New Chapter in Group Buying
The Ministry of Commerce allows group-buying consumers to take a "cooling-off period"
When Jia Lu came out of the cinema after watching "Guan Yun Chang," she felt it was worth it.
During the May Day holiday, this master's degree graduate from Communication University of China bought movie tickets on TuanBao.com. The original price for the movie ticket was 70 yuan, but she purchased it for only 15.9 yuan, which is equivalent to a 20% discount. More importantly, she got to see her idol Donnie Yen's latest "epic" work as soon as it was released.
This is just one scene from the lives of group-buy enthusiasts. In their view, the much-criticized high cost of movie tickets is no longer an obstacle to their viewing experience; instead, they are more concerned with which website has group-buying deals for movie screenings. Group-buying lifestyles continue, whether it’s dining at restaurants, body massages, singing at KTVs, traveling, visiting attractions... and even buying cakes, appliances, shoes, and hats through group-buying.
Group-buying lifestyle methods are increasingly permeating the younger demographic. The group-buying business model has been rapidly gaining traction on a global scale.
This year's group-buying market has shown strong growth. The American group-buying giant Groupon plans to go public by the end of this year. According to foreign media reports, Groupon will choose Goldman Sachs and Morgan Stanley as the lead underwriters for its IPO, with the company's valuation ranging between $15 billion to $20 billion. On May 3rd, it was reported that Groupon announced the acquisition of Australian group-buying site Crowdmass, a company that had only been established for 12 months. Over the past few years, Groupon has acquired several group-buying websites globally.
Under the high valuation expectations, the domestic group-buying market has also continued to heat up.
After the continuous popularity of group-buying sites like TuanBao.com and LaShou.com, domestic internet giants have also begun aggressively entering the group-buying market.
On April 26th, Dianping.com announced that it had secured over $100 million in financing and would focus on growing its group-buying business. Group-buying sites such as TuanBao.com, MeiTuan.com, 24quan, and Ftuangroup have all received tens of millions of dollars or higher levels of funding in one or multiple rounds.
Clearly, this industry does not lack "money." What it lacks is "format."
Some visible signs of format direction include TuanBao.com and LaShou.com continuously expanding their scale and planning to build their own logistics systems; services such as "anytime refund" and "expired refund" becoming standard features of mainstream group-buying websites; small and medium-sized group-buying websites focusing on niche markets... At the same time, some specialized group-buying websites have gained momentum, such as professional cosmetic group-buying sites and professional hotel group-buying sites.
Industry insiders believe that with the increase in management, service, capital, marketing thresholds, along with third-party supervision, the group-buying industry will present a new format.
The pace of consolidation will accelerate
According to a report published by consulting firm Analysys International, in 2009, the online shopping transaction volume in China rose to approximately RMB 250 billion, and the number of online shopping users is expected to exceed 100 million, meaning 28.2% of internet users shop online.
The news of Groupon going public is undoubtedly a positive development for the rapidly growing domestic group-buying market that followed closely behind. The concept of a Chinese Groupon will undoubtedly attract more attention.
When Groupon entered the Chinese market at the beginning of 2011, it drew significant attention. Its partnership with Tencent to establish Groupon China initially attracted a large number of users, but in terms of sales, it still lags behind local competitors. Feng Xiaohai, CEO of Manzuo.com, once thought that Groupon's entry into the Chinese market was not rational.
However, as an internet business model that has garnered even more attention after Facebook (social networking site) and Twitter (social networking and microblogging site), Groupon's path in China may not be as simple as it currently appears. Recently, there were reports that Groupon had contacted TuanBao.com multiple times, aiming to expand its share of the Chinese group-buying market. According to sources, Groupon has never stopped negotiating with TuanBao.com, a fact confirmed by insiders from TuanBao.com. TuanBao.com is a rapidly growing and largest-scale group-buying website that owns the two major domain names Groupon.cn and Groupon.com.cn. If both parties ultimately reach an agreement, the competitive landscape of the domestic group-buying market might change.
Industry experts believe that after nearly a year of growth, the domestic group-buying industry has become increasingly difficult to enter, and market competition has become more intense. Meanwhile, many websites lack strong user stickiness and loyalty, and many group-buying sites exhibit overheated and bubble-like conditions. Under these circumstances, it is expected that the pace of consolidation among domestic group-buying sites will accelerate in 2011.
