With Meituan's Q4 and full-year 2020 earnings released last week, the smoke and fighting spirit of the group buying market are once again visible. Meituan's net loss in Q4 2020 was 1.437 billion yuan, primarily due to continued investment in new businesses such as community group buying. In the post-earnings conference call, Wang Xing said operating losses from new businesses were about 6 billion yuan, half of which came from 'Meituan Select'. It is clear that in the future, giants like Alibaba, JD.com, and Meituan will continue to increase investment in community group buying, making it a battleground where the new 'Hundred Regiments War' is bound to intensify. However, while giants are splashing cash (and fighting) in the community group buying arena, some community group leaders with 'unique resources' are also calculating new moves, engaging in their own 'off-mainstream businesses'. Could it be that commission income from community group buying is no longer satisfying these leaders? Or have they sensed a new 'trend'? -01- The 'Off-Mainstream Business' That Comes Knocking "If done well, earning 10,000 yuan a month is no problem. The best leaders can earn six figures a month." A senior BD (business development) from a community group buying platform told Dongdong Notes that among the mainstream platforms, a leader's income basically consists of sales commissions from their responsible area. Core leaders can earn commission rates as high as 14-16%, while ordinary leaders get 8-10%. Given the current crazy spending spree by internet giants, community leaders in key areas often receive an additional 2-5% bonus commission. In short, the more resources a leader has, the higher their income. So, what is the actual income of community leaders in Guangzhou, Shenzhen, Zhongshan, and other places? A community leader in Zhongshan, 'Yuanyi', told Dongdong Notes that any diligent leader can basically earn 10,000 yuan a month. If the community residents have strong purchasing power, monthly income can easily reach 20,000 to 30,000 yuan. However, for her, this high-income 'job' is just a 'side hustle'. "The average salary in small cities is 3,700 yuan, and a leader can easily surpass that by just taking orders and delivering goods in the community." Yuanyi said that in mid-last year, she lost her job in the tourism industry, and coincidentally, BDs from several group buying platforms were recruiting leaders in her community. So, eager to solve her livelihood problem, 'Yuanyi' became a mom leader. However, when opening the platform, Dongdong Notes noticed that in the nearby leaders selection page these days, Yuanyi's status showed 'resting' and orders could not be placed temporarily. "New leaders open groups almost every day, but I only do Mondays, Wednesdays, and Fridays, and rest the rest of the time." As for her rest time, she said she has more important 'work' to do: frequently posting other products she represents or cooperates with in the community group buying member groups. Besides common maternal and baby products, skincare, and weight-loss remedies, she also posts kitchenware, cleaning agents, and even discounted or clearance items from big fashion brands. The topics discussed in the group are basically unrelated to the group buying platform. "Anyway, if there's a need for fresh produce, they can open the app and order from me. I usually can't be bothered." As for why Yuanyi would set aside her main duties as a community leader to use the traffic built through group buying for her own 'off-mainstream' business, the answer is naturally profit. She told Dongdong Notes, as a community leader, her sales commission is only 14% (advanced group). But by selling other products she represents or cooperates with through existing user groups, commissions are basically 20%. For some big-brand clearance items, commissions can even reach 30%. In comparison, rather than exhausting herself for a dozen yuan per order in group buying, she feels it's more worthwhile to push high-value products. "Other leaders around me also use existing members to do WeChat business, even selling insurance on commission." Despite neglecting her duties, the community group buying business still earns her over 7,000 yuan in commissions each month. As for her 'small business', it brings her nearly 10,000 yuan monthly. In 'Yuanyi's' view, those excellent leaders earning 20,000-30,000 yuan a month are almost always busy, investing a lot of energy and time in expanding users and training new leaders, and may eventually become cannon fodder for the platform. "Selling some face masks and baby products requires little effort, and buyers usually come to you for cooperation automatically." She told Dongdong Notes that because community leaders have user resources and member groups, some companies and merchants seek cooperation with leaders. By leveraging the traffic and member resources of leaders, they can sell their products, and even with high commissions, it's cheaper than investing in marketing. So, don't the community group buying platforms care about leaders doing 'off-mainstream' business and neglecting their duties? -02- Platforms Can't Control 'Inflated' Leaders "It's common for leaders to use members to develop side businesses. (Platforms) don't not manage it; they just can't manage it." Zhou Li (pseudonym) was an operations specialist at a local community group buying company in Shenzhen. She believes the main reason her company eventually collapsed in the fierce community group buying war was that community leaders and store managers used platform traffic to develop their so-called side businesses. Like all community fresh produce brands, the company had tried measures to restrict this: for example, early on, they revoked or persuaded leaders and store managers to leave; later, they inserted operations staff into community WeChat groups to actively participate in group management, hoping to prevent leaders and store managers from using the groups to post products outside the platform. "But in the end, we found it was useless. After all, in community group buying, leaders often meet with members who place orders." Zhou Li said that in member groups with official staff, leaders generally don't post other products, but privately, leaders often use the convenience of picking up goods and delivering vegetables to invite