Can the Spark of Group Buying Start a Prairie Fire?

Click to read the original text for details Interest in community group buying stems from its role as a comprehensive enlightenment for bC integration. Those involved in channel digitalization should pay close attention to community group buying. The endpoint of community group buying is the "new store commerce" I have always advocated, transforming all retail into new store commerce. 01 Community Group Buying: Cycles and Status The public learned about group buying through the so-called community group buying of "capital groups." Unfortunately, capital groups are not true community group buying; they are merely community e-commerce, another form of e-commerce. To understand and promote new things, one must understand the Dunning-Kruger curve. This curve has been repeatedly mentioned in recent industry discussions. The Dunning-Kruger curve is a large cycle formed by two small cycles, characterized by two peaks and one trough. The first peak is the bubble (peak of Mount Stupid), and the second peak is real demand and cognition (plateau of sustainability). Between the two peaks is the trough (valley of despair). Misinterpreting the first small cycle as the entire cycle is a common mistake. The first small cycle is characterized by dramatic ups and downs, accompanied by huge bubbles and their bursts. When the bubble rises, people fear missing out on the track; when it bursts, they firmly draw a line. This is the mentality of many. Community group buying originated from the model innovation of Xingsheng Youxuan in 2017, rapidly rose with the entry of large platforms with capital, and reached its first peak in mid-2021. At that time, capital groups were generally excited, investing at all costs without budget limits, entering the "peak of Mount Stupid." Then, under policy pressure and public opinion in the second half of 2021, there was a rapid reshuffle: "8 into 5," "5 into 3," with capital groups largely exiting, and group buying entered winter (valley of despair). At this point, the first small cycle ended, and many believed community group buying had no hope. It is precisely at this time that the second small cycle began. Local groups once suppressed by capital groups rose again, entering a growth phase (slope of enlightenment). Unless otherwise specified, community group buying in this article refers specifically to non-capital group buying. Understanding the laws indicated by the Dunning-Kruger curve is very important. The first small cycle is an illusion, both its peak and trough. The peak is an illusion brought by capital bubbles, and the trough is an illusion brought by the bubble burst. However, although the first small cycle is an illusion, the enlightenment it provides is very valuable. It is the enlightenment of the first small cycle that brings the real users and real demand of the second small cycle. Whether or not capital intervenes in the second cycle, the demand is real. Where is community group buying currently in the overall large cycle? On the slope of enlightenment. This is my view of the current state of community group buying. Although the overall scale is not large, it is steadily upward. 02 Group Buying Products Vegetables and low-price burning money are labels of group buying. This is a misunderstanding. Vegetables are just a label of capital groups. In the group buying circle, capital groups are not recognized as community group buying; they are community e-commerce. The main difference between capital groups and local groups: Capital groups' traffic comes from platforms, and "group leaders" are merely product deliverers (like a second Cainiao station); local groups' "group leaders" combine traffic generation and delivery in one. Community group buying in this article mainly refers to non-capital groups, currently dominated by local groups, which have not yet expanded widely. Local group buying products generally fall into the following categories: 1. Fresh products (excluding fresh vegetables) and simple-packaged fresh products. For example, fresh eggs and milk, geographical indication agricultural specialties, aquatic seafood, frozen ingredients, flowers and green plants, organic food. Fresh products are simple packaged processing of fresh items, characterized by long channels and high total channel gross margins. 2. Primary processed products. Primary processed products using fresh products as raw materials, such as rice, flour, oil, seasonings, and dried goods. These have some standardization, but brand preference is not particularly obvious. 3. Long-tail products. Leisure retail, instant food, etc. Long-tail products traditionally lack stable channels and are suitable for e-commerce. Long-tail is characterized by low frequency; the group leader's initial mobilization can stimulate purchase desire in the short term, achieving centralized purchase of long-tail products, i.e., group buying. 4. Circle-tier products. Such as home furnishings, daily chemicals, personal care, mother and baby products, and alcoholic beverages. Relationship endorsement is the circle advantage of group buying. 5. Marginal standard products. Third-tier and below brands in high brand-awareness categories. For example, new brand dairy products, although dairy is a high brand-awareness category, due to the relationship endorsement of group buying, third-tier or new brands still have opportunities. Understanding the categories of group buying products is important. The characteristics of the above categories are: first, the family is the demand unit, so housewives and the elderly order more, and community reporting is more effective than relay ordering, which is more effective than mini-programs; second, planned group buying, not immediate consumption, can be consumed over a longer period. Group buying products also have three basic characteristics: First, high gross margin; second, low brand-awareness products; third, differentiation from ordinary store categories. The above products require the strong relationship endorsement of the group leader. Ordinary store products are based on natural sales (self-selection) and meeting the greatest common denominator of society. Community group buying products are basically marginalized products of ordinary stores. Marginalized products becoming mainstream group buying products is related to the business logic of group buying. 