Stimulated by the coronavirus, community group buying platforms in China have sprung up like mushrooms. The influx of capital has made the track extremely crowded.
To stand out and become the final winner, group-buying platforms must have high-quality commodities, a perfect supply chain, and efficient operation management. Which are specifically reflected in the indicators such as customer acquisition, retention, and profit, and we can see the gap between community group buying platforms in the head.
Community Group Buying circuit opens a new subsidy war
From the perspective of customer acquisition, choosing the right region and operation mode to enter the market can be accomplished with half the effort, and the commodity price is affordable and rooted in the community can also play an effective role in promotion. In this respect, Duoduo Maicai (Pinduoduo Vegetable buying) and ChengXinYouXuan (DiDi’s Food Selected Platform) showed the fastest entry speed.
Community group buying mainly focuses on fresh fruits and vegetables, such as daily necessities. China’s different regions have a different food culture, combined with the user to buy ingredients instant freshness demands, and the problem of easy loss of fresh food. The community group buying showed a strong regional characteristic, it is difficult to have a group-buying platform that can be a unified national market, so the choice of the battlefield will directly affect the feasibility of each platform to carry out the business size.
From this point of view, Ali’s Cainiao station and Meituan Youxuan (Meituan’s Selected Food Platform) are both aimed at the national market, but this requires plenty of human resources and material resources to lay down, and the movement of entering the market will be slower.
While at the present stage, Duoduo Maicai and ChengXinYouXuan mainly focus on the central region with the active market and convenient transportation, which is convenient to develop the market, but the two group-buying platforms inevitably need to engage in a frontal battle in the business overlap area.
Tencent invested in a group-buying platform named XingShengYouXuan which is based in Changsha, Hunan province. XingShengYouXuan radiates to surrounding areas and gradually penetrates down to the village level market. Although the expansion is slow, the foundation of the firm and the regional leading position is hard to shake.
In terms of the mode, the platform generally adopts “the online ordering + the next day self-pickup” method, the online WeChat group and community neighbors are the most important communication methods of community group buying. As the core of the group purchase transaction, a leader is one of the important resources that various platforms compete for. Meituan Youxuan, Duoduo Maicai, ChengXinYouXuan, and other platforms all made great efforts to compete for the head of the team in the early stage, including subsidies, salary increases, and rewards. At that time, they attracted many small shop managers, baby mothers, and other groups to participate in the competition, which has a similar speed to developing the market of a new city.
From the perspective of customer acquisition tactics, both Alibaba and Meituan have a collaborative layout around community group purchases, which has natural advantages in customer acquisition. However, Meituan Youxuan commodities have lower prices and more attractive to consumers. Duoduo Maicai and ChengXinYouXuan are using the aggressive burn money subsidy strategy to quickly open the market. Relying on the supermarket business system of Furong Xingsheng develops fresh retail and has a fixed user base in the local area.
In general, the most convenient place for Duoduo Macai and ChengXinYouXuan to develop business is in the central region, and the subsidy strategy for the head of the group and consumers has attracted the attention of consumers and showed the fastest admission speed.
Customer retention wins long-term operation
After entering the market, the next stage is to improve the competitiveness of the platform to retain users. To improve retention, need to ensure the quality of goods and services. In terms of commodities, the quality and quantity of commodities are the key factors to measure competitiveness. According to data from iMedia consulting, 57.3 percent of consumers who refuse to use community group buying are concerned about product quality. Inside，the quantity of commodity SKU is large enough to meet consumers’ one-stop purchase demand.
To guarantee the quality and quantity of fresh goods, an efficient cold chain logistic distribution system and strong supplier integration ability are needed. However, it costs a lot to set up the cold chain logistic, which is an unnecessary expense for the community group buying platforms that have not yet realized the profit, so they usually outsource.
In the case of the cold chain logistic distribution has less difference with others, each supplier integration ability becomes the focus, and this is the lack of retail experience for DiDi weak spot.
From the perspective of service, delivery time management, goods return system, and other mechanisms, which will affect users’ feelings towards the platform services. In terms of delivery time management, most platforms set the delivery time management mode as the next day pick-up service. With the help of express service, Freshippo and JD Daojia can deliver goods within two hours at home. Moreover, the data analysis ability of Alibaba and JD can also help to improve the operation decision and service quality in the later stage. But with generous subsidies from Duoduo Maicai and ChengXinYouXuan, they are tepid.
