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Decoding Group Buying

Lazada, Shopee, and Tokopedia have all implemented Group Buy options where individuals can either start a group or join a group purchasing an item in bulk at a lower rate. How can your brand leverage this group buy trend?

Written by
Flywheel
January 26, 2023
11
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APAC
Decoding Group Buying

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As ecommerce continues to boom globally, startups, online marketplaces, and tech giants across Asia Pacific are eyeing a previously untapped market: underserved customers in lower-tier cities and rural areas that have access to smartphones and reliable internet service.

The idea is not only to cater to these customers but to provide purchase incentives via bulk orders. This not only allows shoppers to buy goods at a lower cost but solves last-mile delivery logistics challenges and decreases supply-chain costs.

The Newest Ecommerce Trend

Pinduoduo & Meituan
Image by China Daily and Global Times

Spearheaded in China’s lower-tier cities and fast-developing rural areas by platforms Pinduoduo and Meituan, this concept – group buying – is an off-shoot of social commerce. In this case, members of a community come together to make a bulk purchase so that they can receive a discount on items, as well as delivery costs. 

The group buying model helps ease supply and demand challenges for consumers in areas where the demand for daily necessities often exceeds the supply available in local stores, which ultimately drives prices up. In addition, it helps merchants by providing real orders, which helps reduce storage and logistics expenses.

How It Works

The platforms have community leaders who act as the point person, compiling and placing orders from a reseller or decentralized warehouse on behalf of their neighbors and assisting with customer service queries. To solve logistic complications, businesses in the community can serve as pick-up points for shoppers to collect their orders rather than receiving the delivery at their door.

It’s become a lucrative business model: the total revenue for the more than 50 group buying apps in China was expected to reach US$13 billion dollars by the end of 2021, and Pinduoduo, which specializes in group orders for fruit and daily essentials, reported nearly 790 million annual active users in the fourth quarter of 2020, topping Alibaba’s annual active users.

Expanding Across Southeast Asia

Other markets have taken notice of this trend, and group buying has popped up in areas with underserved communities similar to those in rural China. In Indonesia, startups including Super, which caters to small cities in East Java, Chilibeli, which connects shoppers in Jakarta with farmers and suppliers, and GoJek-backed Kitabell, which delivers fresh produce and fast-moving consumer goods, are raising millions in funding. In the Philippines, Reselle is a startup that has partnered with the government and farming organizations to create a network of around 40,000 resellers with an average of 20 buyers each. 

Similarly, Singapore-based startup Webuy embraced the group buying model, but in a way that also capitalizes on social influence. In addition to connecting people within the same area so that they can collectively bargain with merchants, the startup provides its community leaders with product samples from small businesses so that they can recommend items they enjoy with their network of buyers and encourage bulk orders. 

In an early example of success, Webuy sold 4,000 cans of abalone in just four hours in December 2019 – after impressing investors, the company quickly expanded to Malaysia and Indonesia in 2020 and to Vietnam in 2021. 

Online Marketplaces Want In

Shopee, Lazada & Tokopedia
Image by News Hub Asia, ChannelAdvisor and KrAsia

But it isn’t just startups that are in the group buying game – established online marketplaces have introduced the option, too. Lazada, Shopee, and Tokopedia have all implemented Group Buy options where individuals can either start a group or join a group purchasing an item in bulk at a lower rate. 

The difference here, though, is that the Group Buy feature operates more like a flash deal or a crowdfunding platform. Rather than a designated community leader handling orders on behalf of an already-formed group of people, items are offered for a bulk order promotional period and individuals can join in hopes of receiving the discount. However, if the group does not reach the minimum threshold of buyers needed within an allotted time period, the order is canceled and shoppers receive a refund. 

To help decrease the possibility of that happening, the marketplace platforms offer Group Buy shoppers the opportunity to share the promotion with their social network or invite friends directly in order to encourage more people to join in. 

It’s certainly a different operating model than the Chinese tech giants and many Southeast Asia-based startups have chosen. This might be because executives in the region are aware of what happened in China when competition for the group buying market became fierce and businesses began price dumping in an attempt to gain market share – a move that ultimately ended with government regulators issuing fines.

And though it seems that group-buying competition is heating up in Southeast Asia, the business model isn’t without its challenges. 

Challenges and Opportunities

One reason why group buying in China is so beneficial for both shoppers and merchants is that the country has a robust manufacturing industry that allows it to produce a large variety of goods domestically and offer low shipping. In contrast, most countries in Southeast Asia do not have the same capability. These nations rely on foreign manufacturing and international shipping, which will likely preclude price dumping measures as extreme as those seen in China. 

Beyond this, the success of Pinduoduo and Meituan hinges on super apps like WeChat, which not only support messaging but also payments and social sharing. These super apps provide a seamless experience that is trusted by users, making purchases within the app a fast and simple process. 

Though social commerce is on the rise across Southeast Asia, and popular apps including Messenger, WhatsApp, Grab and Gojek have introduced digital wallets and payment features, frictionless payments within a messaging platform are still an emerging trend. Although in-app payment methods are not yet as embraced a payment method as in China, it is expected that this will change rapidly, with digital payments projected to account for over 90% of ecommerce spending by 2025. 

Because of this, it seems likely that both social commerce and group buying will continue to grow across Southeast Asia, especially because of the region’s high penetration of social media users. What’s more, social commerce is increasingly popular in Thailand and Vietnam, which both have large rural communities and highly unbanked populations that are increasingly turning to digital wallets. 

All these factors combined indicate that group buying could be hugely successful in these markets. However, it is a trend that is likely to evolve as it is introduced in markets where technological adoption and consumer preferences vary.

Tips for Brands Adopting Group Buy Features

For companies looking to test or add a group buying option to their offerings – or hoping to spread the word about their group buying feature that’s already in place – here are a few ways to set up for success and grow awareness. 

When setting up group buying options, it’s important that businesses ensure the discounts are deep enough to be attractive and effectively clear inventory. However, it’s also crucial for brands to ensure that they have set quantity limits to protect brand equity. It’s a balancing act, to be sure, and it needs to be carefully choreographed in order to be successful.

One of the reasons group buying initially became a trusted method in China was because it grew through word of mouth. Neighbors, colleagues, friends, and family passed the information about the buying communities to each other, which meant that there was already an established trust between the shoppers that was more likely to result in people considering and ultimately trying out group buying. So rather than shouting about a new group buying feature through a splashy campaign targeted to the widest possible audience, brands should consider how they can use the network effect to their advantage. 

Another great way to grow awareness of a group buying option is through shoppertainment – a live-streaming strategy that combines shopping and entertainment to provide as close to an in-store experience in an online environment. By creating an interactive, fun, and engaging live event, businesses can attract shoppers looking for deals and more quickly put together a “group” to purchase the product at a discount. 

With group buying expanding across Southeast Asia and maintaining momentum in China, it’s a trend that companies in the region should monitor closely, adapt for the local market, and experiment with to find what works best – both for businesses and consumers.

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We at Flywheel are a global team of 2000+ experts spanning more than 20 countires. With a range of specialities covering all aspects of digital commerce, we aim to set a new standard for our industry worldwide.
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