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September, 2018

Pinduoduo renounces sale of counterfeit goods

Original article: Cn.yes

Chinese e-commerce startup Pinduoduo is moving to stamp out counterfeiting on its platform, company executives say. The Shanghai-based startup has been forced to address the problem following an investigation by government regulators. 

Analysis:

Pinduoduo remains in damage-control mode. In the quarter ended June 2018, the company recorded a net loss of 6.5 billion yuan, far worse than the loss of 109.5 million yuan a year earlier. Pinduoduo attributed the loss to high operating expenses from sales and marketing efforts and employee share-based compensation costs. 


Yet the company's business model, which relies on selling dirt-cheap goods in volume to groups of low-income Chinese consumers on social media, has always been shaky. Even if robust demand exists for RMB 8 clothing or RMB 10 umbrellas, delivering an authentic product that meets even minimum quality standards is challenging. 


Just because some Chinese consumers are low-income, that doesn't mean they want to purchase rubbish products. Citing data compiled by China's E-commerce Research Center, a July Tech Crunch article notes that user satisfaction rating on Pinduoduo is just one star, while the percentage of transactions involving complaints is nearly 18%. 


The company founder's vision is also questionable. Ahead of Pinduoduo's July Nasdaq listing, Colin Huang wrote: "If you close your eyes and visualize the next stage for Pinduoduo, it would be a combination of ‘Costco’ and ‘Disneyland’, driven by a distributed network of intelligence agents." 


We would describe it more as a combination between the $1 Store and Window to the World, that Shenzhen theme oark known for housing tacky replicas of the Eiffel Tower, Leaning Tower of Pisa and Mount Rushmore, among other famous monuments. 


We make that comparison because Pinduoduo is rife with bottom-of-the-barrel fake goods and knock-offs. Need a "Samsong" handset for RMB 500? Or how about a "Xiaome" phone instead? 


If we're to believe the words of Pinduoduo's leadership, they're serious about tackling the fake-goods problem. Hopefully, they're more serious than Amazon or WeChat, or at least as serious as Alibaba. 


In Q2 earnings call, Pinduoduo founder Colin Huang said the company is staunchly fighting counterfeiting on its platform. He said that in 2017, the company removed 10 million infringing listings and and 40 million misleading links. Pinduoduo cooperated with more than 100 brands in the battle against counterfeiting, "forcing the closure of more than 1,000 online stores within a week." 


Following the launch of a government probe into allegations of fake-goods sales on Pinduoduo, the company established a strict merchandise review system - a first for a Chinese e-commerce firm, Huang said. 


"The fight against counterfeiting is indeed a tough one, but we we will not give up," Huang said, acknowledging that "public opinion on social media and government pressure have had an impact" on the firm's business. Huang said that he and his colleagues have reflected deeply on the counterfeiting problem on Pinduoduo. "It's unavoidable [that counterfeiters will flock to Pinduoduo] and we should face the problem squarely," he said. 

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