Outsmart the giants: Lessons from Pinduoduo
"There are already several giants in this industry, how will you compete with them?" If you’re a startup founder, you've probably heard this question many times. It’s a classic investor query, and how you answer it can make or break your pitch. So, how do you carve out your niche when the market is already dominated by big players? Let’s take a page out of Pinduoduo’s playbook.
Step 1: Define YOUR Battlefield
When Huang Zheng founded Pinduoduo in 2015, the e-commerce landscape in China was already locked down by Alibaba and JD.com, who were dominating over 90% of the market, serving 400+ million out of 700+ million internet users. Competing head-to-head with them would have been like challenging Goliath with a pebble.
But Huang didn’t try to outmuscle the competition; he outsmarted them. Instead of targeting the same customer base, Pinduoduo identified an underserved group: the 300+ million internet users in China who hadn’t yet jumped on the e-commerce bandwagon, or in Prahalad’s term - bottom of the pyramid (BOP). Many of these potential customers lived in Tier 3/4 cities and rural areas, where the big players were not focusing their efforts. This became Pinduoduo’s battlefield—a niche market ripe for the taking.
Step 2: Sharpen Your Sword
Identifying your niche is just the beginning, you need a product that’s perfectly tuned to your audience. For Pinduoduo, that meant creating a mobile-first shopping experience designed specifically for budget-conscious consumers in less urbanized areas. Here’s some representative features among many:
1. Low Prices and network effect: Pinduoduo’s Customer-to-Manufacturer (C2M) model drives price down significantly. On top of that, the app encouraged group buying, where users could rally friends and family to purchase together for even bigger discounts. This approach turned shopping into a social activity, luring more and more bargain hunters to join the loop, quickly expanding Pinduoduo’s user base.
2. Mobile-First Design: Knowing that most of their customers used smartphones rather than computers, Pinduoduo focused on optimizing its app for mobile. The design was simple, with large fonts and eye-catching deals, straightforward check-out with no “shopping cart”, all to encourage instant buying and minimize the cognitive load on users who were less tech-savvy.
3. Necessities over optional consumer goods: By concentrating on essential goods like toilet paper and household items, Pinduoduo tapped into a high-frequency purchasing behavior, even for BOP customers.
4. Psychological hook: The fear of missing out is a powerful motivator, especially for price-sensitive customers. Pinduoduo’s constant notifications and time-limited discounts kept users engaged and eager to make purchases before deals disappeared.
Their strategy worked as a charm. Within just three years, Pinduoduo had attracted 418 million active users, making it a third giant in the field. But it didn’t stop there; through strategies like the "Ten Billion Subsidies" campaign, Pinduoduo started expanding its user base to include middle-class customers, eventually surpassing Alibaba in market cap by 2023.
Edge innovation isn’t limited to e-commerce. Take Red Bull, for example. The energy drink giant spotted a gap in the market for energy recovery beverages and turned it into a global empire by associating its brand with extreme sports and peak performance. 12.1 billion cans were sold worldwide in 2023.
If you’re a founder wondering how to convince investors that you can succeed despite the presence of giants, remember: define your niche, tailor your product, and don’t be afraid to innovate at the edges.
