Still early days for Groupon's Gaopeng
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The much-anticipated launch of United States group-buying giant Groupon Inc in China has left some Chinese puzzled and disappointed.
I count myself among them.
At my first visit on the new website, called Gaopeng in China, I was surprised to see that a mere 80 people had signed up to pay 88 yuan (US$13) for a 188 yuan worth voucher for a wine cellar in downtown Shanghai. A coupon for a body-shaping service, which was selling for 38 yuan but claimed to be worth over 1,600 yuan, had drawn only 50 takers.
There were, however, two separate discount offers in Beijing on Groupon - a voucher for an in-house hot spring and a discount coupon for a karaoke club - that sold out with just over 200 buyers each.
Keen to find discount deals at fancy local restaurants and small coffee shops in Shanghai, I constantly check local group-buying websites and have found that more than 10,000 offers sold out before noon for popular eating places like hotpot restaurants and hamburger joints. That's not unusual. And the number of deals Groupon has sold out was miniscule compared to some popular local group-buying websites.
Groupon, which is trying to break into a market where domestic group-buying sites are already popular, said it plans to expand its service to more than a dozen Chinese cities, but no timetable has been released.
Globally, the company operates in nearly 200 cities in 45 countries.
Discount deals, normally valid for only 24 hours, have been offered on hundreds of websites throughout the country since the beginning of 2010.
The group-buying model, initiated by Groupon in Chicago about two years ago, works on the premise that a retailer will offer discounts of up to 70 percent on a meal, a movie, an outing, a massage or some other service. The offer stands on a certain minimum number of takers. In other words, the concept transplants the "economies of scale" model long used in business to the consumer sector.
Gaopeng's success will rely heavily on how well it understands the Chinese consumer mentality. In the largest Internet market in the world, tastes and habits vary from one part of the country to the next.
Gaopeng translates as "eminent guests" - an initial sign that Groupon understands the subtleties of the Chinese culture at least a little.
The new company was co-funded by Groupon, Tencent and Yunfeng Ventures, a private equity firm set up by Alibaba Group chairman Jack Ma and Target Media founder Yu Feng to focus on opportunities in the Internet industry.
The popularity of group-buying websites took off from the start. By one count last September, there were more than 1,000 of the sites in China and the number was expected to grow.
Gaopeng's entry into the market was much anticipated, not because it partnered Tencent, the Internet firm with the biggest user base, but also because industry watchers are always fascinated about whether foreign companies will sink or swim in the Chinese market. The road to success is littered with failures.
Big names like eBay, Google and Microsoft have faced hurdles in adapting their services to a market where local counterparts like Taobao and Baidu have a head start and a deeper understanding of the consumer psyche.
Last December, Groupon acquired three group buying websites in Singapore, the Philippines and Taiwan.
In 2011, just its third full year in existence, it may surpass US$1 billion in revenue amid reports that it will seek to go public in the US.
Earlier this month, Gaopeng announced an online lucky draw, giving people who register their ID card numbers and mobile phone numbers the chance to win an iPhone 4.
That is an unusual, somewhat eye-catching gimmick for a company starting up business in China.
But consumers remain wary.
"Why would someone give away his personal information and contact details to a website and fall prey to possible bombastic marketing that will bring you endless trouble?" said one Beijing technology writer.
Some consumers have started to complain that the onslaught of group-buying discounts will lower service standards and quality of restaurants that have to cut corners to make up for the lower prices.
The keen competition means that many group-buying websites are starting to squander more money in the mad scramble to attract attention and attract customers.
Nuomi.com, the group-buying website operated by social network service Renren.com, said it will spend 200 million yuan this year for advertising. Lashou and Meituan, two of the leading independent websites, are also investing heavily in TV commercials, display ads in metro stations and bus station billboards.
At the same time, in the current inflationary climate, consumers are watching their pockets and showing more interest in bargain shopping online.
"Local websites, as forerunners in the group-buying market, are under pressure to establish competitive edges as newcomers with deep pockets, like Gaopeng, enter the market," said iResearch analyst Su Huiyan.
In the past year, nine group-buying sites have secured venture capital totaling 700 million yuan, according to the data compiled by research house Analysys International.
"Smaller players lacking financial support will fall victim to the big names, and independent operators are likely to seek closer partnerships with business-to-consumer online shopping websites to try to secure a better market position," it said in a research report.
Data from iResearch show group-buying websites attracted 138 million visitors in January. Of the top 10 most popular sites, four of them boasted 20 million visitors monthly.
Attracting more users naturally means group-buying sites need bigger distribution channels and need to attract vendors who can provide discount deals at the right price and at the right time. Those factors can save the sites a large amount of advertising costs.
Unlike social networks and microblogs that require large investments to buy servers and need elaborate product design to appeal to consumers, group buying is more like a simple price war transferred online. No sales staff is required.
Group-buying sites do face the problem of ensuring that the discount offers taken up by customers will be a rewarding experience. Unhappy shoppers won't be duped twice.
Most coupons or cash vouchers are valid for three to five months. Based on the relative small size of some restaurants or spa establishments offering discounts, customers sometimes have to wait several days before they get to redeem their purchases.
And discounts alone don't guarantee buyers. Careful shoppers check online feedback and reviews of places like restaurants before deciding if they are really worth the trouble of going there.
Gaopeng boasts it has 2 million registered users after a two-week trial operation, but how it will turn that acorn into an oak tree is still uncertain.
"Gaopeng has to be very careful in choosing eligible service providers and in what kind of discounts it offers," iResearch's Su said.
Gaopeng certainly has to navigate through some pretty tricky waters, and it remains to be seen if the adage that there is "safety in numbers" is true for Groupon.
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