WORD-OF-MOUTH MARKETING: Quick dissemination of deal information among users through social networking tools or websites provides a boost to sales at online group buying websites (XINHUA)
Tempting discounts are available within just one click. Zhao Lei, a software engineer in Beijing, loves the one-hour lunch break at noon, as it is the best time for him to check "today's special" at his favorite group buying websites. Sometimes he searches for great deals at directory sites devoted to the new shopping spree.
Modeled after U.S. hot website Groupon.com, group buying websites are now booming in China. These websites save customers from face-to-face haggling and use the power of group purchasing to strike competitive discounts for a daily deal on some best stuff to do, see, eat and buy in a variety of cities across China. Customers only get the day's deal if the specified number of people sign up to guarantee a certain volume of sales that day.
Zhao spends around 800 yuan ($117.65) on group buying every month, mostly to buy food coupons for eating at some nice restaurants and occasionally to find something fun to do.
"I love group buying. In addition to the competitive discounts it offers, it helps me navigate through the maze of the city to something fun, exciting and novel, and such surprises give me a reason to try something new," he said.
When he finds a really good bargain, he will forward the link to friends or colleagues through MSN, QQ, or e-mail, or share the information at some social networking websites. In doing so, he often gets a certain cut off the price, an incentive to customers of many group buying websites to boost sales and encourage customer loyalty.
They have to think about customer loyalty now that hundreds of similar websites have sprouted to replicate Groupon's success.
The Chicago-based website began to profit seven months after its launch in November 2008 and secured $100 million in net income in 2009. It has raised more than $170 million to back its expansion worldwide, mainly by acquiring local websites.
Groupon's simple, easy-to-replicate and asset-light business model accounts for the abundance of its counterparts too, around 200 in the United States and more than 1,000 in China.
But only about 10 such websites could survive as a result of homogeneous competition, and innovations in this business are expectable in China, said Kai-fu Lee, founder of Chinese incubator Innovation Works and former head of Google China.
Group buying websites play the agent between buyers and discount providers. Buyers get local lifestyle information and discounts for all kinds of products and services in form of coupons; for discounts they provide, sellers get a chance of one-day exclusive promotion and sales boost at the homepage; and websites get commissions and sometimes charge promotion fees.
Lin Ning, CEO of the group buying website Ftuan.com, said cheap prices are possible for nice products and services because "for catering and entertainment shops, a certain number of customers will cover its daily fixed costs such as rent, tax and employees' salary, and when more come, they can still make money if customers pay a little higher than the cost of raw material."
"That's where discounts come," he said. "We focus on local service businesses such as restaurants and gyms, because they need desperately a promotion channel suiting them—targeting their customers precisely and not as expensive as advertising on newspaper or TV."