Why is it so hard to copy Pinduoduo / Temu

These excerpts are translated from an article published in Chinese by Cheng Chunxiao of Societybottom.

You can also refer to Momentum Works’ “Who is Temu” report for structured analysis and insights about the company. You can also read our book “Seeing the unseen: behind Chinese tech giants’ global venturing” for more case studies, analyses, and reflections. 

In the current Chinese ecommerce landscape, learning from Pinduoduo has become a new trend.

The reason is simple: in the standard products ecommerce battlefield, JD.com was defeated by Pinduoduo; in the community group buy arena, Meituan Select (美团优选) was beaten by Duoduomaicai (多多买菜). Now, in the global ecommerce battlefield, Temu seems to be replicating this victory. 

Consequently, we see:

• At the user strategy level, both JD.com and Meituan have adopted low-price strategies.
• At the merchant strategy level, both companies have restarted the mass introduction of new suppliers, abandoning the previous approach of forming long-term collaborations with carefully selected suppliers, and instead letting more suppliers participate in the competition.
• At the organisational strategy level, JD.com officially implemented a long-considered ‘big boss’ organisational change in 2023, delegating authority to front-line units; Meituan’s once-prided business analysis system (经分、商分体系) became the scapegoat, with recent massive layoffs to allow more closed-loop decision-making in operations. 

Note: Meituan emphasises the business analysis system to aid its business decision-making. For instance, according to LatePost, Meituan has assembled a business analysis team of over 400 people to conduct meticulous research for its Meituan Select business.

Learning from the successful and gaining courage from shame is inherently good. 

However, if companies mechanically copy without considering the fundamental premises behind them, they might fail even faster. 

Behind Pinduoduo’s strategy are three fundamental premises:

1. Low prices have to go hand in hand with quality assurance.

Pinduoduo has a comprehensive product quality assurance system. This is attributed to its long-standing experience dealing with products of low prices, and perhaps also to the team’s experience in self-operated fresh produce. 

1) Sample review stage. When engaging third party sellers (or termed ‘POP model’, which stands for Platform Open Plan), Pinduoduo and JD.com operate very differently. On Pinduoduo, sellers need to send samples for all products involved in promotional activities and bidding, which is not mandatory for JD.com.

2) Quality inspection stage. Pinduoduo doesn’t stock goods, so it can’t perform quality checks. However, it’s surprising that JD.com, despite its self-operating model and warehousing, doesn’t have a quality inspection stage. Duoduomaicai and Temu take quality inspections very seriously (For example, Temu has strict detection rate requirements for quality inspectors, which cannot be lower than a certain value).

3) After-sales stage. The Pinduoduo ecosystem overall has much stricter penalties for merchant quality issues compared to other platforms. Since Pinduoduo implemented the provincial leader system in Duoduomaicai, the company has swiftly transitioned from a centralised system to a model of decentralisation. However, customer experience and merchant penalties have never been delegated to the front line but are tightly controlled at the group level. In contrast, JD.com and Meituan actually give much more say to their procurement teams.

2. The ability for suppliers to compete is based on incremental market (new or additional demand or market opportunities generated beyond the existing market).

There are two types of incremental markets:

1) Incremental parts of old merchants. These are merchants already operating on traditional ecommerce platforms like JD.com and Alibaba. When they work with Pinduoduo, they consider marginal costs and benefits since fixed costs have already been shared with traditional platforms. They can endure lower gross profits (on Pinduoduo). But if JD.com were to do the same as Pinduoduo, merchants might start considering their entire operation on JD.com as a single account, obviously not tolerating the same low profits.

2) New merchants who hadn’t entered the game before. This is about lowering entry barriers, allowing more merchants in, and providing them with good merchant tools to ease complexities in sellers’ operations. Pinduoduo is clearly doing better in this regard, with a very smooth entry process and simple, easy-to-understand overall merchant operating tools.

3. The ability to delegate authority is based on the ability to maintain control.

The struggle between keeping things centralised and giving more power to others is always a challenge in team management. JD.com was also in a more decentralised state in its early years, with front-line units fighting battles. After issues of corruption emerged, the center started to pull power back. 

Now, facing Pinduoduo’s impact, they’re decentralising again, mimicking Duoduomaicai’s “provincial leader” system.

If delegation is not paired with proper control mechanisms, it could lead to corruption or even uncontrollable situations, clashing violently with public objectives.

There are several methods of control, all of which Pinduoduo excels at:

1) Information transparency. A paradox is that the more business analysts a company has, the less transparent its information may be. Pinduoduo has very few business analysts. It focuses on underlying data construction, with everyone in the company using the same set of data, avoiding layers of data analysis and interpretation that can distort reality. Pinduoduo never creates a special dashboard just for the boss.

2) Supervisory mechanisms. Pinduoduo has a very comprehensive system for mutual supervision and reporting. On one hand, the product procurement team promotes integrity reporting email addresses to merchants daily through social circles; on the other hand, internally reporting and pointing out issues of anti-corruption can be included in performance assessments.

3) Control from the top down. Pinduoduo’s so-called delegation of authority goes, at most, to the provincial heads. People at this level have their stock options deeply tied up, and they also have high incentives, such as the possibility of receiving tens of millions in rewards if they win under the “horse racing” mechanism (i.e.: Pinduoduo will assign the same project to different teams to execute, and judge the abilities of each team based on the final results, with losers being eliminated). This demonstrates a strong top-down control. If a person isn’t highly motivated and is only burdened with more responsibilities, then their natural best choice is to do nothing.

4) Culture and trust. Trust is the biggest dividend in business growth. In businesses like ecommerce which require strong execution, having trusted insiders is crucial. The core people to whom Pinduoduo delegates authority are all “time-tested insiders” who have been with the team for a long time. In contrast, how many of the “big bosses” / leaders at JD.com and Meituan are truly trusted people of the founders? As for Meituan, after people like Wang Huiwen left, the real insiders for Wang Xing might be those in Finance and Commerce, who, unfortunately, have all been laid off.