Group buying in China

14May2014

Market Overview

Only seven months after American Group-buying website “Groupon” launched, it got the welcome of the capital market relying on its clear profit model, rapid geographic expansion and powerful financial support. Under the influence of “Groupon”, the group-buying network in China got rapid development with all kinds of group-buying websites are online. According to China market reports, the number of current websites has grown to more than 1000, and the market competition is increasingly fierce. A recent report from tuan800.com, a leading group-buying service navigation site in China, says that more than 2,000 of the sites in China closed in the past year. The top 20 sites occupied more than 96% of the overall market share, leaving 3,800 smaller players fighting fiercely for the remainder. Because big homogeneity exists in market of group buying in China, some people think that an industry shuffle is coming. In the competition, different resources that the websites have become the important factors that decide the success or failure.

A Successful case of group buying in China: Nuomi

Nuomi’s revenue reached $5.14 million in the first quarter of 2013. It jumped by 102% compared with the first quarter of 2012, and Nuomi generated $31.7 million in gross margin in the second quarter of 2013. According to the data from tuan800, Nuomi’s sales revenue reached 730 million yuan ($119 million) in the first quarter of 2013, ranking fourth in group-buying websites in China.

Business model

On June 23, 2010, The Xiang group launched Nuomi and entered the competition among group-buying websites. Nuomi is different from other group-buying sites because it never charges any promotion fee to cooperation merchants. On the contrary, it has a set of stringent standards to choose cooperation merchants, to ensure that the business goods and services provided are of high quality, cost-effective, innovative, and representative.

Reasons of success

Nuomi’s products have been set after strict consumer research and are well-adapted the the demand in China.
Nuomi depends on powerful social net of Renren
Nuomi combine online resources with offline resources well

Key Factors of Success for Group buying in China

Whether a company is successful or not, the key point is to see how profitable it is. For group-buying websites in China, a great extent profitability depends on how many resources does the company have. Therefore resources become the key factors of the group-buying websites’ success. In fact, the resources a group-buying company has now can be roughly divided into two categories: online and offline resources.

Online resources

The brand website

A well-known website platform often get more trust from group-buying consumers, similarly, a website that organizes group-buying always successfully will also be able to get more attention from consumers.

Product resources

The foundation of group-buying operation is to use the accurate products to attract a large number of customers. It is difficult for the goods to be standardized; it is possible that the goods or services provided are not meeting the consumers’ need. For group-buying websites, one of its survival power is the products or services provided.

User resources

For general group-buying websites, the consumer groups pursue very low price and fresh experience. Those consumers have rich online shopping experience, very sensitive to price and have low loyalty to the group-buying website. Whether the website can develop or not, the key point is to see if there are enough core users and a steady stream of new users. To ensure the increase of consumers, it is very necessary to strengthen marketing promotion so as to build the group-buying company’s own core customer group.

Offline resources

Capital

The group-buying websites should expand their business in different cities, accumulate merchants and consumer resources. In the process of expansion, the websites need to devote a large number of human and material resources, which can’t depart from the support of capital.

High quality merchants

Most of the websites get trouble in exploring high-quality merchant’s resources. On one hand, due to the limitation of market capacity and profit space, it is difficult for merchants to cooperate with websites for many times in a period. No matter what the purpose of the merchants to cooperate with websites is, experience of new products, meager profit but high turnover, or word-of-mouth are not the long-term marketing ways of merchants. On the other hand, the product diversity cannot meet merchants’ need, so the websites cannot provide the same goods or services to consumers in a short time, which lead to low utilization rate.

Offline team

The offline development threshold of group-buying websites is high. The obtainment of offline high-quality merchant’s resources, the construction of professional negotiation team and follow-up tracking service are key points to improve the capacity of group-buying websites operation. The above need powerful offline resources to support. With the gradually development of website, the demand of number and quality of offline team is much higher.

A good offline team should do as follows. Firstly, choose merchants considering consumers’ need. For example, when most consumers of the website are female, then female products will be paid more attention. Secondly, choose high-quality merchants. Thirdly, offline team is also responsible for tracking the quality of business service provided by merchants. A good offline team would experience the service before the start of the group-buying, and track the user in the whole process.

Amy Wang, Market Research China

http://www.nytimes.com/2001/01/15/business/mobshop-a-group-buying-site-drops-its-consumer-business.html