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THE spectacular rise of the Chinese economy is giving more and more local people the freedom to spend on consumer goods. But with the rising cost of living in the cities, consumers are becoming increasingly savvy and focused on getting more for less. This situation has given rise to a new consumption pattern – group buying. Knowing that big orders can get big discounts, some consumers are now approaching retailers in groups, formed within residential communities or via websites. And the phenomenon is growing.

Easy and Economical

When the heat of summer kicked in last year, Xiao Yang went looking for a couple of air conditioners for his new apartment. Unsurprisingly, he found prices at their annual peak. The store offered some discounts, but not to the extent he expected.

When Xiao Yang found some of his neighbors were facing the same problem, they banded together and approached the electronics chain Dazhong, offering to buy in bulk in exchange for lower prices. When the electronics retailer wouldnt come to the party, Xiao Yang and his neighbors turned to Gree, an air conditioner franchise, and made a deal giving them 15 percent off any group purchase of 30 sets or more. The quota was easily met within the new community of 1,000-odd homes.

“Its impossible to get better rates unless the company is staging a special promotional event,” comments Xiao Yang. Almost all the big items in his new home were obtained through group buying, either organized by himself or via a website. “I got up to 50 percent off my ceramic tiles and 30 percent off the furniture. The total cost of filling a new home can be cut by around a third through group buying,” says Xiao Yang with a smile.

While providing savings, the new consumption pattern is once more proving the old maxim “Two minds are better than one.”As Xiao Yang explains, “No one is expert on everything. And there is always something an individual can overlook when shopping. In group buying, the chance of making mistakes is reduced to a minimum.” Xiao Yang was completely ignorant about home decoration when he received the keys of his new apartment, but got a crash course during his first few group buying expeditions. The merits of collective intelligence are reflected not only in better prices, but also full and fair contracts for services. More details in contracts mean less disputes over project quality later. With the expertise and experience he gained in group contracting for decoration services, Xiao Yang later masterminded group buying of home electronics and furniture in his neighborhood.

XiaoYangs experiences are typical in the group buying world. While the practice is being applied to all manner of products, from cars to cosmetics, it is most often utilized in the purchase of home supplies, with home decoration items in increasing demand due to frantic activity on the real estate market. Consumers can save anything up to 50 percent on home supplies at group buying events. “It saves both time and money,” states Liu Huaijun, a manager with a state-owned enterprise. Last April Liu attended a collective buying event for domestic decoration materials convened by House.focus.cn, and purchased almost all the materials he needed in one place at a great price. “I dont have the time to scrounge through store after store for each individual piece. The event was extremely convenient, as it brought together all the major home product producers and provided good prices.” After the event Liu dropped his earlier belief that group buying was merely a fad amongst the young, and now ardently recommends it to friends.

Small Profits But More Sales

Consumers arent the only ones benefiting from the group buying trend. Shanghai-based kitchen furniture manufacturer Fengmei warmly embraces the idea. Unable to afford the rent required to compete with the legion of other brands in the city, the company contacted WZCBD.com, a popular home supply website that offers updates on group buying events and hosts consumer comments. Fengmei now pays an annual fee of RMB 2,000 to post group buying invitations on the site, and any registered member can get group buying rates, even if they are a solo shopper. “We only maintain two outlets in Beijing,” says Fengmei manager Mr. Zhang. “Most of our business comes through group buying,” Once the company wins an order from a neighborhood group, it can sell as many as 100 sets at a time. “Group buying is good for us. Though we cut the price to 60 percent or less of the usual retail rate, there is still a margin for profit on big orders.” The company also saves large sums on agent commissions, shop rents, permanent staff salaries and deliveries, since most customers attending group buying events live close to where the event is staged.

In order to defend its turf, Fengmei has hired Internet salespersons and posts group buying advertisements on all major real estate websites to grab customers early in the home purchasing cycle. Despite this, all of the companys rivals, big or small, have attempted to muscle in on the group buying phenomenon. Jiang Xue, for example, is an on-line saleswoman for Dahe Decoration Company. Her responsibility is to map new residential plots in the city, and ferret out customers in Internet community forums. “Generally we will cut 20 percent off the usual retail price for orders of ten customers or more.” The rate is open to negotiation however, in order to keep ahead of competitors. “Customers are increasingly fastidious nowadays. They will compare the price and services of many companies before opening their purse.” Besides handling deals, Jiang is intensely involved in public relation endeavors in a bid to win potential buyers. “PR is a vital side of the work that cannot be overlooked.”

“Catalyst” in Group

Buying

WZCBD.com, founded in 2003, is a leader amongst Chinese group buying websites. The value of transactions it mediates has rocketed from the RMB 50 million in 2004 to RMB 220 million in 2006. Concurrent with rising transaction values is an increasing customer base, and thousands of consumers are now registered with the site. Book editor Xu Yunyun is one such buyer, who went on her first group buying expedition to Xianghe Furniture Market in Hebei Province last March, along with 500 others brought together by WZCBD.com. Heartened by her procurement of a posh sofa at 30 percent lower than the market price, she applied for another shopping tour two months later.

All the events organized by WZCBD.com attract hundreds of buyers – some have involved over 1,000 participants. “The zeal of visitors to our website indicates a tremendous demand for group buying in the sector of home supplies,” says Zhao Yongjun, CMO of WZCBD.com. Zhao is better known to regular site visitors as Dr. Group Buying. “We never charge a cent to group buying participants. Instead, we provide them with free shuttle services to events and lunch, as well as assisting them with bargaining.”

Most group buying websites operate in a similar fashion; notices about group buying events are posted on the site, visitors can apply on-line or by phone, and the website organizers bring buyers and sellers together to strike out deals. The website companies survive on sales-based commissions from sellers, service fees from registered enterprises and Internet advertising.

Zhao firmly believes group buying is a win-win deal for both shoppers and sellers, enabling customers to pay less while helping retailers expediently reach target customers and substantially cut operational expenses, such as store rental and labor costs. In any case, group buying is undoubtedly a growing phenomenon, with more and more manufacturers and retailers registering with WZCBD.com and similar websites. Group buying events organized via the Internet now comprise as much as 30 percent of some companies business. Even home appliance giants B & Q and Home Depot now offer discount cards to residents of new communities. As one group buying advocate stated recently, “The Internet allows individual consumers to rally into buying groups and be on a more equal footing with the corporations with whom they are dealing.”