03 Group Buying Logic As mentioned earlier, group buying categories are basically low brand-awareness categories. Local groups generally do not touch standard big brands, as standard big brands have low gross margins and require low-price burning. Since these are low brand-awareness products, transactions require the "group leader" to provide strong relationship cognitive endorsement. Therefore, community group buying is a typical business model integrating relationship, cognition, and transaction. Strong relationships are the premise of cognition, and transactions are the result of cognition. Simply put, it's about knowing the person, not the brand. When local groups choose group buying products, the first consideration is gross margin. Gross margin must be higher than standard products. Standard products have low gross margins because they are easy to brand, have short channels, and thus transparent prices. Therefore, group buying products should choose products with relatively opaque prices. This is a paradox: products with high brand awareness are relatively easy to sell but have low gross margins; products with low brand awareness require recommendation but have high gross margins. The way to solve the paradox is to choose "group leaders" with strong user relationships, using the community's strong relationships for cognitive endorsement. This is the business logic of group buying: monetizing strong relationships. Monetizing strong relationships is typical private domain traffic. Because community strong relationships are the premise of group leader traffic, supermarkets with high employee turnover and no community strong relationships are not suitable for community group buying. Group buying is like a small shop business. At the same time, I do not agree with the idea of community Douyin group buying. Douyin can expand traffic, but it is not community-based; it is centralized and does not necessarily require strong relationships. Strong relationships have community characteristics. So, community group buying is a good name. It's a pity that capital groups have "hung a dog's head" and messed up the label. Of course, there are also some group buying models that use the WeChat business model, quickly mobilizing in the short term without community strong relationships, forming considerable group buying scale. I doubt the sustainability of this model. 04 Group Leaders Community group buying is the monetization of the group leader's community strong relationships. Therefore, community strong relationships are an important prerequisite for group leader success. The following four points are key to forming community strong relationships: 1. Overlap of acquaintances and regular customers. Not all store managers have offline strong relationships. Stores with high mobile populations, such as those at stations, airports, or commercial areas, find it hard to have strong relationships. The strong relationships of community stores come from the overlap of living radius and business radius. Outside the store, they are acquaintances; inside, they are regular customers. The overlap of acquaintance and regular customer relationships forms strong relationships. 2. The store manager's ability to manage customers. When I visit stores, I can usually tell whether the business is good as soon as I enter. In good stores, the manager's eyes and actions show it from the moment a customer enters. 3. Employee stability. The reason chain stores and supermarkets find it hard to do community group buying is that store managers and staff have high turnover, while strong relationships take time to form and require employee stability. 4. Proficiency in WeChat. Early group leaders included store managers (side job) and stay-at-home moms (main job). At some point, stay-at-home moms performed better than store managers because those trained in WeChat business were better at monetizing strong relationships. The value of group leaders is monetizing strong relationships, which determines that group leaders' scale is not large, excellent group leaders are not easily replicable, and excellent group leaders are likely to break away from platform dependence. It also determines that managing the relationship between platforms and group leaders is quite difficult. When the scale of group leaders reaches a certain level, management can only be abandoned, and other methods (such as supply chain) are used to make group leaders dependent. There is also a practice of "air-dropping" group leaders into a community, then using ground promotion, WeChat, and other methods to quickly acquire a large number of customers, which is highly efficient. Among these, ground promotion and WeChat are methods to accelerate relationship formation in the short term. 05 Independent Group Leaders During the B2B boom, I discussed the issue of "franchise stores" with friends. At that time, both Xintonglu and Lingshoutong were doing "franchise stores." Ren Xiaodong once said an unrefined but vivid phrase: "Franchising is like Q building." He was referring to the loyalty issue of franchise stores. Around 2019, community group buying also discussed the topic of "group leader uprising." It was still about whether group leaders were loyal to platforms. No matter how many labels are attached to independent group leaders, there is only one core characteristic: public group leaders who do not depend on any specific platform. Group leaders and store managers are the same in nature. For store managers, they buy from whoever has good goods at low prices. Similarly, group leaders do the same. The difference is that store managers' resource is "location traffic," while group leaders' resource is "relationship traffic." With traffic in hand, one has bargaining power and the qualification