How far can community group buying go? Many traditional distributors have asked me this question, and my answer is: any business that defies basic commercial logic is a flash in the pan.

This year, while operating several Unification products, I was taken aback by the prices in community group buying. For example:

  • A 210g beef sauce at 4.9 yuan per bottle
  • Two 200g mushroom sauces at 9.9 yuan

The platform requires a profit margin of about 15%, and distributors also need to make a profit when supplying. If your products are genuine, what mindset does the brand have to engage in such a loss-making venture? What brand philosophy do you want to convey to consumers?

Today, I want to share my views on community group buying again.

-01- National Regulation under the "Traffic is King" Mentality

Recently, the People's Daily commented on the topic of "community group buying." The commentary noted that there are many different voices in the public opinion arena, "besides discussions about the profound impact on vegetable vendors' interests, there are also thoughts pointing to expectations for innovation from large internet companies."

The commentary stated that internet giants with massive data and advanced algorithms should "not only focus on the traffic of a few cabbages and fruits; the vast sea of technological innovation and infinite possibilities are more exciting."

Subsequently, some community group buying platforms were found to have used false or misleading pricing tactics to deceive consumers into transactions, violating Article 14(4) of the Price Law of the People's Republic of China.

On March 3, 2021, the State Administration for Market Regulation imposed administrative penalties of 1.5 million yuan each on four community group buying companies: Chengxin Youxuan (Beijing) Technology Development Co., Ltd., Shanghai Yucan Information Technology Co., Ltd., Shenzhen Meituan Youxuan Technology Co., Ltd., and Beijing Shihui Technology Co., Ltd. Additionally, Wuhan Qizhong Meiwei Technology Co., Ltd. was fined 500,000 yuan.

Recently, regulators have tightened restrictions on community group buying subsidies, requiring Meituan to remove "one-cent flash sales." Several companies, including Meituan and Pinduoduo, have received rectification requirements. Meituan was asked to remove products priced at 0.01 yuan in flash sales, while other platforms were told to further tighten subsidies.

A person close to Meituan Youxuan said that employees received verbal notice on May 27 to remove such flash sale products and were required to complete rectification by June 1. An employee from another leading community group buying platform said they received similar verbal notice to tighten subsidies on May 31.

The state's attitude towards community group buying is not just indifferent; because community group buying, which uses fresh produce to attract traffic, even feels like it is undermining the "vegetable basket project." In my memory, no innovative new marketing model has been penalized multiple times by relevant state departments in such a short period; at least the previous B2B model was not so blatant.

Why community group buying? Community group buying itself is not problematic; it optimizes the supply chain and allows more consumers to enjoy tangible benefits. At this stage, it is the eagerness for quick success under capital, and the concept of traffic being king, that has distorted the scripture, leading to the current awkward situation.

I just want to say: the people's business needs to be steady and solid, just like the national "vegetable basket" project. Staying true to the original intention and benefiting the people is the right path.

Secondly, for matters related to people's livelihoods, don't mess around. China has 600 million low-income people who prefer primitive labor and need time to change gradually. Platforms should not use technological means to take away their jobs. If pushed too far, the consequences are unimaginable.

-02- Burning Capital on Community Group Buying is Not Very Meaningful

From a macro perspective, B2B burns money on terminal stores, which number in the millions domestically, while community group buying burns money on consumers, numbering in the hundreds of millions. The former has a relatively larger unit investment, while the latter, cultivating consumption habits cannot be achieved with tens of billions; the capital's money is just a tickle.

A few days ago, I communicated with a regional manager of a daily chemical group about community group buying. He reported that last year, the platform provided significant subsidies for daily chemical products, and sales were indeed good, with thin but still profitable margins. However, at the beginning of this year, the platform he cooperated with canceled all subsidies for daily chemical products, causing a significant decline in sales. To maintain previous sales, brands must increase investment, even operating at negative gross margins, and thus the company falls into severe "involution."

In fact, consumers who play community group buying have three to five group buying apps on their phones. Their purpose in using the platform is only "cheapness." They will not develop feelings for the platform, nor will they, like in traditional business, generate transactions from cognition and then establish relationships.

Consumers will simply go to another platform if this one has no subsidies, or buy another product if this product's subsidy hasn't dropped below the factory price. A business that satisfies consumers' "gain advantage" psychology will not last long and has no value. What is the point of burning money like this? Unless you can keep burning forever.