However, other platforms mostly improve user experience by strengthening training for team leaders, simplifying return systems, and offering a preferential experience to users. In the short term, the service mechanism of each platform is not enough to build competitiveness and become a key factor affecting user retention. In general, Duoduo Maicai is mainly in the field of farming products. Relying on its ecological advantages, it does not blindly expand the variety of commodities. It is easy to differentiate itself from other platforms and develop a fixed audience. Meituan’s exploration and investment layout in the field of fresh retail has accumulated the upstream and downstream resources and capabilities of the supply chain of fresh products, so it has obvious advantages in this group-buying war. With enough attention paid to the platform, it’s more worthy of expectation from the perspective of long-term operation.
The profit model of Community Group Buying
With a stable user, to earn a profit is a key issue for all community group buying platforms to consider. Fresh products have low unit prices and thin profit. Besides, it is also necessary to build a large-scale warehouse, sorting equipment, cold chain logistic distribution, mobile phone, system, and other infrastructure for fresh warehouse distribution, so it is difficult to reach the break-even point. According to the China Research Center, there are more than 4,000 group-buying platforms, only 4% had flat revenues, 88% were in loss, and only 1% gain a profit. For example, the first fresh e-commerce in China called GuoYiXian, due to capital chain rupture announced closure. To today’s Xingsheng Youxuan also did not realize a profit. But the new Internet giants, to seize market share with a lower price of individual products, increasing user subsidies, burning money to win head, almost all losing all profits.
Therefore, what this industry lacks most at present is the effective profit model. In the case of high cost and small profit space, according to the method of small profits and quick sales, increasing customer unit price and user consumption frequency is an effective way to obtain profits. In this respect, Meituan Youxuan, Freshippo, and Shihuituan are worthy of reference.
Among them, Meituan Youxuan and Freshippo provide hundreds of simple and easy-to-learn home-cooked dishes through the online recipe function, to expand the consumer category of users and improve their usage frequency. Shihuituan builds “taste of city”, according to the needs of users in different regions, and strengthens the stickiness of users to the platform, to improve the consumption frequency of users.
It can be noticed that to achieve a rapid increase in sales, which still need to start by improving user stickiness. Combined with the analysis of retention of users in the past, Duoduo Macai and Meituan Youxuan should have more space in improving user stickiness. Still, time is running out for them to strengthen their engagement.
Community Group Buying will enter a long term seesaw battle
With the passing of the coronavirus, offline sales will turn back, and living places will become lively again. Shopping for vegetables in supermarkets, grocery stores, and vegetable markets, choosing fresh vegetables and fruits, and bargaining with wholesalers is a special interest in people’s lives in their spare time, which cannot be brought by e-commerce transactions. Moreover, in the case of cooling market demand, there will be fewer and fewer leaders who can make money, and the community group buying market will cool down quickly. However, as the giants can reduce the cost of the industry chain, they can use the price advantage to develop community group buying into a retail arrangement that co-exists with offline sales. Under this setting, those who have a more mature industrial chain and better operation and management of users are more likely to continue this business. To making advantage of the industry chain and operation management, there is no doubt that a long-term seesaw battle is needed.
From a long-term perspective, Alibaba and Pinduoduo can poverty alleviation and support agricultural product bases through e-commerce, which can guarantee the stability of suppliers, improve the bargaining power of upstream procurement, and make the industrial chain more stable. However, it is difficult for Alibaba to get rid of the constraints of Tencent, due to the same target market between Duoduo Maicai and Chengxin Youxuan, a fierce price war is inevitable.
Meituan Youxuan has a strong end delivery team and infrastructure, as well as a collaborative layout to the business of fresh, and is more likely to take root in the community group buying sector. But Meituan Youxuan also stressed the crazy subsidies for Duoduo Maicai and Chengxin Youxuan.
Moreover, even if Didi says publicly that there will be no limit on how much it can spend on Chengxin Youxuan, it will be hard to beat the market and reach the top. With the unlimited capital support of Tencent, Xingsheng Youxuan is at most to maintain its regional leading position to restrain the expansion pace of other giants.
In general, the coronavirus has spurred the community group buying, attracted several Internet giants into the bureau. However, this is not an easy business, the limited profit space plus the procurement cost, labor cost, and fresh cold chain distribution cost of the platform will easily drag an enterprise down. With their capital advantage, Internet giants can go deeper and further, but it is hard to become profitable and No.1.