to negotiate with upstream platforms and supply chains. In this regard, store managers and group leaders are no different. Platforms cultivate group leaders, and group leaders become independent. For platforms, this is a loyalty issue; for group leaders, it is an interest issue, a matter of maximizing traffic benefits. How many brands have done signage advertising (franchising) on small shop fronts? As long as the first one is done, the second one can be done with better conditions, of course. The first platform helped the group leader monetize community user resources, and once they know that group buying platforms have products with higher gross margins than standard products, group leaders will have higher expectations. Initially, they are happy with slightly higher gross margins than standard products, but later expectations rise. If this platform cannot meet them, they will find the next platform. Simply put, independent group leaders want to monetize community relationship resources at a better price. This is common sense. The emergence of independent group leaders is premised on the involution of community group buying and the appearance of group wholesalers. Independent group leaders connect with multiple platforms and multiple group wholesalers simultaneously. Of course, some independent group leaders also take on supply chain roles, which is no longer simple independent group leadership. Group leaders are becoming public, and their behavior patterns are increasingly like store managers, or store managers are group leaders, combining two traffic generation methods. This will certainly happen in the future. Once the enlightenment of bC integration is complete, it is no longer controllable by the enlighteners. 06 Group Wholesalers The model of community group buying can be expressed as S2b2C. S is the supply chain platform, b is the group leader, and C is the user. S undertakes two functions: First, supply chain (S2b); second, serving "group leaders" (b2C). The combination of the two forms S2b2C. When independent group leaders appear, it means group leaders have the ability to independently operate b2C, only needing to connect with S2b. Thus, group wholesalers were born. What do group wholesalers do? They only provide supply chain S2b, not participating in user b2C operations. The existence of group wholesalers is premised on the emergence of independent group leaders. The threshold for being a group wholesaler is lower; you only need supply chain resources. After all, independent group leaders do not depend on a specific group wholesaler; it can be a one-off business, done today or not tomorrow. However, the threshold for doing group wholesaling well is high, requiring a stable supply chain. This is the supply chain revolution of community group buying. 07 Group Stores When more and more group leaders become independent, platforms hope to cultivate "loyal" group leaders. Thus, platform chain or franchise group leaders emerged, referred to as group stores. In the early stage, there were two relationships between platforms and group leaders: First, a service relationship; second, a stable supply chain relationship. When group leaders become independent, the stable supply chain relationship no longer exists, and the service relationship naturally disappears. Platforms' revenue comes from serving group leaders for free and earning through supply chain relationships. When supply chain relationships become unstable, platforms hope to establish an "exclusive" relationship with group leaders, which is the group store. Group stores have only one supply chain. Previously, group leaders could be part-time; group stores must be full-time. The group store model developed rapidly in 2022. Unlike the monetization of strong relationships by regular group leaders, group store leaders often need short-term strong ground promotion to build new relationships. Therefore, ground promotion capability is key. At the same time, because group store leaders are full-time and have no existing resources, product structuring, richness, and gross margin capability are more important. The strong relationships of ordinary group leaders have limited community radius. Building new relationships through ground promotion can break through the traditional community radius and enter cross-community. However, the convenience characteristics of the community must exist, so it cannot infinitely cross too large a community. The emergence of group stores aims to build the uniqueness of the group leader's supply chain. But when group stores truly appear, it becomes another issue: the issue of chain convenience stores. And it is a three-dimensional chain convenience store. Since it is a chain convenience store, it should be operated according to chain convenience logic. Obviously, current group stores are not like this. Group stores are also called new store commerce by the industry. In 2020, we proposed the concept of "new store commerce" in "New Marketing 2.0: Three-Dimensional Connection," which is based on traditional stores building three-dimensional traffic through three-dimensional connection with users. The concept of group stores was born with three-dimensional connection with users from the start, making them standard new store commerce. If group stores add high-frequency standard products to their product structure, they would be no different from our proposed new store commerce. 