There is nothing the Chinese like more than a bargain. A trip to the local wet market today will still find people haggling over anything from the price of live fish to an extra stalk on the green onions.
But bargain-hunting just got easier. Tuan gou, or group buying, has become the latest shopping fad in many major cities. The idea is that the group can get a better discount from the vendor if they buy in bulk. Group-buying websites persuade businesses to offer an online discount on the condition that a certain number of customers commit to the offer. If a predetermined minimum is not met, no one gets the deal.
The idea of group-purchasing sites comes from the hugely popular US website Groupon (the name is a blend of “group” and “coupon”), which was launched in 2008. Although the first Chinese copycat didn’t appear until the beginning of this year, there are currently more than 1,200 group-buying websites now vying for business, says the China e-Commerce Research Centre.
Tuan gou is increasingly popular. In July alone, group-purchasing sites attracted 46.3 million visitors, or 19% of the total number of China’s online shoppers, says Shanghai-based research firm iResearch. Many of the tuan gou deals are for non-essential items. The most frequently offered products are coupons for restaurants, yoga and dance classes, spa and dental clinics.
Some sites also offer big-ticket goods. Taobao’s group-buying platform Juhuasuan recently launched a promotion with Mercedez-Benz and sold their quota of 200 Smart cars within four hours of the offer being announced. Car-buyers paid a deposit to get a 34% discount on the price of the vehicles.
So how do the deal sites make money? They do so by charging the participating merchants a commission for each booking. “In the US Groupon charges a 50% commission. As a start-up, we charge only 20%,” Li Ning, chief executive of ftuan.com, one of the largest Chinese deal sites, told China Newsweek. If insufficient people sign up for a groupon to take effect, neither the website nor the merchant makes any money.
But that doesn’t seem to be a problem in a country full of bargain-hunters.
“The first two months was crazy,” Wang Xiaoxiao, a user, told the South China Morning Post. “On average I bought three items every week [from group-buying sites], no matter whether I truly needed them or not. When I saw a 60% or 70% discount, I felt I’d lose a real bargain if I didn’t buy,”
Some merchants lose money by offering such low prices on the group-buying sites. But businesses are eager to participate because the deals bring an influx of new clients, at least some of whom will become repeat customers. A recent offer on nuomi.com offered coupons to Southern Beauty, a high-end Sichuan restaurant chain. Hundreds of people signed up, instantly growing the chain’s customer base.
“The purpose of the deals is advertising rather than selling,” says Chen Shousong, an analyst at Beijing-based consulting company Analysys International.
Competition among deal sites can be intense as new entrants tout for business. The Shanghai Daily reckons that as many as a third will go belly-up, not least because they are being forced to engage in price wars to attract merchants by charging little or no commission.
Meanwhile, the company that started the frenzy, Groupon, recently announced that it is making its first foray into China after its success in the US and Europe. It is in talks with several mainland group-buying sites looking to form a joint-venture. China News Service says the US firm is most interested in Lashou.com, already ranking first among homegrown peers in terms of traffic, sales value and brand influence.
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