members to join privately created groups. She even encountered situations where some leaders had only about 300 members in their official groups but privately created four or five 500-person groups, and their WeChat accounts had over 4,000 member friends, all used for developing 'off-mainstream' businesses or other side hustles. "Once a leader has substantial member resources, it doesn't matter whether they do the platform or not; of course, they're not afraid of being persuaded to leave." Zhou Li revealed that since measures were ineffective against leaders who already had traffic, the company began to increase commissions to encourage leaders to focus on community group buying. For example, they set assessment standards for quality leaders to advance and earn higher commission rates. The highest-level leaders could even have their commission settlement rate raised to 18%. However, some leaders still went their own way. "Just doing beauty product WeChat business can have commission rates exceeding 20%, which is always better than selling vegetables." In the eyes of leaders, the platform is a tool for attracting traffic and a endorsement for attracting users and building trust. Once they convert the platform's members and public traffic into their own private traffic, leaders start doing side businesses brazenly and openly. But didn't these leaders also pay a deposit when joining the platform? Why are they so confident in bypassing the platform to develop 'small businesses'? Zhou Li explained that currently, mainstream community group buying platforms typically require a deposit ranging from a few thousand to 10,000 yuan. But compared to the network of contacts leaders build using the brand endorsement and platform traffic, a few thousand or 10,000 yuan is nothing. Given that the effective customer acquisition cost for community group buying and fresh produce e-commerce is about 20 yuan, a leader only needs to use platform traffic and brand endorsement to build a 500-person group to recoup the cost. The value and income generated later through side businesses and other product sales are even more immeasurable. Therefore, many leaders' motives for joining community group buying are no longer pure. Some community group buying platforms value quality leaders' ability to expand and build communities, but these leaders often value the brand endorsement and platform traffic. What's worse, members have no strong relationship with the group buying platform. -03- Splashing Cash Can't Buy Leader Loyalty "Users (members) have no loyalty at all; they only care about low prices." When it comes to the relationship between community group buying platforms and members, A Ming, a small fruit shop owner near Maidi in Huizhou, might have the most say. Currently, A Ming has joined as a leader for 'Shihuituan', and his fruit shop is also a pickup point for 'Duoduo Maicai'. He told Dongdong Notes that even before the 'Nine No's' new regulations for community group buying were introduced, platforms were desperately trying to acquire customers by offering huge discounts (burning money) to attract members to order fresh produce. However, for most consumers, they will go to whichever platform offers the biggest discounts to take advantage, with no user stickiness. "Some members, after comparing, will place orders on two or three platforms for promotional fresh produce, just to save a few cents or a dime." With the introduction of the 'Nine No's' new regulations, which halted the low-price war in community group buying, some platforms' product prices are now only slightly lower than traditional offline markets. So, because prices lack attractive advantages, many members have started returning to traditional markets to buy fresh produce. In A Ming's view, the most direct feeling is the continuous decline in consumers ordering online and picking up at the store. "Pickup points are not like mom leaders or individual leaders; we almost can't maintain relationships with members and customers all the time." Chen Yu, a 'predecessor' in the community group buying industry who once ran a fresh produce e-commerce brand near a wholesale market in Liwan District, Guangzhou, also pointed out that the key to sustainable development of community group buying lies in leaders' ability to maintain communities, not just low prices. "Like WeChat business, leaders maintain communities and form strong relationships of trust with members." Chen Yu admitted that once community group buying platforms lose their price advantage, they often can't attract members to order. But out of trust in the leader, members usually consider buying products recommended by the leader. Since leaders have the ability to maintain communities and stimulate members' consumption desire, it's natural for them to recommend other products with higher commissions, develop side businesses, and engage in 'small businesses', after all, community leaders are profit-driven. Some community group buying platforms have begun to realize that the role of quality leaders is more important than huge discounts. Therefore, they have also started 'poaching' quality leaders. However, once community leaders grow, possess member and traffic resources, and have the ability to maintain communities, they will again fall into the cycle of developing side businesses. Compared to beauty, weight-loss, and maternal and baby products, fresh produce is about volume, because profit margins are small and cannot offer leaders higher commissions. -04- Conclusion After experiencing the 'Hundred Regiments War', community group buying platforms must eventually return to the track of profitability and sustainable development. Even internet giants, it's believed, cannot keep 'bleeding' money on unprofitable deals. Obviously, blindly burning money on low prices and cultivating leaders with quality resources cannot build a lasting competitive advantage for community group buying platforms. Clearly, how to make leaders loyal to the platform and have them wholeheartedly maintain and develop community group buying member relationships is the key to competition for group buying platforms, but it is also the biggest challenge all platforms face. Source: Dongdong Notes (ID: dongdong_note) If a tip is adopted, a reward of 400-2000 yuan will be paid. 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