Online Group Buying Taking off in China
China is seeing an explosion of Groupon-like websites as more companies and entrepreneurs hope to get in on the group buying trend.
China, which has 420 million Internet users, saw the launch of its first group buying site in January of this year. Now the country has 1,215, according to the China e-Business Research Center.
Group buying is a kind of shopping approach that became popular on the Internet with the emergence of U.S.-based sites like Groupon, which was launched in 2008. The sites work by offering special discounted deals on a product or service from a featured company. If enough users buy into the discount, then the special deal is given to all those who participated.
The formula has been a hit with users in the U.S., with Groupon so far having sold more than 17 million discounted deals.
"More and more people are understanding and starting to welcome this kind of e-commerce model," said Wang Xing, CEO of Meituan.com, a popular group buying site in the country.
Although its popularity online only started this year, the concept of group buying already had roots in China, where customers often haggle with merchants to get a better deal. The shopping approach later moved on to the web in the forms of specialized sites or forums to barter with businesses.
One of them was TeamBuy.com.cn, which started in 2006. Users wanting to get a good deal on the same product, could connect with each other, and schedule a time and place to go and collectively bargaining for a discount at the store in-person. TeamBuy now has more than 3 million registered members and operates in 150 locations. But it took a U.S. site like Groupon to fully realize the concept's Internet potential, streamlining it into a more user-friendly model, where consumers can bargain for good deals virtually.
The total transaction value of the Groupon-like market in China is projected to reach 980 million yuan (US$ 147.6 million) this year, according to Beijing-based research firm Analysys International. But over the next three years, it is expected to grow by an average of 57 percent annually.
"Group buying websites require low operational costs, so everyone can do it. They can only require a few people to manage a site," said Chen Shousong, an analyst with Analysys. "China is also a large country, with many different places. So group buying sites can be made to cater to one individual city."
Meituan.com took two months of preparation before the website was launched in March of this year. Now the site operates across ten cities in China, offering daily deals on restaurants meals, movie tickets and karaoke sessions.
"Like any other industry, after a period of tough competition among companies, there will emerge a No. 1 and No. 2 in the industry. Of course we hope Meituan will be the lucky No. 1," Wang said. "But even as Wal-Mart is a supermarket giant, there will still exists those smaller retailers. This is because the group buying market is so large, so there will still be many smaller group buying websites."
Still, the market is filled with challenges. Tuan800.com, which aggregates group buying sites, has seen its visitors increase from 30 to 50 percent over the last four months, said Hu Chen,[cq] a co-founder. But the low-costs to operate the sites have made them targets for copying, Hu said. Users must provide payment information before they can participate in a deal, which presents a new kind of online spending habit for many Chinese consumers. "'Putting down money first, then purchasing' creates a big challenge for credibility," Hu added.
To protect consumers, a unit of China's Ministry of Commerce has introduced regulations to certify group-buying sites. According to local media reports, 300 web sites have applied, but only 20 have received approval.
Even with the concerns over credibility, users continue to flock toward the sites. So far the experience of group buying has been "worthwhile," said Zhang Qianqian, a 23-year-old, who lives in Beijing. She first started using the sites after hearing her friends talk about them. Her only bad experience thus far is buying a one-year membership for an amusement park that ended up closing down two months later.
"I usually buy snacks, discounts of restaurants or shopping center membership cards," she said. "It's been very convenient, and the sites offer many choices."