Debate: Group-buying shops

Feng Zhiqiang

Understanding people's needs vital

Group-buying has become part of many people's routine because it offers great benefits, especially attractive discounts on goods and services.

The industry is booming because group-buying websites are attracting more customers for their goods and services by offering increasingly large discounts and consumers are buying more to "save money".

But despite the positive developments at both ends of the industry chain, one cannot help but ask: Where is the margin of profit for group-buying websites? Their way of raising funds and keeping their operations running is also worth taking a look at.

Most of the group-buying portals survive on three factors. First, they offer very low prices to buyers and then increase them slightly as the demand rises - or keep the original prices and get a rake-off once the sales reach a certain volume.

Second, some times group-buying websites organize off-line promotional activities, especially for high-priced and luxury goods like houses and cars. Since the amounts involved are large, the organizers usually get intermediary fees from the original sellers.

Third, the group-buying portals charge fees from consumers to make profits.

The three kinds of fund raising are essential for the survival of group-buying websites. To emerge victorious from the increasingly intensified group-buying competition and the battle for survival, the websites need to expand, increase and improve services.

As a matter of practice, group-buying websites give priority to promotions and advertisements, for many enterprises target regular group-buyers too. That's why despite advertisers' special liking for group-buying websites, the industry still has a great scope for integration and service upgrade.

In other words, the future of group-buying is still prospective, though the huge number of websites has intensified the competition which eventually leads to industrial integration and diversification of goods and services.

Group-buying was introduced to China last year, and the industry has been going through chaos since then, though some of the portals are making good money. But in the near future, when markets mature and the government finally issues the "pending" regulations, few will survive the competition.

Some may say that the group-buying fever was a nine-day wonder, after which people returned to rational consumption leading to a winter for e-commerce. But such arguments are groundless, because consumers, both in times of economic depression as well as prosperity, never refuse good but cheap services.

But to be frank, the industry itself is experiencing a cold winter and most websites are doomed to shut down, because after capital drains, the market needs healthy development with scaled-up players with capabilities to operate on their own and provide better and convenient commodities and services.

And the key to success for group-buying will depend on mobile terminals. Along with the fast development and popularization of 3G wireless network, websites operators need to make greater efforts to cheer increasingly socialized consuming groups.

Besides, it's very important for group-buying services to understand people's real needs and sell (or distribute) goods and services that they need the most.

The author is a Beijing-based market observer and founder of a travel website.

(China Daily 10/17/2011 page9)