling vehicles at a good value, below market place”; consumers have wasted time, energy and cost, and may even end up unable to get Pinduoduo’s ¥20,000 subsidies; Tesla has been unreasonably condemned by the “Netizens” and will eventually pay for Pinduoduo and give users a certain amount of compensation.

This means that Pinduoduo used a subsidy of ¥100,000  to successfully complete a brand marketing promotion and once again brought huge traffic and attention to itself.

In Tesla’s direct sales system, the biggest advantage is “taking-out the price difference of all middlemen, saving consumers a lot of time and cost when buying a car”, allowing consumers to experience and understand the vehicle at any store. A unified price takes 5 minutes to complete for a car purchase online. But this time Tesla met a “master of marketing tricks” that made them fall into a whirlpool of public opinion.

Tesla, Pinduoduo, who is the winner?

So let’s go back to the incident itself. What will happen if the court finally decides that Tesla loses?

Under this result, it is determined that Pinduoduo’s behavior is reasonable, which means that Pinduoduo can free-ride on major brands in the future. Previously, Pinduoduo had taken similar actions to many well-known brands such as LA MER, Dyson, and Apple, but in the end, they did not enter the forefront of public opinion like Tesla.

Now, if Pinduoduo is supported by the court by being ready to fall just to claim compensation fromTesla, then Pinduoduo will be able to disturb the distribution model and sacred pricing power of major brands at will in the future.

What this means is Pinduoduo would be able to borrow the influence of major brands in exchange for its own traffic and interests. Pinduoduo itself is based on the model of huge subsidies (losing money) in exchange for the user and GMV growth. That said, it does not generate much value by itself, but through the method of “small money to make big money”, to the capital market. Sell value and reap huge capital.

If such a model is finally recognized and protected by the law, similar gameplay will appear again. 

Nonetheless, it is a lesson for all marketers that beyond the traditional spend on digital platforms, there is a much bigger world of tactics and tricks you can play. They are usually good value for money, though sometimes in the gray area. 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].