From Groupon and LivingSocial crisis to see the dilemma and change of group buying mode

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Buy and long tail products are the modern internet era E-commerce most classic two business models. Group buying to different time and space fragmented consumption needs of the reverse to obtain wholesale prices, is the traditional way of sales has been subversion. Long tail products are breaking the physical stores can only sell limited hot products limit so that unlimited sales become possible. Today, talk about group buying. First of all, it is important to note that group buying is a traditional wholesale reversal mode, which is not a new thing. It's been a long time since the sale. It was a very simple attempt at a very small scale, such as in the same unit. In the past it was very difficult to gather demand at different times in different regions. The advent of the Internet, a great deal of information asymmetry, so that group purchase anew glow of new life! In a very short period of time, both at home and abroad have sprung up a large number of group buying start-up companies, all want to dig in the Internet gold mine to the first bucket of gold. Among them, the United States Groupon and LivingSocial because of deep pockets, technology and the concept of advanced and become the industry benchmark.

But the development of group buying has not been as smooth as Amazon's big electricity business model. Recently, Groupon, the originator of global group buying, has been Mason by the founder, after the IPO. Groupon's IPO price, at $20 a share, rose to 31.14 dollars in just a few hours, followed by a slow and painful fall. On the day Mason left Groupon, the company's shares had fallen to $4.24 a share, a 79% lower than the initial public offering and a 86% per cent lower than its first-ever-fleeting record. The reason for this is that, in addition to the initial public offerings, stocks typically experience a steep plunge, with a deeper problem in the profit model.

The American group buying site, followed by the LivingSocial, is no better. Since last November, there has been layoffs and closures, and the financial situation in the first half is worrying. In 2010, Amazon invested $175 million in LivingSocial, leaving Livingsocail with no two. But last year, Amazon reduced LivingSocial assets by 169 million dollars. The documents submitted by Amazon show that LivingSocial lost $50 million trillion in the first quarter of this year, while LivingSocial won 156 million dollars in profits over the same period last year. LivingSocial into a list of 10 brands that analysts predict will die next year.

The crisis and death of Chinese group buying is mainly caused by fierce competition. Small market, porridge less increase is the root cause. Obviously, the problem with Groupon and LivingSocial is certainly not a competitive issue, but a deeper business model. LivingSocial CEO Oshonis blamed the company's sharp fall on the hacker attacks this year, which caused more than 50 million of user data to leak, and did make some consumers feel insecure and stop using group buying services. But more consumers are more inclined to believe that if the losses are incurred, they will have to be livingsocial to continue to use group buying services. The hacking attack took place almost in the first quarter of the report, and it was clear that the explanation was too far-fetched to be completely convincing. In addition, the impact of hacker attacks is only local, short-lived, but also can not explain the long-term livingsocial profit is not good-looking problem.

Let's go back to the group buying business itself to see. Since 2011, the questioning of group buying mode sound. Group buy through daily discounts to attract consumers, for businesses to stabilize sales and bring new customers, at the same time they profit from it. It appears to be a triple win: Consumers receive concessions, users get new customers, and group-buying sites earn profits. But in fact, the vast majority of businesses through large concessions, although temporarily get a lot of new customers, but these new customers are surprisingly low.

And the merchant usually from the community more stable than consumers, from the group purchase site consumers only pay attention to the low price discount. Once businesses stop discounting, they will find that the consumer disappears and may flock to other, more attractive group buying activities. Businesses found that by continuing to discount discounts can not promote benign and stable sales growth, but increased reliance on group buying sites. When more businessmen understand this truth, that is, the start of the collapse of group buying mode.

Surveys show that most businesses are unable to offer discounts of more than 10%. According to the theory of average profit of Marx's industry, in the fully competitive market, the profit between industry and industry finally tends to be balanced. From my years of business experience, the general profit margin is basically around 25%, of course, each specific industry or special period will be different. At the same time group buying website will charge about 30% profit. Therefore, in addition to some very high profit margins of the industry, the purchase of merchants can only get the normal passenger flow of about 25% of the income. This type of suicide sale, like thirst, is unsustainable. If businesses fail to generate stable sales growth, savvy marketers will find it better to invest the money in other, more reliable, more efficient ways of marketing, such as mail marketing and social marketing.

In addition, for group-buying companies, the surface is gorgeous noble electric business technology companies, but in fact, group buying has a strong community, need to set up marketing agencies in various places. If you need enough group buying activities, you need to maintain a large marketing team, so that they like bees in all corners of the city, with the enthusiasm of Amway MLM Marketing to join group buying activities. It also requires a lot of customer service to deal with the endless problems of consumers and businesses. Suddenly found that group buying is actually a labor-intensive industry.

This year, for example, Groupon employs 8000 people, an increase of 433% per cent, but it should be noted that half are salespeople. This is due to the need to provide a large number of guidance and telemarketing by signing deals with local companies. Groupon is now operating in 46 countries. If Groupon is an internet company, it is a sales machine that adapts to the needs of the market, and is not a typical example of E-commerce for E-commerce. This is very different from the nature of the successful electricity companies such as Google and Amazon.

Group buying site through the crowd, you can achieve general sales and personalized customization. But because a large discount to attract more consumers, can promote the rapid accumulation of group purchase sites, so that the wind investment is easier to see the desired results. So from the very beginning, almost all of the group buying site is a large discount + limited buying mode kicked off. But it turns out that more and more businesses are getting injured and quitting is doomed to this model just wishful thinking of the game.

I believe Oshonis must have seen these problems. So announcing the end of daily group buying, closing offices and layoffs is a prelude to a change of play. He made it very clear that moving to longer-lasting activities was a move to a healthy group-buying campaign that did not offer a big discount. And once a large number of marketing personnel are abolished, attractive group buying activities will be reduced substantially. There will be a big dive in LivingSocial income. LivingSocial's dismissed staff complained online and revealed that LivingSocial recently recalled some of its sales staff. This also confirms from the side that this kind of transformation adjustment is a bit radical, LivingSocial must return to the old road before having a better play.

Today, Groupon is a handsome change; LivingSocial in transition. People are going to think about the way out of the future group buying site. Recently Groupon announced the acquisition of European travel applications Blink offers the day Hotel reservation service. There are indications that they are aggressively moving into the lower-margin direct sales sector. And LivingSocial also want to turn over new products, the future will be to search + advertising direction, through the establishment of a searchable database of transactions, so that businesses get targeted users and profit from it. However, the effectiveness of these restructuring needs to be further observed and validated. Group buying site really like the human body metabolism to complete the continuation of life?

At the end of the story, it occurred to me that at least American group buying sites were already on the transition, while Chinese group buying sites were still fighting for market share. Chinese group buying site is dead to the imminent not self-knowledge, or group buying mode is particularly suitable for China's national conditions? The taste, or leave you to the spectators to savor it!