Group or collective buying is defined as an online group auction activity in which the increasing number of buyers lowers the price of a product. Collective buying is heavily dependent on timing and quantity (Wang, Zhao, and Li, 2013).
Technology enabled the development of platforms that support the collective purchase of goods. Groupon, LivingSocial, and Wowcher were the first companies that successfully implemented this model, empowering customers to formulate groups and achieving extreme discounts. Due to low customer retention, this strategy seemed faulty and unprofitable (Williams, 2018). However, in China, Pinduoduo, a company operating since 2015, revolutionized group purchasing. The company achieved rapid market and economic development (Weinswig, 2020). Pinduoduo’s valuation exceeds the value of major corporations, such as Shell and HSBC (Sweney, 2020). But, how did Pinduoduo manage to expand so rapidly?
Pinduoduo’s success is primarily attributed to two reasons: the engagement of the low-end consumer market and the use of social media. Pinduoduo managed to gain the trust of the consumers that could not afford to buy expensive products (Williams, 2018). The application is notably popular in rural areas. Customer demographics show that Pinduoduo’s main customer segment includes women around 30 years old (Williams, 2018). Also, the company was the first from its competitors to extensively utilize social media, namely WeChat, to boost its sales. Using WeChat, customers can select a product and invite their friends and relatives to negotiate a better price collectively (Sweney, 2020). Based on the number of invited friends, the discounts on the application can even reach up to 90% of the product’s initial price. Also, Pinduoduo’s strong integration with WeChat allows the company to achieve low customer acquisition costs (Weinswig, 2020). Pinduoduo sells an enormous variety of products, from daily disposables to luxury goods. Consumers even attempted to buy Tesla cars via the Pinduoduo application. Although Tesla initially refused to accept the order because it sells solely from its website, the consumers eventually obtained the Tesla cars (Sweney, 2020).
Even though Pinduoduo has achieved tremendous success, the company experiences several concerns. In particular, Pinduoduo has focused its efforts on increasing its customer base instead of generating significant profits. To expand its customer base, the company frequently provides subsidies to its customers. Also, customer complaints do exist regarding the delay in delivery and the sale of counterfeit goods. Pinduoduo now attempts to resolve these issues, providing higher quality and luxury products (Sweney, 2020).
Pinduoduo’s success made other companies in China to target the lower-tier market, including Jingxi (JD.com) and Suning.com, and Xiao’e Pinpin (Tencent) (Weinswig, 2020). Similar initiatives do exist in other countries such as United Consumers in the Netherlands (Williams, 2018). What do you think about the revival of the group buying trend? Will companies adopting group buying strategy gain significant market share in e-commerce, or is collective buying a strategy destined to fail?
Bibliography
Sweney, M., 2020. A Bubble? The Stellar Growth Of China’s E-Commerce Upstart Pinduoduo. [online] the Guardian. Available at: <https://www.theguardian.com/business/2020/aug/22/a-bubble-the-stellar-growth-of-china-e-commerce-upstart-pinduoduo> [Accessed 5 October 2020].
Wang, J., Zhao, X. and Li, J., 2013. Group Buying: A Strategic Form of Consumer Collective. Journal of Retailing, 89(3), pp.338-351.
Weinswig, D., 2020. Tencent Eyes Pinduoduo’s Turf · Technode Insider. [online] TechNode. Available at: <https://technode.com/2020/06/10/tencent-eyes-pinduoduos-turf/> [Accessed 6 October 2020].
Williams, D., 2018. Is The Group Buying Market Becoming Mainstream?. [online] TranslateMedia. Available at: <https://www.translatemedia.com/translation-blog/group-buying-market-becoming-mainstream/> [Accessed 5 October 2020].
Thank you for sharing this refreshing topic!
Reading about this feature which is new for me, the strategy which Pinduoduo executes could be seen as a sort of group pricing: a whole group of people who buys a certain good can get a discount.
In my opinion, the restoring trend of group buying might fit perfectly in the current situation which we are confronted with. Many people lost their jobs and/or lost a lot money due to lockdowns and other rules. Therefore, one is cutting its finances even more than they previously did. Also, some people, mostly the elderly, do not want to go shopping anymore and spend a lot time online looking for and comparing all kinds of products. Group buying could bring those people together online where they can achieve their collective goal and even enforce it as a bigger group assures bigger discounts. They can feel like an online community, something one really needs these days. Consequently, certain companies who had a loss of income can now take their chances and sell a lot of products online in short notice, although for lower prices. So, this strategy will benefit sellers and buyers and could definitely grow the e-commerce market share for these retailing companies. What is your own point of view?
Hi Stéphanie! Thanks for sharing your opinion! I agree with your point. Especially during COVID-19, companies need to enhance their e-commerce strategies. Customers prefer to shop online to avoid crowded places. Also, taking into consideration that many people are struggling financially due to the economic consequences of the pandemic, customers are becoming more price sensitive. Group buying could help customers to obtain more affordable products, while sellers could increase their sales. Companies already try to adopt this strategy. For example, Tencent, the Chinese technology giant, launched during the pandemic the mini-program Xiao’e Pinpin to enhance its low-tier customer base.