I previously proposed: Community group buying platforms have only one way to gain competitiveness: subsidies plus low prices, and there is no other way.

Some brands also hope to promote new products through community group buying, even thinking this can accelerate consumer product experience. But in fact, when you open the platform, you find countless similar products, with prices only lower, not higher.

Consumers choose products based on two core factors: price and value. If they use your product at a low price repeatedly, it will be very difficult to raise the price later. For example, if I am used to eating your mushroom sauce at 5 yuan, and suddenly it becomes 10 yuan, what would you think? At that point, it is impossible to cultivate loyal consumers for the product.

To maintain sales and traffic, the usual tricks are only two: one is platform subsidies and capital burning; the other is brands continuously reducing costs, even sacrificing product quality, to lower supply prices.

The former is a drop in the bucket for hundreds of millions of consumers, while the latter will affect the entire FMCG ecosystem in the future. Clearly, both methods violate normal business laws. I believe in the saying: Laws are irreversible, human nature cannot be violated, and the result of burning money is a mess.

-03- What Aspects Need Urgent Improvement in Community Group Buying?

1. Must be lawful and reasonable

If you want something to perish, first make it crazy. There have been many such examples in the past two years, and we have seen the results. Competition should not violate national laws.

Any business model must grow under the condition of maintaining national regulations. Do not test the edge of national laws for a little traffic, or even dare to harm the industry and consumers' vital interests.

2. Must maintain the industry ecosystem

Not to mention other things, low prices alone seriously damage the industry ecosystem. In the example I mentioned above, a 210g beef sauce at 4.9 yuan per bottle. I want to ask: Does the brand have profit? Does the distributor have profit? Does the platform supplier have profit? If all have profit, will the quality harm consumers?

Community group buying is essentially good, but don't forget the underlying logic of business value. Don't only care about your platform's traffic and ignore the survival of other parts of the supply chain. Mutual benefit is the only way to win-win.

3. Product quality must be strictly controlled

Take my previous experience buying fruit on a platform: when it arrived, it was indeed cheap and the quantity was sufficient, but the quality was only at the level of "edible." A neighbor lady said: such fruit can be sold by the "pile" at the evening stall vendors.

Fresh produce is a magic weapon for platforms to gain traffic, but I also hope they don't just focus on low prices. After all, community group buying also has the advantage of "convenience." While satisfying convenience, it is also necessary to appropriately increase prices to improve product quality, and not make people feel that those who buy fresh produce on the platform are low-class.

4. Must improve service quality

The blowout development of community group buying will inevitably lead to a severe shortage of professional personnel in a short time. Among the so-called community group buying experts I have met, their theoretical systems are not self-consistent, contradictory, and lack practical operational experience, making a living by selling anxiety.

The so-called professionals do professional things. Many platform personnel are also recruited in the form of "press-ganging," either transitioning from traditional FMCG industries or from technical roles. To improve service quality, you must first improve the professionalism of professionals.

5. Stay true to the original intention and return to the essence

In the era of traffic being king, achieving this is indeed difficult and a torment. Currently, many people propose "group wholesale" and "group brand" to improve the predicament of community group buying. I think this is just leading the rhythm, because they will not pay for the adverse consequences.

The core value of community group buying is: clearing inventory. Its basic operational logic is "pre-sale, next-day delivery, self-pickup." The ultimate goal is to use internet technology at extremely low cost, collect massive pre-sale demands the night before, and through technology-driven efficient warehousing and logistics, deliver to the community the next day, truly unleashing the power of this model, allowing consumers to feel the benefits and producers to gain more profit.

Final Thoughts:

I once saw a quote on my social feed and want to share it: "Technology is the primary productive force; efficiency is the only direction for progress in the business society. Social progress relies on technology and innovation."

Community group buying is an optimization of the existing business model. By using big data to optimize the product supply chain system, it makes resource matching between supply and demand more precise, which is originally a good thing. The most terrifying thing now is that no matter what business model competition, it eventually evolves into traffic being king and oligopoly.

To paraphrase a saying, "What you eat, you will eventually spit out." It seems beneficial to both supply and demand at the moment, but once the intermediate platform forms an oligopoly, the ultimate payers are still the suppliers and end consumers. So I still want to emphasize: Community group buying, stay true to the original intention, and forge ahead.

Any tip adopted will be paid 400-2000 yuan.