TUANGOU 團購

Read an article on CNN’s website the other day regarding China’s newest consumer buying trend, Tuan Gou 團購 or the literal translation, team buying. The idea as I understood is that using internet as a tool, a group of Chinese netizens would band together to purchase in bulk a product that they commonly like to buy. Because of their “relatively large” number and thus, their huge combined purchasing power, these netizens was able to haggle or more appropriately, coax a better price and terms from sellers. These Tuan Gou netizens have no formal organizational structure and are driven to organize merely by impetus and as such, they would only elect a temporary leader (or more like a purchasing manager or a leading negotiator) to do the haggling for them using their numbers as a negotiating leverage. According to CNN, such purchasing/haggling tactic worked pretty well and had actually succeeded in generating huge savings for buyers (you can check CNN about it). Personally, I think the whole idea is brilliant. Simple yet brilliant. Furthermore, I personally believe that this whole scheme of thing could possibly be transformed into a profitable new business model. Since the inception of the internet, many businesses and entrepreneurs have squeeze their brain juice dry to come up with a “winning” formula for online business success but so far, only a handful did make it. Many tried but failed. The reason is because the business models they come up with only attracted “visitors” and “page views” but hardly translate that “number” into revenues and eventually into profit. The idea of Tuan Gou could be the key since “they” not only have the “numbers” but also the group members are actually buying instead of soaking up freebies offered over the net. Furthermore, in the early days of the internet, the prime movers of the World Wide Web are the content providers. They generate contents interesting enough to attract visitor traffic and from there, they make their sales pitch but with the advent of Napster, Apple online music store, blogging, and social networking, the internet underwent a radical makeover into a tool for P2P (peer to peer) interaction and Tuan Gou is a genuine PSP interaction. It is precisely because that Tuan Gou is a user generated interaction rather than a proprietary development of a commercial entity, Tuan Gou as a consumer trend is more spontaneous, more “credible” and may perhaps be a longer lasting trend than an occasional hype usually identified with the early internet driven consumer behavior. However, for Tuan Gou to work, a few key ingredients must be present. Foremost among the factors is that the products that are the target of these Tuan Gou participants must be sufficiently generic (though not entirely) to have a single price point and be also readily available with other sellers as to foster competition. If a certain product has multitude of available variants and each has their own price, there will be more choices and therefore, instead of one concentrated buyer – group, several smaller sized buyer – group each with fewer members and hence, lesser bargaining power would exists. In addition to that, less generic product would provide points of differentiation that each seller would strive to emphasize in order to justify charging a higher price and hence, negate the bargaining leverage of the Tuan Gou group. Secondly, a Tuan Gou group should be fairly large in order to create the necessary bargaining leverage. The size shouldn’t be just a dozen not unless the item in question is pricey such as an automobile (which would probably have few purchase in a day) but rather in the vicinity of 30 – 50 people in order to be effective. Otherwise, sellers would quickly dismiss the group since they could easily “replenish” the “lost sales”. More appropriately, the “number” should be large enough as to comprise a significant portion of a sellers’ transaction for the day. As an example, suppose a seller has an average of 1000 transaction per day, a Tuan Gou group of 12 (assuming each member constitute 1 transaction) would be miniscule and even in fact, would be negligible to the bottomline of the seller. Conversely, if a seller has an average transaction of say just 100 a day, a Tuan Gou group of 50 representing 50 possible transactions would be a tempting prize for the seller. A third factor for the success of the Tuan Gou is that the Team Leaders or more importantly, the entire Tuan Gou process should be credible. There should be no suspicion of one member or any member of the group making money off the Tuan Gou group by entering into a backroom deal with the seller. As much as possible, transparency should be maintained during the deal making process. Losing credibility in the process would mean a loss of solidarity among the Tuan Gou group eventually resulting into the disbandment without any deal being made. Lastly and most importantly, the deal or more accurately, the savings that could be generated should be substantial. Anything less than that would put into doubt about the usefulness of the whole Tuan Gou system. This is because the question that each member of the Tuan Gou group would frequently ask is that “can I get the same deal if not better on my own?” If the answer were to be a yes, then what is the point of joining up with a Tuan Gou. It is because the individual doesn’t have enough leverage to get the “best deal” from the seller that the idea of Tuan Gou even existed in the first place. For now, Tuan Gou is still uniquely a Chinese consumer concept albeit one probably growing in popularity as suggested by CNN but I believe that such a concept could well applied outside of China as well and who knows, Tuan Gou would probably become a consumer reality in a next few years instead of just merely a temporary fad.