A brief history of Chinese social commerce and online group purchase

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Scott Tong from American Public Radio recently did an impressive story on the Chinese phenomenon of tuan gou (group purchase or 团购) called “China’s next export: Group shopping?” Scott interviewed me for the piece, as well as others. In summary, a tuan gou involves consumers organizing into a large group, often via the Internet, and then leveraging the group to get better prices. Groups are either organized informally on BBS sites like Xcar or can be organized via tuan gou sites like 51tuangou.com.

China readers without a VPN will miss the video that accompanies the story, and it is a real gem. See below:

If you have been following this blog over the years, you will know that I really love this phenomenon as it is a clear example of how the Chinese Internet Community is reshaping the relationship between brands and consumers. The Internet Community not only influences purchase decisions, but also the way the purchases are actually made. It is social commerce in action.

I first wrote about the phenomena in 2006 (Online tuangou “group purchase” giving offline retailers a run for their money), showing how Gome, the sort of ‘Best Buy’ of China, had “declared war” on tuan gou. Below is a pic of a sign from inside the store at that time.

group purchase

Translation: “We are not tuangou. We are better than tuangou. Changning Guomei declares war on Tuangou.”

Two years later, we wrote how Gome completely reversed the war (Retailers reverse the “Group Purchase” trend), and actually invited consumers to tuan gou, in partnership with the Shanghai BBS community KDS.

In fact, we do see that the tuan gou phenomena is increasing in popularity. According to our analysis of over 100 million automobile BBS comments, we found that the number of mentions of tuan gou doubled in 1 year’s time.

auto group purchase

For a ‘first hand’ account of how the tuan gou phenomena works, check out the experience of my colleague Ellen here. CNN later based an article on Ellen’s story here.

In short, it took Ellen just 2 weeks to find 54 other people from Xcar BBS to organize a tuan gou purchase with a Toyota 4s dealer to purchase a total of 55 Toyota Yaris cars at a 30,000 RMB discount.  Read Ellen’s story to also see how the tuan gou group has stayed connected since the purchase, serving as a sort of support group and circle of friends.

Of course, 4S auto dealers don’t always get it right. In this video, you can see a fight breaking out between potential customers and  Ford dealer who broke its promise on a tuan gou.  The fallout from this incident accounted for almost half of Focus buzz for the month of December 2008, which we wrote about here in our white paper co-authored with Roland Berger.

groupon

It is worth noting that sites similar to 51tuangou.com (now part of Liba) and SHtuangou.com are now being set up in other markets and are garnering interest, including Groupon in the United States which has raised over US$30 million in investment at a valuation of US $250 million. In fact, Western pundits for years there have been discussing the potential of the Internet to support ‘crowdsourcing.’ What is most interesting however is that crowdsourcing, and specifically the group purchase phenomena has been alive and well in China since the early days of the Chinese Internet.

While Groupon and other overseas sites must build a large community of consumers with a sort of “build it and they will come” approach, Chinese consumers have already organized themselves online within massive communities and even initiate group purchases without the help of a formal service offered by any site as we saw with Ellen’s case.

As I suggest in the American Public Radio piece:

“The community’s already there. So all it takes is for someone to virtually raise their hand and say, “Hey let’s organize.”

Sites like SHtuangou.com did not start the wave of group purchase, they rode the wave started by netizens.  Techcrunch writes how European startups are racing to emulate Groupon…perhaps they should look to emulate Shtuangou.com

It is these massive communities which make up the larger collective of what we call the Internet Community, and these self-organized group purchases are an example the power of the Internet Community to transform the relationship between brands and consumers. This transformation is not unique to China, but it is happening at an advanced and an accelerated rate in a market due to the fact that compared to other markets, the Chinese Internet not only has the most people online, but also the most places to talk, the most people talking and among the highest levels of participation online.

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