A new type of social buying is transforming China. Community Group-Buying (CGB) is becoming a popular way of purchasing goods in online markets since the pandemic has made it a preferred purchase habit for many residents in China. As a result, the Consumers battleground that affects the retail industry can be extremely relevant to your business success in China.
What is CGB?
CGB represents a buying method in which a community purchases goods in bulk. In the buying process, consumers who usually live in the same neighborhood buy products together directly from the suppliers. The buying process is made in E-commerce platforms and Chinese social networks, especially WeChat, which has designated groups where the community leader posts products for the community. After the purchases, the goods are delivered to the community leader for pick up and then distributed to the neighborhood people.
What are the benefits of CGB?
Firstly, the most important benefit of CGB is lower costs; due to bulk buying, sellers are willing to reduce the price. Secondly, an effective logistic process in which the buyers are getting the products to their doorstep has been highly convenient in lockdowns. Furthermore, the effective logistic process also makes group-buying better for the environment, which less transport means cutting down the carbon footprint. Besides, the service that suppliers give to consumers can be improved because the individual usually does not get the same attitude as someone who buys goods in bulk for the whole community.
Moreover, the potential benefits for small businesses are greatly attributed to the CGB business model. It can attract potential consumers searching for unique and boutique products in a highly aggressive market. Although CGB can diminish some of the existing jobs, it is also creating new jobs for deliverymen and drivers inside the community.
The top players of CGB
Community group-buying is being facilitated primarily by six large platforms. The largest one is Pinduoduo (拼多多) which has been a quickly growing platform for community group-buying. In the third quarter of 2021, Pinduoduo, active Buyers, consists of 867 million people, and this number has increased by 19% over the last year. In addition, early this year, Didi (滴滴) has announced that its’ group-buying unit will raise 4 billion dollars to invest in delivery services due to the significant demand for group-buying. Also, other large E-commerce sites that are popular are JD (京东), Meituan(美团), Tencent (腾讯), and Alibaba (阿里巴巴).
Small cities as the focal point
Community buying has been greatly popular and rapidly spreading in smaller cities. Firstly, when bought in high quantities, the reduced price makes products more accessible to small-cities residents that otherwise probably couldn’t afford them. Secondly, the long and exhausting supply chain is cut. Furthermore, it is easier for seniors to order directly from the community leader rather than E-commerce platforms, and it is helping in leveraging the small business. Also, tech giants understand the potential of E-commerce in smaller cities; it’s evident that they are increasing their investments there.
What you need to remember to maximize your success in CGB:
- Open your business in low-tier cities, where you can save magnificent costs on user acquisition and transportation.
- Make bargain prices because customers in small cities value lower prices rather than quality.
- Focus on gaining trust with community leaders
Risks you should be aware of:
- Customers who buy from you individually may become part of a buying group. Such a thing will not benefit your business.
- Mediators can take advantage of group-buying and make profits for themselves.
- CGB as the only method for your business can risk profitability, and that’s why you should consider regulating the number of purchases that can be done through the buying groups
Beijing’s opposition to community buying
Last year, some regulators in the Chinese government were greatly concerned about CGB. This method was claimed to be creating a social disorder that damages the development of existing supply chains, according to officials. Therefore, they decided to restrict internet firms that are using CGB and tight their grip on the group-buying giants. A few months ago, it was reported that China’s Big Tech was slowing down the expansion of group buying due to pressures from the government. The Chinese government is anxious about people losing jobs because of CGB. It was also revealed that China’s Big Tech is spending tons of money on buying groups. The resistance from the government is questioning the giant’s companies power.
Forward-thinking about your business model will help you maintain the success of the fast-growing social buying model, which is spreading rapidly in China. The use of CGB as the only model for your business may be a wrong move, and that is why it’s utterly important to calculate the risks before starting to allow consumers to buy in a group. Although the largest firms in China are losing their power due to intensive restrictions on group-buying from the State Administration for Market Regulation (SAMR), smaller suppliers will rip the benefits as they gain the power.
Group-buying is predicted to affect other emerging economies in Asia. It’s estimated that the market value in India will be worth 60-70 billion dollars in 2030. Where a new middle-class is growing, consumerism is visible due to rising life quality. Although the SAMR is trying to regulate group buying, it would be hard to stop people from organizing and buying products together.