23 | February | 2019 | Consumer Value Creation

Introduction
Founded in 2012 by Azmat Yusuf (Tanasoiu 2018), Citymapper is a UK-based company which aims to transform the transportation industry. Through its application, Citymapper helps its user navigate a given city’s transportation grid and provides users with the ability to search for the desired destination, after which the app displays a number of travel itinerary alternatives. Since its inception in 2012, Citymapper has grown internationally and currently operates in 39 cities around the globe (Citymapper 2018). The company creates value for its user by providing them with a travel companion that generates personalised travel options.

But can the consumers become of more value for Citymapper by creating value other than Citymapper capturing their value through the search engine?

Current business model
Citymapper’s currently offers value in the form of efficiency and usability to the users of its transit application. The company exploits its current IT infrastructure, collected data and easy to use user interface to deliver digital content to consumers. On the digital business model framework (Weill et. al 2013) Citymapper’s business design and knowledge of the end customer most closely correlate with the supplier business model.

Citymapper currently gathers partial knowledge of the end users such as search and location (start and end point) data (Citymapper 2018). Other data such as name, address, demographics or search history are not being collected. Therefore, the main information stream flows through the Citymapper application to the user.

Potential consumer value creation
Citymapper can capture a great deal of value by giving its users the ability to co-create value for the application. This can be done by allowing users to give inputs, that are in turn shared with the rest of the Citymapper users. In the current situation, Citymapper supplies users with information about public transport and allows users to plan their public transport trips. The urban transport information shared by Citymapper is limited to the information that is supplied by large public transport companies or private companies gathering transport data. Citymapper has the option to turn their business model from a supplier model into a two stream model.

How can consumers co-create value for Citymapper?
By starting to use one of their greatest assets they have, a large user-base. Citymapper has the possibility to crowdsource the rating system and the supply of information to their customers making it possible to better understand and support their own customers. Not only are they able to deliver more precise and real-time data on transportation and planning, but also they get more insights in the demands and needs of their own customers. A few of many options that can be crowdsourced are listed below.

– The crowdedness of the vehicle
Users could indicate the crowdedness of a particular vehicle signaling that there are no seats available, encouraging users to opt for a different train. Other users could be notified while they are still at home about the crowdedness of the trip, and come prepared, saving them from the surprise of a crowded train, which is one of the greatest pain point related to public transport, according to Fellesson and Friman (2008).

– Unexpected delays during the trip
Users could indicate unexpected events that would delay the trips. This live information can be sent to other users, notifying them that the vehicle will be running late, and suggesting an alternative trip. This is all done much quicker than first having to signal the transit company, which in turn must notify users through the rail stations.

– Supplier reliability & comfortability
Users could rate transportation providers on their service, both looking at reliability and comfortability. By rating cleanliness, politeness of the driver and price/quality consumers get insights in the overal quality of the transportation modes. This would help other users to select their company of choice.

By gaining more knowledge on what the users, both as a whole and individually, like and demand recommendations can be given. For example, someone who never uses the bus does not want to have the bus in their itinerary. By receiving ratings of services, crowdedness and delays better recommendations can be made. Even more interesting, customers create recommendations and insights for other users, creating a C2C environment.

In order to improve the customer experience for Citymapper users, an in-app payment system could be introduced as well as a ticket management feature. These additions to Citymapper’s value proposition effectively introduce two additional steps in a typical user journey: Once a given user has gathered the desired information regarding his public transport itinerary, instead of leaving the Citymapper ecosystem, the user is given the option to directly purchase the tickets corresponding to the selected journey. Furthermore, once the ticket purchase is completed, tickets are stored within the ticket management feature of the new Citymapper app. This enables the user to remain within the company’s ecosystem throughout the physical public transport journey, using the app as a digital ticket. Overall, the addition of in-app ticket purchase coupled with the ability to use the app itself as a digital ticket greatly improves the overall customer experience while increasing the time a given user spends within the Citymapper platform.