Conditions for sharing a 10 billion yuan market
With rapid growth and deep competition, the domestic group-buying market has shifted from homogenization across various levels to showing clear differentiation trends.
On April 21st, JoyBuy closed down its group-buying stations in 12 cities, including Nanjing and Ningbo, and laid off over 100 employees. Previously, Meituan also voluntarily shut down its branches in Chifeng, Longyan, Yulin, and Ma'anshan, signaling a strategy to concentrate manpower and resources on key cities.
Some industry insiders believe that for the group-buying market in third- and fourth-tier cities, current investment costs are high, and the gap between investment and returns remains relatively large, which is a sign of industry consolidation. However, Wu Bo, CEO of Lashou, stated that this represents a difference in company strategies. Lashou still plans to increase its nationwide stations to 300 this year, and 24quan has recently opened five new cities, including Harbin.
For TuanBao.com, which already covers 368 cities, this doesn't seem to be an issue. Ren Chunlei, CEO of TuanBao.com, believes that rapid growth and scaling up are necessary for cultivating and developing the market, and also reflect the company's execution and management capabilities. Currently, TuanBao.com is the website with the most cities covered for localized services, boasting 13 million registered members.
Internet and e-commerce companies often do not profit in the early stages, but the Groupon model breaks this pattern. Groupon USA was founded in November 2008 and achieved profitability within seven months. With strong profitability and healthy cash flow, rapid growth and profitability are not contradictory, which is why it receives attention and high valuation.
According to data from the independent domestic group-buying navigation site Tuangou800's "March 2011 China Group-Buying Statistics Report," the number of group-buying sites reached 4,015 in March, with total sales reaching 515 million yuan, an increase of 26.84% compared to 401 million yuan in December 2010. According to research institution CNZZ, the domestic group-buying market size in 2011 could reach 10 billion yuan. How group-buying companies divide this pie may also be a prerequisite for strategic adjustments.
Group-buying needs calmness
Behind the continuous growth of group-buying sites, various issues during the group-buying process have also arisen. For example, poor after-sales service and fraudulent practices in group-buying (see Issue 13 of our magazine in 2011, "Group-Buying Websites Suffer from 'Integrity Disease').
On April 22nd, the Ministry of Commerce responded, officially announcing the "Service Standards for Third-Party E-Commerce Trading Platforms," encouraging online shopping enterprises to establish a "cooling-off period" system, allowing consumers to take "regret pills" during the cooling-off period. This has drawn attention from all sectors regarding the "cooling-off period" and service policies in group-buying.
Meng Fanxin, an analyst at the China Internet Network Information Center, pointed out that group-buying especially requires a "cooling-off period." Unlike regular online shopping, group-buying products feature large discounts, low unit prices, and limited-time purchases, making them more likely to stimulate impulsive consumer behavior. Therefore, establishing a cooling-off period is particularly necessary.
It is understood that currently, Meituan, Lashou, Nuomi, and others have launched "refundable if unused within 7 days" campaigns, giving consumers a seven-day "cooling-off period." Consumers can apply for refunds from group-buying sites if they haven't used the product within seven days. TuanBao.com, which introduced "anytime refund" last year, offers consumers the longest "cooling-off period," allowing refunds at any time during the entire consumption validity period.
Analysts believe that the consumption cycle for group-buying projects usually lasts several months. As long as the user hasn't actually consumed the product, there is no actual "return cost." Before settlement between the group-buying site and the merchant, the amount can simply be refunded to the user's account. Thus, group-buying sites are suitable for setting longer "cooling-off periods" and offer greater operational flexibility. Additionally, if merchants reduce service quality or encounter product quality issues, this information will spread among users via social networks or reviews, directly leading to other users' decision to refund during the cooling-off period. Hence, a longer "cooling-off period" also helps effectively constrain merchants.
Online marketing expert Liu Dongming believes that the "cooling-off period" may become a watershed for e-commerce enterprises in 2011, where the brave become stronger and the weak retreat. Although the Ministry of Commerce's new regulations do not mandate a "cooling-off period" for online shopping platforms, they will positively promote the newly emerged group-buying platforms from last year.