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Buyers, United
2011/09/26

By Zhao Ying, Zhang Yuanpei ( China Features)

Yang Yang, a 34-year-old Beijing native, runs an online yoga store, works as a private yoga tutor and as a part-time HR consultant.

Her monthly income hits roughly 30,000 yuan (4,692 U.S. dollars), which dwarfs that of the average resident.

Yet when it comes to cooking, she’s deficient, so she offsets her lack of skill in the kitchen by scouring group-buying sites -- targeting heavy discounts at good restaurants.

Yang and her husband take their parents to nice restaurants about five times a week -- an average monthly cost of 3,000 yuan, which Yang says is “very reasonable for a family of six.”

Her reliance on group-buying sites has become reflexive. “I do it almost every day,” Yang says. “I save money; we eat well; life is good."

Although it might be assumed that someone at her income level wouldn’t relentlessly hunt for special deals, she clearly relishes the hunt and gladly boasts about the bargains she’s found.

“I once got a four-person set meal at Baguobuyi (a popular Sichuan cuisine restaurant) after I bought a 120-yuan coupon online,” Yang says. “The normal price is about 600 yuan.”

China is considered a pioneer of group buying, in which a group of individuals join to collectively purchase identical products from a merchant who is willing to offer considerably discounts for the bulk sale.

In 2010, group-buying websites began to take the place of offline collective trading in the country with the support of Internet and e-commerce, says Zhu Min, vice president of Didatuan.com, a leading group-buying site in China.

As of June this year, there were about 5,000 group-buying websites in China, according to a report posted on Analysis International's website.

Subscribers purchase goods online or receive coupon codes via cell phone for items or services to be consumed offline. The websites collect money before the deals expire and distribute it later to vendors after deducting about 10 percent of the total sale as their fee, Zhu says.

From the perspective of vendors, the purpose is to introduce their businesses to more potential consumers, so profit isn’t important at the primary stage, but later price increases will occur when a company gains sufficient popularity, according to Ni Shenghui, board chairman of Hua'an Yugong Corp. -- a Hong Kong-style hot pot restaurant that started operating in Beijing more than a year ago.

Group-buying usually brings in scant profit, but the massive purchases yield considerable sales income, according to Jin Jianguo, manager of Hannashan Food's branch in Dongzhimen, one of Beijing's most bustling areas.

The popular Korean cuisine restaurant runs more than 100 outlets across China, but it only occasionally offers discounts on leading group-buying websites.

"When and how to offer discounts greatly depends on the busy seasons and off seasons as well as periodic sales results," Jin says.

The group-buying industry in China has experienced ups and downs since 2010, when the number of websites rocketed due to low entry barriers and droves of shoppers snatched up surprisingly cheap offers.

However, the market plummeted in the first quarter of 2011 as many buyers experienced substandard service and received low-quality products, according to Zhu.

Food critic Liu Yan, 26, says sometimes restaurants treat group-buyers differently from those who are paying full price.

Bai, a 27-year-old HR manager who prefers to use her first name only, went to a photo studio based on a one-yuan offer that promised customized photos with wardrobe and makeup included. But, what she got were stained clothes and an incompetent cosmetician and photographer.

A cosmetician from the studio says they thought the one-yuan offer would boost business, but the hastily plan turned out to be a disaster, and some outlets closed down due to clients' criticism.

Yang Yang recalls paying 9 yuan for a coupon good for ten egg tarts at Laomo, a famous bakery chain. But to her dismay, the tarts were about the size of one-yuan coins (roughly the size of a U.S. quarter).

Laomo's sales manager, Meng, admits they failed to make clear the size of the tarts, which misled customers, but he says they managed to appease most of the complainants by giving out one full-sized tart.

Although the deal cut the bakery’s profit by about 30 percent compared with the normal level, Meng says it has helped stores get more young customers.

For the time being, it is the younger generation mostly engaged in group-buying.

"Age, income and educational background affect people's willingness to enter the group-buying fray,” says Jiang Qiping, secretary-general of the Information Research Center at the Chinese Academy of Social Sciences (CASS). “So far, young, middle-class people with convenient Internet access account for a high proportion of group-buying shoppers.”

Jiang expects that lower-income consumers will eventually use group-buying when online transactions become more widely available, and more vendors that sell traditional commodities, such as pharmaceuticals or books, enter the industry.

He noted that although group-buying helps certain individuals offset inflation to some degree, it has a minuscule influence in China's overall economy. Online trading only accounts for about 5 percent of the total retail sales of commodities, while group-buying contributes a tiny proportion of online sales.

Despite the Chinese government’s efforts to rein in inflation, the consumer price index in July rose 6.5 percent year-on-year, reaching its highest level in 37 months, according to the National Bureau of Statistics.

In the first seven months of the year, the CPI gained 5.5 percent from a year earlier, well above the government's target ceiling of 4 percent for 2011.

But Zhu points out that if consumers stop spending due to high inflation, the overall economy stagnates, yet group-buying spurs people to consume at prices they can afford, which is good for buyers, sellers and the country.

The industry has gradually regained popularity as the number of group-buying users hit 42 million at the end of June this year, up 125 percent from that of December last year, according to data from the China Internet Network Information Center.

This surge is attributed to leading websites strengthening self-regulation and service, and the weeding out of many sub par sites.

Didatuan.com promises refunds within ten days for any unused deal. The measure also applies when vendors offer substandard services or products, Zhu says.

“Identical services won’t appeal to buyers, so we must offer special services to distinguish us from competitors in order to attract more loyal subscribers,” Zhu says.

In addition, the company employs a staff of more than 100 to deal with customer queries and complains. It also strictly screens out risky sectors and vendors to maintain its credibility among buyers.

Price-sensitive shoppers have become more quality-oriented when viewing seductive offers.

Yang Yang says she now only surfs reputable websites and will buy only deals that have sufficient positive comments from consumers. She also writes online reviews of vendors herself.

Quality reviews boost vendors’ reputations. After reading multiple positive reviews about a dental clinic, Rayray, a reporter aged 30, paid 500 yuan for filling a tooth on a group-buying website, about 40-percent off the regular price.

Interestingly, the financial situation of many group-buying websites is not as good as the soaring client base indicates.

“The industry relies heavily on financing, mostly venture capital, and most companies operate in deficit,” Zhu says.

Zhu claims that his company remains in the top ten of group-buying websites, largely thanks to its policy of offering high-end service and products.

His marketing team has turned down many low-end businesses and selects partners with good reputations so that the website will have long-lasting appeal to buyers, especially white-collar workers.

The fierce competition among group-buying websites has almost come to an end, and survivors must be able to get sustainable sales increases based on high-quality products and services, says Jing Linbo, vice director of the Institute of Finance and Trade Economics under CASS.

Stable and capable teamwork, sufficient investment and support from the government and media will also play an important role in the industry’s development, he says.

CEOs of some leading group-buying websites, such as Ftuan.com, Lashou.com and Manzuo.com, are optimistic about the future of the industry and promise to improve credibility, raise quality of service and adopt differentiated marketing.

For shoppers like Yang Yang, who have already embraced the group-buying experience, they aren’t going anywhere.

“Group-buying has become a must-do in my daily life and I believe in its potential,” Yang says. (edited by Stephen Sacks)

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