China’s group-buying industry witnesses a transformation
BEIJING, September 19, 2014 /PRNewswire/ — Wowo Limited (www.55tuan.com) chairman and CEO Xu Maodong recently said in an interview that Wowo Limited is being recast as an E-commerce platform providing life services. The model has now been upgraded from a provider of an online storefront for merchants to a operator of its own E-commerce operation while providing a proprietary mobile store client endpoint for merchants. The upgrade transforms Wowo Limited into an all-service E-commerce platform combining online direct sales, members services, advertising and promotion. Group buying has already become a smaller part of the company’s overall operations.
The launch of Wowo Limited’s mobile store client endpoint services took place in July and has gone smoothly, with the focus chiefly on the food and beverage, movie, beauty and hair salon sectors. According to relevant industry data, life services E-commerce platforms are all moving into mobile. In monetary terms, 60 percent of Wowo Limited business takes place over a mobile device, while the number climbs above 85 percent in some third- and fourth-tier cities. Dianping.com revealed that its mobile traffic accounted for more than 70 percent of its business.
Groupon, the progenitor of the group buying industry, recently reported continued losses in its second-quarter report. The top five players in China’s group buying industry completed new rounds of financing and adjusted their business models, while several other players in the field changed their models completely, significantly reducing the size of the group buying component. In particular, driven by the growth of the mobile sector, a number of E-commerce platforms for life services saw an explosive increase in business while many of them are experimenting with new models for operating their businesses.
During the four years since group buying took off in China, the sales model became the business method that many of China’s E-commerce operators grew up on. However, merchants found their own growth constrained by the sales model. As they became ever more dependent on group buying as the method for growing the online component of their sales, they saw 5 to 10 percent of their top-line revenues being eaten by the group buying service providers, a trend they saw as simply unsustainable. A random survey revealed that nearly 42 per cent of merchants are actively pursuing other ways of building their business so they can exit their dependence on group buyers.
Merchants in the local lifestyle sector have traditionally targeted customers within a three to five kilometer radius of their business location, using a direct sales model rather than depend on the distribution model. The sector is modeled on the 70-20-10 rule, whereby 70 percent are repeat customers, 20 percent are walk-ins and the remaining 10 percent are brought in through ads. What merchants need most is proper management of their repeat and direct sales business. The group buying model does not in any way serve these needs.
The vast move from online to mobile among consumers has driven the rapid development of lifestyle E-commerce companies. In the era of the mobile Internet, merchants can operate direct sales businesses online by communicating and interacting directly with users.
Analysts have indicated that in addition to the differences in behavior as it relates to search, payment and social media, the biggest difference between mobile and traditional online channels is that mobile provides integration with physical lifestyle merchants, enabling them to get rid of the dependence on a “fans driven” model to bring in customer traffic where, besides providing products and services, they had to offer “non-standard goods” as a way of differentiating oneself from competitors.
Xu Maodong said that in the mobile era, lifestyle merchants can expand their customer base by working with group buying sites to attract customers then convert those group buying customers into their own members via the proprietary mobile store client, allowing for a long-lasting, real-time connection and interaction with the members. This enables the merchants to sell products to customers directly and to provide them with promotional information, targeted offers, membership activation and care services. Wowo Limited provides merchants access to connect with the customers.
During the last few years, among group buying’s top five players, only meituan.com has stuck with the model as a way of building sales. Dianping.com has returned to the traditional advertising model, while nuomi.com was absorbed into Baidu’s Location Based Service (LBS) after being acquired by the latter. Wowo Limited has put its stake in the ground to not only be but also remain a life service E-commerce platform. In the second half of 2011, Wowo Limited became China’s largest group-buying website in terms of turnover, but began transforming the business by building life service E-commerce platforms that provided the online store for merchants in 2012. Now, with the growth of mobile, the company has started assisting merchants in developing their mobile stores, allowing the store owner to have and operate their own E-commerce business independently and drive online direct sales and customer service operations.
Wowo Limited CEO Xu Maodong is an investor who has founded several companies. He founded Shandong Qilu Supermarket Chains in 1994. In 2008, he set up Baifen Communication Information Technology, China’s leading wireless advertising service company. In 2010, Xu took on the role as chairman and CEO at 55tuan.com, which he has transformed into a life service platform and renamed Wowo Limited.