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First know your audience, then grow
By Ding Yining |
August 25, 2011, Thursday
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Print Edition
Print Edition
GAOPENG, the Chinese venture of US-based Groupon, the world's largest group-buying website, has been closing offices and dumping staff in a sign that its rapid expansion since operations began in March may have outstripped its ability to generate income in a highly competitive market.
A new round of lay-offs began last week, with at least 350 employees losing their jobs nationwide, according to media reports citing Zhao Zhanling, a lawyer representing the workers.
Gaopeng responded by saying there were some "normal staff adjustments" under way, including departures of probationary employees who didn't work out. At its peak, Gaopeng had a staff estimated at more than 3,000 at its peak, Chief Operating Officer Ouyang Yun said in an interview in June.
Thirteen branches of Gaopeng in the Yangtze River delta region have been closed and 18 branches have been axing workers, Zhao claimed. At least 200 were fired from branches in Shanghai, Wenzhou, Jinhua and Taizhou last week without proper notification or severance pay, he said.
Group-buying sites, pioneered by Groupon, which was founded in Chicago at the end of 2008, offer deals-of-the day for discounts on goods and services. The discounts are dependent on a certain number of people signing up for each deal.
The business model caught on quickly in China, the world's largest Internet market, where shopping online is popular. Gaopeng was a latecomer in a market where privately owned copycats had already sprung up. The five biggest group-buying websites all operate in nearly 100 domestic cities.
Gaopeng is a partnership of Groupon, Tencent, China's largest Internet service portal, and private equity fund Yunfeng Ventures.
After almost half a year of operation, Gaopeng remains small potatoes in the industry, reporting only 14.9 million unique visitors in June. By contrast, market leaders Lashou and Meituan had about 50 million unique visitors each that month, according to Beijing based research group Analysys International.
Unique visitor means a single person who visits a website any number of times. Calculating unique visitors generally means counting the number of unique IP addresses. Analyzers assume that these are separate people.
According to Marbridge Consulting, Gaopeng has been spending about 15 million yuan (US$2.3 million) a month on keywords advertising on Google and Chinese website Baidu, which comprise about half of Gaopeng's sales.
Nuomi.com, a group-buying affiliate of social networking site Renren, said earlier this year it plans to spend 200 million yuan this year in marketing and advertising. Ads have been appearing on outdoor billboards, LCD screens mounted on office buildings and Metro stations.
But ad slogans don't propel profit as much as deals themselves. Group-buying sites need to offer attractive products and services that consumers want, and some players are finding that end of the strategy harder and harder to meet in such a competitive environment.
The growth rate of transaction volume from domestic group-buying sites is expected to drop to 21 percent in the fourth quarter from more than 65 percent in the first quarter. Volume for the year is expected to come in at around 13.5 billion yuan.
Beijing-based research house Analysys International pointed out in a recent quarterly report that fund-raising will become very difficult for smaller players in the industry.
Understanding the scope of the domestic market and varying consumer mentalities from region to region in a country as large as China is crucial to the success of group-buying sites. These sorts of businesses require marketing and sales people who can keep an eagle eye on trends and respond quickly to changes.
Unfortunately, that has not proven to be Gaopeng's strong point. In its keenness to expand, the company seems to have lost sight of the consumers and vendors who make such a site successful.
From the vendors' standpoint, a coupon offer that might work for a restaurant in one area of China might be a complete flop in another area. And many vendors don't do repeat coupon offers after they have tried one, analysts said.
From the consumers' standpoint, buyers in China are keenly price-sensitive and fickle when it comes to sticking with one group-buying website. They surf from platform to platform, looking for the best deals.
Domestic group-buying sites like Nuomi and Meituan are teaming up with other service providers to expand the category of coupons they offer. For example, Nuomi has partnered with hotel reservation website Elong to sell hotel coupons and travel packages.
Other sites specializing in cosmetics and skin care products, like Jumei.com, have gradually turned into comprehensive online shopping platforms that offer discounts on a daily basis.
While Gaopeng struggles, Groupon itself is facing its own problems with rapid expansion.
The company, which now operates in more than 43 countries worldwide, filed an initial public offering application with the Securities and Exchange Commission in June, seeking to raise US$750 million.
When the commission questioned some of Groupon's accounting procedures, the company filed an adjusted report showing a net loss of US$103 million in the second quarter. The company hired 1,000 new employees in the three months ended June 30, bringing its total workforce to more than 4,800. The site now claims about 116 million subscribers worldwide.
