As group-buying fever sweeps across China, competition is getting fiercer than ever. The big names like Meitun , Lashou and Gaopeng are aggressively trying to attract users and doing that with ramping up their sales force. I constantly see Gaopeng recruiters on Linkedin posting messages like “please send your resumes to me now”. Clearly the big cash injections they got are going towards hiring! But like most tech based industries in China, the saying goes “only the number 1 or 2 can survive”. So who will eventually get pushed out of this lucrative and hot group buying space?
Know your customer – does Gaopeng?
Since Gaopeng is run by the German Groupon management team and has publicly hired many expat high-level managers who are ex-management consultants and bankers, there has been many doubts cast over the viability of Gaopeng. “They are not local enough, they don’t understand China.” say many Chinese observers. I think it is too early to assume that since some of their management are foreign, they will automatically lose. Many thought that Gaopeng would immediately die after their politically insensitive or more so strategically stupid Superbowl commercial but they haven’t yet. Perhaps China has already forgotten, forgiven or just didn’t know about it. But even for the local group-buying companies, is local knowledge enough of a competitive advantage in such an irrational market?
Gaopeng educates the merchants, while other group-buying sites take the benefits.
I suspect that, with the hiring spree of salespeople, Gaopeng would spend all the initial energy of sourcing deals, then the Chinese group-buying sites would follow up with the same merchants and offer lower profit sharing to take over the relationship. This potentially means that Gaopeng would eventually be squeezed out of the market or would stay around for longer, since other group-buying sites that operate on margins that are too thin, will run out of money to keep going.
Who can give merchants the most value?
From a merchant’s standpoint, their motivation to use groupbuying websites over other marketing channels is the lower cost of acquiring new customers. Versus purchasing search keywords and banner ads, groupbuying websites offer more visible and faster results, especially to merchants focused on offline services. One can argue that this value proposition to groupbuying websites is higher in China than in the United States, given the less prevalent adoption of performance-based pricing models. So in China, which of the giant group-buyers can drive greater value to merchants?
Sina Weituan might eventually harvest the sweat of groupbuying salespeople
After a while, groupbuying landscape can either evolve into
a) direct traffic to specific winners, where consumers associate with a handful of groupbuying sites and subscribe to, or directly visit, these few sites for deals;
b) commoditized market where lowest price win. We think this is possible for price-sensitive and ever-bargain seeking Chinese customers, price easily overrides brand when it comes to deals. As the Chinese proverb goes, “as the locust catches the cicada, the yellow bird is behind it waiting”. If that’s the case, group-buying aggregators like Sina’s Weituan (which we covered when it first launched) might eventually harvest the sweet crops from the sweat of the thousands of groupbuying salespeople across China.