Additional options
Multiple other options open up when turning Citymapper into an open platform environment. By adopting one of many other open platforms for ride sharing and including them into the transportation itinerary would really turn on consumer value creation. Imagine the option to join someone in the car, scooter or motorcycle for a part of your trip. Think of what would happen when Citymapper includes Blablacar, Snapcar, Felyx, Lime, Mobike, Car2go and many others in their system. The options to travel from A to B would become endless.

References:

Citymapper (2018) Making Cities Usable. Citymapper.com. Available at: https://citymapper.com/company?lang=en

Crunchbase, 2018. Available at: https://www.crunchbase.com/organization/citymapper-limited#section-investors

Weill, P. and Woerner, S. (2013). Optimizing your digital business model. MIT Sloan Management Review, 54(3), pp.71-78.

Fellesson, M. and Friman, M. (2008). Perceived Satisfaction with Public Transport Service in Nine European Cities. Journal of the Transportation Research Forum, 47(3), pp.93-103

Context

The Chinese e-commerce market is dominated by large players such as Alibaba and JD.com who hold nearly 75% of the total market share. Newer players often struggle to enter the market due to intense competition, but a new player called Pinduoduo has managed to claim the third spot in the e-commerce market and is the fastest growing e-commerce app in China (see figure 1 and 2). In a short period of time, Pinduoduo acquired a market share of roughly 5% (Financial Times, 2018) and achieved 100 billion RMB annual merchandise sold in two years after launch (Graziani, 2018). Data from December 2017 indicate that 50% of all users that uninstalled Taobao (owned by Alibaba) moved to Pinduoduo (Dailypanda, 2018), marking Pinduoduo is a potential threat if left unchecked.

Figure 1. Average Monthly Active Users (MAU) from March 2017 until June 2018. Retrieved from: Financial Times (2018).

Figure 2. Largest Chinese e-commerce App by Monthly Active Users (MAU) in January 2018. Retrieved from: Graziani, T. (2018)

Introduction – Pinduoduo and its business model

Pinduoduo was found in September 2015 in Shanghai by former Google engineer Zheng Huang and is a third-party social commerce platform that focusses on connecting manufacturers, suppliers and retailers with end-consumers in the B2C market. The platform earns revenue from collecting commission fees and online marketing services including advertising. Pinduoduo’s platform distinguishes itself from its competitors by providing users the option to conduct “team purchases”. The concept of team purchase is similar to Groupon’s “group buy” (see blogpost of Hsuchiachenjenny (2014) for a brief introduction). Users can invite friends through other social media platforms to create a “shopping team” and order discounted items together in bulk (see figure 3 and 4). Team purchases allow consumers to receive discounts as much as 90% off on products ranging from T-shirts to smartphones. The platform sold more than 4.8 million umbrellas at 10.3 RMB (1.51 USD) per piece and 6.4 million units of tissue paper at 1.29 RMB (0.19 USD) per box (Lee, 2018). Users mainly benefit from Pinduoduo due to getting products at a lower price, while suppliers are enabled to benefit from reducing inventories and generating revenue from aggregation of demand.

Figure 3. Steps to conduct team purchasing at Pinduoduo’s platform. Retrieved from: Fung Business Intelligence (2018)

Figure 4. Pinduoduo’s interface. Source: Fung Business Intelligence (2018)

Pinduoduo’s unique value: user engagement – more than just financial stimuli!

Pinduoduo uses financial stimuli to encourage consumers to help them expand the user base. For instance, convincing one person to install the app and sign in with WeChat will be rewarded with a box of candy and convincing nine people will grant you 1.3 kg of nuts (Graziani, 2018). While financial incentives motivate people to act, academic research (Burtch, Hong, Bapna & Griskevicius, 2018) argue that including social norms are more effective at motivating intensive effort. The social norms refer to “the prevalence of a behavior in a relevant population, such as the number of individuals who already have written reviews” (Burtch, Hong, Bapna & Griskevicius, 2018). Their study pointed out that financial incentives encourage people to write product reviews, while social norms are better to stimulate people to write longer reviews. A combination of financial benefits and social norms are posed to be the best driver of quantity and quality of writing reviews.