Some analysts have begun to question Groupon's business model, which has relied on rapid expansion and a large workforce.
A new round of lay-offs began last week, with at least 350 employees losing their jobs nationwide, according to media reports citing Zhao Zhanling, a lawyer representing the workers.
Gaopeng responded by saying there were some "normal staff adjustments" under way, including departures of probationary employees who didn't work out. At its peak, Gaopeng had a staff estimated at more than 3,000 at its peak, Chief Operating Officer Ouyang Yun said in an interview in June.
Thirteen branches of Gaopeng in the Yangtze River delta region have been closed and 18 branches have been axing workers, Zhao claimed. At least 200 were fired from branches in Shanghai, Wenzhou, Jinhua and Taizhou last week without proper notification or severance pay, he said.
Group-buying sites, pioneered by Groupon, which was founded in Chicago at the end of 2008, offer deals-of-the day for discounts on goods and services. The discounts are dependent on a certain number of people signing up for each deal.
The business model caught on quickly in China, the world's largest Internet market, where shopping online is popular. Gaopeng was a latecomer in a market where privately owned copycats had already sprung up. The five biggest group-buying websites all operate in nearly 100 domestic cities.
Gaopeng is a partnership of Groupon, Tencent, China's largest Internet service portal, and private equity fund Yunfeng Ventures.
After almost half a year of operation, Gaopeng remains small potatoes in the industry, reporting only 14.9 million unique visitors in June. By contrast, market leaders Lashou and Meituan had about 50 million unique visitors each that month, according to Beijing based research group Analysys International.
Unique visitor means a single person who visits a website any number of times. Calculating unique visitors generally means counting the number of unique IP addresses. Analyzers assume that these are separate people.
According to Marbridge Consulting, Gaopeng has been spending about 15 million yuan (US$2.3 million) a month on keywords advertising on Google and Chinese website Baidu, which comprise about half of Gaopeng's sales.
Nuomi.com, a group-buying affiliate of social networking site Renren, said earlier this year it plans to spend 200 million yuan this year in marketing and advertising. Ads have been appearing on outdoor billboards, LCD screens mounted on office buildings and Metro stations.
But ad slogans don't propel profit as much as deals themselves. Group-buying sites need to offer attractive products and services that consumers want, and some players are finding that end of the strategy harder and harder to meet in such a competitive environment.
The growth rate of transaction volume from domestic group-buying sites is expected to drop to 21 percent in the fourth quarter from more than 65 percent in the first quarter. Volume for the year is expected to come in at around 13.5 billion yuan.
Beijing-based research house Analysys International pointed out in a recent quarterly report that fund-raising will become very difficult for smaller players in the industry.
Understanding the scope of the domestic market and varying consumer mentalities from region to region in a country as large as China is crucial to the success of group-buying sites. These sorts of businesses require marketing and sales people who can keep an eagle eye on trends and respond quickly to changes.
Unfortunately, that has not proven to be Gaopeng's strong point. In its keenness to expand, the company seems to have lost sight of the consumers and vendors who make such a site successful.
From the vendors' standpoint, a coupon offer that might work for a restaurant in one area of China might be a complete flop in another area. And many vendors don't do repeat coupon offers after they have tried one, analysts said.
From the consumers' standpoint, buyers in China are keenly price-sensitive and fickle when it comes to sticking with one group-buying website. They surf from platform to platform, looking for the best deals.
Domestic group-buying sites like Nuomi and Meituan are teaming up with other service providers to expand the category of coupons they offer. For example, Nuomi has partnered with hotel reservation website Elong to sell hotel coupons and travel packages.
Other sites specializing in cosmetics and skin care products, like Jumei.com, have gradually turned into comprehensive online shopping platforms that offer discounts on a daily basis.
While Gaopeng struggles, Groupon itself is facing its own problems with rapid expansion.
The company, which now operates in more than 43 countries worldwide, filed an initial public offering application with the Securities and Exchange Commission in June, seeking to raise US$750 million.
When the commission questioned some of Groupon's accounting procedures, the company filed an adjusted report showing a net loss of US$103 million in the second quarter. The company hired 1,000 new employees in the three months ended June 30, bringing its total workforce to more than 4,800. The site now claims about 116 million subscribers worldwide.
Some analysts have begun to question Groupon's business model, which has relied on rapid expansion and a large workforce.
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