Chinese Consumers Gang Up on Retailers
By Bill Bittner, President, BWH Consulting
An article in Tuesday’s Wall Street Journal describes how retailers in China are being swamped by consumer gangs in search of better prices.
According to the piece, Chinese consumers have caught on quickly to the internet and their voracious appetites for previously forbidden brand name products, low wages and semi-fixed currency exchange rates have driven them to seek ways to get the most for their money.
Their answer has been in a practice called “tuangou” or team purchasing. It involves a group of consumers who usually meet on the internet to identify items of interest and then combine their purchasing power in order to get greater discounts.
According to the Journal report, “Group purchasing is catching on in booming cities such as Shanghai. On the Web site 51tuangou.com — in Chinese, the name sounds like ‘I want to team buy’ — consumer teams formulate plans to bargain for products ranging from Buick automobiles to Panasonic television sets and refrigerators. Dozens of other Chinese Web sites offer similar services. Ebay Inc.’s Chinese site offers potential bulk sellers of goods an option to solicit team bids.”
Apparently, Chinese retailers are used to haggling with consumers but the internet has provided a whole new way for consumers to form partnerships and gain an advantage in their negotiations.
The team meets ahead of time to plan strategy and may even visit potential retailers individually to establish starting points. Then they all show up en masse to negotiate a deal.
Moderator’s Comment: Do you ever see team purchasing taking hold in the United States? Will retailers be willing or even able (because of accounting
and business processes) to negotiate unique retails for certain customers? Would there be a competitive advantage for a retailer to promote team purchasing as its primary way
of doing business?
I thought this article was interesting from a couple perspectives.
First, it opens up the whole idea of whether American consumers have become more aggressive in their shopping habits since the internet made pricing information
so easy to obtain. Do consumers negotiate more?
Second is the question of team purchasing, which makes a lot of sense from a consumer perspective, but I don’t know if it can take hold in the United States.
Maybe a smart retailer will facilitate the creation of consumer teams (kind of like having multiple frequent shopper programs) and learn to segment their customers by purchasing
team. The members of the team would theoretically feel their captain is negotiating the best price for them independent of the retailer’s traditional discount program.
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Bill Bittner – Moderator
Retailers constantly keep track of sales and profits on a yearly, monthly and almost daily basis. Each organization has one primary focus which is to beat the last set of numbers. The benefits of this are obvious. If these consumer buying groups became a force, retailers would only cater to such a market segment if, at the end of the day, doing so made them more money. On the other hand, if these groups put too much pressure on sales levels and profits with their negotiating power, retailers would reinvent the whole shopping experience in an attempt to change the conditions under which these consumer buying groups were able to flourish. Sales and profits will be protected in the end and businesses will adapt to counter.
Fascinating article, but it won’t happen here, at least not anytime soon. Anyone remember all the PR about MobShop (and other similar group purchasing schemes) back in the Dot Com era? Every one of them was a disaster from day one. Americans are too picky, time-pressured, and price insensitive to deal with this kind of process.
I agree. Fascinating development. Let’s not be too hasty to say it could never happen here. We’ve had consumer buying groups — co-ops — around for 40 years. It’s spotty, but they do crop up from time to time. And with retail prices rising, some enterprising web entrepreneurs might give it a shot here.
I’d be more concerned if I were a purveyor of high priced goods like appliances and automobiles. Can you imagine? How can you refuse to palaver with a dozen shoppers showing up at your door wanting to buy? Can you afford to turn them away? Talk about consumer empowerment. Interesting to think that, as the article states, retail price tags are just a starting point in negotiations.
Come off it. American shoppers not go after a novel new way of getting bigger and better discounts? Pull the other one. Any retailer unwilling to see this as viable had better hope that their customers don’t think of it any time soon. The minute they do, they will. Surely not a lot of people with Costco cards buy in bulk just for their own purposes and not for their friends and family as well? Just imagine the lights in their collectively beady little eyes when it occurs to them that they may as well use their joint buying power in other stores to get better deals.
And don’t for a minute think that now the door to China is open there will be ways and means of restricting information flow and idea exchange. That’s just about as likely as repaying all the loans and investments their government has made in American business. This is the partnership of the century and it will include many individuals as well as businesses and governments.
Another interesting implication of this article is the fact that a buying practice in China may indeed change the purchasing habits of consumers. This is a precursor of behavior to come – manufacturers and retailers paying attention to consumer purchasing habits in China more than they pay attention to those in the US.
Team purchasing takes time and commitment. Americans value their time more highly than Chinese people, and the “mob discount price” is already largely achievable by using the internet. Food co-ops are hardly a major growth segment. But it would be fun to see if someone calls a meeting in Greenwich Connecticut to see if 25 people want to buy their BMW’s together.
This is a whole new approach in our U.S. business world that
the fanatics on the internet will become the ‘first team’
purchasing.
If eBay and Yahoo do the onesies and twosies, why can’t chat
room individuals team up to buy in quantity? This new group
will push for quantity purchasing, especially if they find a
trendy product not in the States, or if the U.S. retailer is
having trouble buying from the right supplier.
Yes, there is direct buying in the U.S. today; but it is
company and supplier. China is cutting out the middleman,
and buying direct from the supplier.
Makes sense to me, given the X, Y, and new Millenium
generations are predisposed to the internet, and look for
trendy products all the time!!!!!!!!!
We oldies have lost track of the new ways of selling direct
to the young, multi generation consumers. Watch how the better loyalty card retailers put pressure on
suppliers to avoid any direct buys via web site users. May
or may not turn out that the true loyalty card of some better/upscale retailers can demand higher prices.
As for the price driven, loyal card retailers, each of them
could be screaming for business in a short period. Reason
being, these retailers with their price strategy won’t hold
the consumer who buys direct and doesn’t want to leave home.
Or did we forget? One of the major internet advantages is not stepping in a store! Hmmmm
There is going to be some new retail strategizing going on relative to this ‘team purchasing’ approach. Hmmmm, again.
It already exists in the US, it’s called “Direct Buy”. They have an interesting policy. If you go to the presentation and don’t sign up, you can’t come back.
Bulk discounts with a new medium of facilitation. Why not?
Hard to add much beyond Peter Fader’s succinct and accurate observation above. Of course, this does sound like a Mobshop-type phenomenon. And yes, American consumers are way too individualistic to invest much time or effort in a group bargaining activity. The interesting question for me is whether a significant segment of Chinese consumers will continue to participate in these collective purchases. Just because the West didn’t embrace a thing doesn’t mean citizens of another culture can’t decide to make it part of their lives.
I’ll take Mark Lilien’s thought one step further… from a multicultural consumer market perspective, I could see ethnic consumers turning to “tuangou” to convincingly demonstrate their influence with retailers. The thought leaves me just dizzy with glee of the potential from package goods to automobile purchases.
This certainly is a curious article. I do believe many consumers have become more aggressive in using the internet as a powerful tool for seeking the best prices on products, but consumers do not negotiate for these prices. High ticket items (electronics, refrigerators, etc.) are offered by many retailers and can be compared online very quickly and easily. In a sense, competitive pricing between retailers selling the same item is where the negotiating takes place. The consumer wins in this case because he/she can choose the lowest price. Many Americans simply don’t have the time to join team buying groups and the “I want it now” mentality is a detriment to the formation of these groups on a large scale.
What? Something which might transfer retail profits to manufacturers? Impossible, not here at RetailWire.
The question to me is whether enough can be sold this way to affect quantity to scale, or will it serve little more than planning/quality “insurance”.
Regardless, of its impact, tuangou fear will attract PR pros like flies on .. no lawyers at an accident.