Drawing the link with Pinduoduo, we see that the company incorporates the concept of social norms in its business model. Pinduoduo’s application is gamified and includes a public leaderboard that ranks people based on the money they have made out of inviting friends and displays the number of friends they invited. This aspect allows its users to compare themselves with other people and creates a social motivating factor that goes beyond a mere financial stimulus. The appeal of Pinduoduo lies not merely in its low prices but comes from the satisfaction and the pleasure one receives from getting a good deal (Pandadaily, 2018). Therefore, the inclusion of a social motivating factor alleviates its dependence on the constant input of money to incentivize its users. Instigating users to act as brand ambassadors motivated by both financial and more importantly social benefits is a major success factor that allowed Pinduoduo to establish a large user base in a short period of time.

Are Pinduoduo and Groupon the same?

At the time Groupon emerged in 2008, social media and mobile was less entangled with people’s daily lives than in the current situation. Desktop usage, email newsletters, and credit card payments posed limitations on Groupon’s social commerce potential. In 2013, Groupon has dropped its group buy feature and has lost its status as a social commerce platform. The main difference with Groupon’s business model is that Pinduoduo’s business model leverages the social ecosystem in a more effective way. Tencent has been a principal shareholder of Pinduoduo since February 2017 and facilitated the integration of Pinduoduo’s platform with its own social media. Integration with WeChat (an all-inclusive social media app sharing characteristic of Facebook, Twitter and Whatsapp with Paypal functionality) allows fast and real-time communication between users and enables users to make payments with little effort. At this point of time, it is evident that Pinduoduo has surpassed Groupon’s ability to leverage the social ecosystem to establish the consumer base that it has now.

Figure 5. Difference between Pinduoduo and Groupon in user engagement.

The challenges ahead

Viewing Pinduoduo’s success in motivating users to spread the word and persuade their friends in using the app, the company however reported an annual loss of 525 million RMB (77.5 million USD) in 2017 (Fung Business Intelligence, 2018). The current strategy is focused on a push strategy and faces high costs in building brand awareness of the platform. The platform is however plagued with fake products similar to its rival Taobao and JD.com (Lee, 2018). Other questions concern to what extend product suppliers are willing to tap into the platform, as the platform highly focuses on price and pays little attention to brand awareness of its suppliers (Fung Business Intelligence, 2018).

Summary

Pinduoduo raises the traditional e-commerce platform to the next level by incorporating social media. Users may benefit from getting lower prices for products, but in return need to find friends to join them. The platform also encompasses social norms (e.g. public ranking system) for users to expose themselves and improve community building, while simultaneously gamifying the concept and adding a fun aspect. While the ability of its business model is rather successful, there are challenges that it needs to overcome to guarantee the sustainability of its business model. This is however a topic for another discussion.

Sources

Burtch, G., Ghose, A. and Wattal, S. (2013). An empirical examination of the antecedents and consequences of contribution patterns in crowd-funded markets. Information Systems Research, 24(3), pp.499-519.

Financial Times (2018). Ex-Google engineer set for big payday after Pinduoduo IPO. Retrieved from https://www.ft.com/content/05408022-8a2b-11e8-b18d-0181731a0340

Fung Business Intelligence (2018) Group-buying platform – Pinduoduo. Retrieved from https://www.fbicgroup.com/sites/default/files/CNE_Pinduoduo.pdf

Graziani, T. (2018) Pinduoduo: a Close Look at the Fastest Growing E-commerce App in China. Retrieved from https://walkthechat.com/pinduoduo-close-look-fastest-growing-app-china/

Hsuchiachenjenny (2014) Business case Groupon. Retrieved from https://consumervaluecreation.com/2014/05/18/groupon/

Lee, E. (2018) https://techcrunch.com/2018/07/26/the-incredible-rise-of-pinduoduo/

Pandadaily (2018) Alibaba’s Worst Nightmare: Pinduoduo Becoming the No.1 E-commerce App in China. Retrieved from https://pandaily.com/alibabas-worst-nightmare-pinduoduo-becoming-the-no-1-e-commerce-app-in-china/

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