08 Group Buying Platforms Without group buying platforms, there would be no community group buying. How large are the current local group buying platforms? The top ones range from 100 million to 1 billion. In the distribution system, this scale is only medium or medium-large, not large. However, platforms with stable operations have employees buying houses and cars, indicating significant supply chain opportunities. Early group buying platforms mastered certain supply chain resources in their past experiences and realized supply chain resource monetization through group buying technical means. Please note the above statement. The supply chain is implicit, formed in the founder's personal experience; the group buying method is explicit, formed in the short term. Both abilities are equally important. Attending the "9th Community Group Buying Conference" by the community group buying self-media Kaiman, I found that platform scale replication is hitting bottlenecks, with many platforms saying they are "polishing the model." Platform replication faces three major difficulties: First, replication requires building hierarchical infrastructure (warehousing and distribution) and establishing hierarchical management organizations. Currently, it is a flat organization with entrepreneurial characteristics. Will the multi-level organizational system remain competitive after replication? Second, the relationship between platforms and group leaders. The emergence of independent group leaders makes group leaders public. Public group leaders mean instability in downstream supply chain demand. Third, bottlenecks in the upstream supply chain. Transforming the non-standard product supply chain is a revolution. The current supply chain bottleneck, according to Wang Shouren, founder of the local group head platform "Youjing Youtian," is "diseconomies of scale." Whether community group buying outside capital groups can rise to large platforms, I am not particularly optimistic. But more and more entrepreneurial small platforms are emerging, living quite comfortably in the short term, and I am quite optimistic about them. 09 The Spark of Group Buying The above content is a simple review of facts and phenomena. Although I have not participated in the practical operation of community group buying, I have kept an eye on it. The reason is that I believe it is the enlightenment of bC integration. And bC integration is an area I focus on. As mentioned earlier, the model of community group buying is S2b2C. It is divided into two segments: S2b is digital supply chain, and b2C is bC integration. Community group buying is one form of bC integration. S2b is a digital supply chain that can be used by group buying platforms or any supply chain, including brand owners. The emergence of independent group leaders was expected by me. Its emergence means that b2C will become a basic function of channels, mastered by the vast majority of stores (group leaders). So, I say, in the future, store managers will be group leaders, and group leaders will be store managers. Group leaders become public resources. Even if it is a franchise-type "group store" aiming to cultivate loyalty, as long as disputes arise, it will transform into independent group leaders. Some group store platforms say that group store leaders must "have no obsession with traditional business," but this is only effective in the early stage. People without obsession, after being group leaders for a long time, will develop obsession. This obsession is: users are my strong relationships, and strong relationships need to be monetized with higher returns. My 20-plus years of franchise experience tells me that even if franchise returns are ridiculously high, franchisees still obsess over "the penny they didn't earn." Desire is endless. What is the spark of group buying? It is b2C. The emergence of community group buying will also permanently change the logic of channel business. Traditional stores are a land rent business. Whether business is good or bad, they work for the landlord. Store business performance is related to four major factors: First, location (the main factor determining rent); second, area (the secondary factor determining rent); third, product structure (standard products have little choice); fourth, the store's user management capability (customer relationship capability). The emergence of community group buying strengthens the role of the third and fourth factors. Because community group buying is the monetization of strong user relationships, and it is not reflected offline, it is unrelated to store location or whether products are big brands (cognitive endorsement). Traditional retail is constrained by "differential rent": high traffic inevitably incurs high costs. Community group buying changes this situation, as the traffic cost brought by relationships is minimal. The greatest significance of community group buying is this. Therefore, I have the following three judgments: First, with the popularization of group buying, small stores without group buying capabilities will largely exit the retail industry in the future. Community group buying means group leaders have three stores: an offline store, a community store (community reporting, relay ordering), and an online store (mini-program store). Traditional stores with only offline presence will lose survival space in the future. The shelf space of offline stores is limited, while the shelf space of community stores and mini-program stores is unlimited. Unlimited shelf space will provide numerous opportunities for upstream supply chains. If traditional store business is location, location, location, then the new business model will be relationship, relationship, relationship. From monetizing location traffic to monetizing relationship traffic. Second, community group buying has enlightened bC integration, opening a key link in channel digitalization. As long as the supply chain masters the logic of bC integration, deep distribution will combine with bC integration and extend to the C-end. If the result of group leader enlightenment is the emergence of independent group leaders, then after independent group leaders appear, bC integration will emerge. I describe it as: The spark of group buying, bC starts a prairie fire. Third, with the popularization of independent group leaders, the focus of community group buying will shift to supply chains beyond standard products, triggering a new supply chain revolution. Source: Teacher Liu's Digital New Marketing (ID: liuchunxiong1964j) Author: Liu Chunxiong [Genki Forest National Sales General Manager Ye Licheng] Salute to channel partners, meet in Chengdu, August 31-September 2, 2022 (7th) China FMCG Channel Innovation Conference. __-END-**_