Pinduoduo’s Consumer-to-Manufacturer Model Helps Brands Domestic Sales During Pandemic
COVID-19 changed everything. For a number of China’s export-dependent manufacturers, the pandemic was a big blow as some Chinese companies saw their export orders had decreased greatly.
But for Zhejiang Sanhe Kitchenware Co., it hasn’t been that affected because of its preparation for domestic sales since two years ago.
Sanhe is one of Europe’s biggest cookware producers through its collaboration with brands like Germany’s Zwilling J.A. Henckels and WMF, France’s Le Creuset, Italy’s Bialetti and Tescoma. The company, which also sells under its own brand name Sanho, manufactures more than 25 million pots and pans a year.
Back in late 2018, e-commerce platform Pinduoduo (PDD) launched a “1,000 New Brand Initiative,” helping the growth of China’s small, medium and micro manufacturing enterprises. Sanhe was one of the first batch of companies to sign up for this initiative.
PDD told local news that they discovered a number of platform users were price-sensitive but not brand-sensitive. Correspondingly, they embarked on the road of fostering and incubating brands.
The next year, PDD worked with Sanhe to develop a multipurpose pot for the domestic market with the same craftsmanship and quality as its export models, but at a lower price of 99 yuan ($14) per piece.
PDD also provided market insights into consumer preferences such as functionality, material, color, as well as analysis by age, gender and spending power. These insights helped with research and development as well as inventory management, according to Sanhe.
“Foreign trade companies are often faced with supply-side, demand-side, and distribution-side issues when they switch to domestic sales,” said Hu Xiaopeng, a researcher at the Institute of World Economics at Shanghai Academy of Social Sciences.
“They don’t know who, what, and how the products are sold. The positioning of products and brands, and the formulation of differentiation strategies, can effectively give play to the advantages of production and price, and finally form the brand and scale effect.”
The 99-yuan pot was a hit and Sanhe’s daily orders surged from about 6,000–7,000, to more than 100,000 during big promotional events. Sanhe’s overall domestic sales climbed 108% in 2019 with the help of e-commerce platforms.
Domestic sales for Sanhe usually contributed 30% to total sales before the coronavirus but have doubled since the second half of February, as demand for cookware surged with more people eating at home.
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“Thankfully, the growth in domestic sales helped partially compensate for the drop in exports,” a Sanhe sales and marketing executive told local news outlet Pingwest in an April report. “Domestic e-commerce sales in particular grew quite fast.”
PDD’s consumer-to-manufacturer (C2M) model works by connecting manufacturers with consumers. The direct-to-consumer model removes inventory, logistics, total sales, distribution and other intermediaries, thus consumers can buy high-quality products at ultra-low prices.
“Under the C2M model of Pinduoduo, the factory can develop and produce in a more timely manner according to online demand, and the product development cycle is shortened by 50%,” the Sanhe executive said.
Other than Sanhe, other brands that participate in PDD’s 2018 initiative include Songfa ceramics, Chongqing Baiya diapers, Anhui Fuguang thermos cup, etc.
According to PDD data, as of the end of 2019, 106 companies had officially become members of the new brand initiative, more than 900 companies participated in the C2M customized production, cumulatively launching more than 2,200 customized products, and more than 115 million orders.
In May, PDD launched a campaign to promote these lesser-known factory brands to its more than 600 million users. PDD also livestreamed tours of these factories, offering consumers a behind-the-scenes peek at how the products being offered were made.