All about China’s group buying websites

During the past several months, the country has seen the launch of nearly 1,000 such sites. But what are they and why are they proving to be so popular in China?

1. Group buying websites feature a daily deal that becomes valid once a minimum number of buyers sign on.

The threshold is usually low and most of the time is met or exceeded within an hour or two. Consumers feel they get value for money, businesses get a large number of new customers.

Collective buying is not a new concept in China, but these websites, by promoting different deals in different cities offered by small local businesses such as restaurants, bars and spas, add a unique local touch. The minimalist, clean web page design and the heavy use of bright colours also create a web 2.0 feel.

Called ‘tuan gou' in Chinese, these websites are actually copycats of Groupon, which originated in Chicago in 2008 and has since expanded to nearly 100 cities across the US and more than 20 countries globally. In April, Groupon received a hefty US$135 million from the Russia-based Facebook backer Digital Sky Technologies, making it a target for cloning in China.

2. China's short internet history has a long tradition of online copycat sites.

Almost all of today's internet giants in the country started as a clone - portal websites like Sina and Netease are variations of Yahoo; Baidu is a localised, simplified Chinese version of Google, and Tencent's instant messenger service QQ was inspired by ICQ. Every new website model in recent years - from Amazon and Digg, to YouTube and Flickr, Facebook and Twitter - have quickly acquired dozens of followers in China. Most of

Groupon's impersonators not only copied its business model, but also the site's design and
navigation.

3. It is not just start-ups that are joining the craze.

Renren, a popular Facebook-cloned social networking website, and Taobao, China's largest consumer e-commerce company, have launched their own Groupon clones. At the end of June, Sohu quietly launched tuan.sohu.com, making it the first portal site to join the competition.

The key reason for the boom is the relatively low standard in terms of qualification - several thousand yuan is enough to back most start-ups.

"The Groupon model is very easy to copy," says Gang Lu, a well known tech blogger. "Interestingly, unlike video-sharing, social networks and Twitter models, which are all about user-base at the beginning, Groupon creates cash flow from day one.

As such, it should be easier for these Chinese start-ups to survive."

4. Facing fierce competition, the group buying websites are trying hard to adopt local strategies.

"While much can be learned from Groupon's success, the operating environment in China is very different, which will impact how we select our deals, how we go to market, how we manage vendor relations and how we motivate our cross-country sales force," says Yinan Du, founder and CEO of 24quan.com. Du says his company sees tremendous revenue potential in second-tier cities like Changsha and Zhengzhou, which will become an important part of its growth strategy.

5. However, some are cautious about whether the Groupon model will be successful in China.

Lu points out that since most users are drawn by low prices, they tend to have very low loyalty to the sites they use.

Marketers though, are already showing interest. "There are a number of factors at play here, but truthfully, it is all about the perceived value of crowdsourcing," says Greg Paull, co-founder of consulting firm R3. "Unilever has already tried this on some of their brands, and according to them, there will be three to four brands in 2010 treated the same way. Marketers need to respect the value and power of groups - in creating brands, shaping brands and buying brands."

What it means for...

CONSUMERS

• With the help of collective buying websites, consumers are able to get products or services at extremely low rates, often at a 60 per cent or more discount.
• However, consumers should watch out for traps. Tuanzhang, a Shanghai-based Groupon-clone featuring deals for home electronic appliances, announced that it had gone out of business at the end of June after being suspected of cheating. Many consumers filed complaints against the company, saying they never received the products they ordered.

BRANDS

• Collective buying is especially useful for launching new products or services that are relatively unknown to consumers.
• Groupon-type sites usually offer different deals in different cities. This allows marketers the freedom to cater to the needs of each local market.

This article was originally published in the 15 July 2010 issue of Media.