The era of 'Nine Prohibitions' compounded by the pandemic, which opposes both low-price dumping and price gouging, is a delicate balancing act—ponder which weighs more. The antitrust fervor in e-commerce has not yet cooled, yet community group buying has officially entered the era of the 'Nine Prohibitions.' These nine guidelines have brought unprecedented pressure to the entire track. Since China's transition from a planned economy to a market economy, government departments have rarely directly issued such high-specification requirements or documents to regulate the market. Even the earlier 'thousand-group war,' ride-hailing war, and food delivery war—a series of internet subsidy battles—did not enjoy such 'special honor.' Recently, according to industry media reports, the 'first case' of community group buying was implemented. The Baiyun District People's Government of Guiyang City announced that it had conducted law enforcement and talks with an online group buying platform regarding the low-price dumping of goods through subsidies, urging it to strictly comply with the State Administration for Market Regulation's requirements on community group buying operations. At the beginning of the new year, moving from warnings to enforcement marks a good start for the chaotic track to head toward the right path. In this milestone beginning, the various players in community group buying—what changes and what remains constant?

-01- Manufacturers For manufacturers, from the initial resistance, believing that community group buying would impact offline physical businesses; to later disdain, as no one could be sure whether community group buying could truly become a new channel to increase sales. But now, many manufacturers are beginning to actively engage with community group buying. As the community group buying track evolves, more manufacturers realize this is not a passing fad or just a trend, but a new business model. Moreover, this model is gradually gaining a foothold in users' consumption scenarios. For example, at several recent community group buying product selection conferences, leading brands such as Luhua, Six Walnuts, Ma Dajie, and Yanjin Shop frequently appeared, rather than being limited to 'white-label' or agricultural products as in the past. Secondly, according to internal sources, many FMCG companies have already established dedicated e-commerce departments for the community group buying business. Some first-tier brands have even directly created exclusive SKUs for community group buying, supplying dedicated products to platforms. Of course, not all FMCG manufacturers have changed their attitudes. At the time of the People's Daily commentary on community group buying, companies like Zilin Vinegar, Weilong Spicy Strips, and Xiangpiaopiao successively issued notices 'prohibiting low-price supply to community group buying platforms such as Duoduo Maicai and Meituan Youxuan.' In fact, from the manufacturers' perspective, resistance to community group buying is often a last resort. Faced with collective 'pressure' from stores or distributors, they must choose sides between community group buying platforms like Meidi Duo and traditional offline businesses. For category kings in leisure snacks like Weilong, whose business is rooted in countless BC terminal small stores like capillaries, and where traditional offline channels still account for the vast majority of business share, it is impossible to give up the entire forest for a patch of grass like community group buying. However, it should be specially noted that besides brands deeply rooted in offline business like Weilong, among the many voices of resistance, there are also some obscure brands that specialize in 'hit-and-run' marketing, trying to gain fame from the community group buying fire and ride the wave for free.

-02- Suppliers Suppliers, as transmitters of commercial value, play a role that transmits value without creating additional value. Facing models like unified procurement and distribution, and direct sourcing, which bypass certain intermediate links, suppliers are in the most dangerous position. Compared to manufacturers, product brands do not belong to suppliers. Their business model is profit-oriented, supplying wherever the shipment volume is large, and without the worry of long payment cycles (short cycles of T+2/T+3 days). Suppliers are actually more proactive in embracing community group buying than manufacturers. The supplier group is generally divided into three categories: the bullish, the bearish, and the curious. But in reality, it is some suppliers who are most active in resisting community group buying. One moment they form an 'XX Association,' the next an 'XX Alliance,' attempting to use national regulation of platforms to make a big show. So, the bearish group refers to those who try to use state intervention to maintain the existing structure, hoping to revert to a conservative market economy. This group is generally composed of second-tier distributors and dealers born in the 1960s and 1970s, who are older and still consider community group buying a 'troublemaker' that subverts the entire circulation economy. In comment sections, they do not directly speak for themselves but instead create an atmosphere by portraying small vendors losing their livelihoods. The bullish group refers to those who actively change their organizations, adjust processes and product structures to adapt to the platform track, making organic changes from resistance to handshake to embrace, quietly making big money. Therefore, they are not heard on major media platforms or seen in comment sections; instead, those active on forums are mostly vested interests who have suffered losses. The last group is the curious, who neither praise nor criticize, just watch the trend. On one hand, they see people around them making money; on the other, they see the state becoming increasingly strict with community group buying. They cannot predict the future direction, but their traditional business is still acceptable, and the impact is limited for now. So, they strengthen refined operations of traditional business while seeking the best opportunity to decide whether to jump in.

-03- Platforms The state has made a series of moves regarding community group buying. What changes have platforms, as the protagonists in troubled times, undergone? In fact, these nine regulations—no low-price dumping, no price gouging, no price fraud, no monopoly agreements, no false advertising, no big data 'price discrimination'—are basic principles that any business model must follow. Any one of them is also prohibited in retail formats outside community group buying. On the flip side, it is difficult to determine the cost for low-price dumping, especially for non-standard fresh produce, making price uniformity hard. Therefore, up to now, low-price phenomena like one-cent oranges and a few cents for tissue paper still persist on platforms. Moreover, platforms have their own rebate mechanisms: a two-yuan vegetable may not sell for one cent, but it can offer a 1.99-yuan coupon. It can be boldly predicted that in the short term, low prices on platforms will not disappear, as price is the first weapon to attract consumers to new things. But on the other hand, we cannot label everything as 'low-price dumping.' How is 'low price' defined? Even in traditional offline supermarkets, there are often promotional items like 0.99-yuan eggs or 0.22-yuan vegetables to attract traffic. Would that also be considered low-price dumping? So, for platforms, large-scale subsidies that affect people's livelihoods are problematic, but promotional traffic-driving items are certainly not low-price dumping. However, under the pressure of the 'Nine Prohibitions,' the three giants have shown obvious reactions, eagerly distancing themselves from 'community group buying' and labeling it as 'community e-commerce,' indicating that their business is an extension of their original operations. This is reminiscent of how 'direct selling' replaced 'pyramid selling' in history. In the Q3 2020 earnings call in November, Pinduoduo CEO Chen Lei said: 'Duoduo Maicai is not community group buying,' attempting to draw a clear line with the bustling 'community group buying' and develop quietly. Hema Youxuan transformed into Hema Jishi. Hema President Hou Yi believes community group buying is a new e-commerce model, but it is still in its infancy. What we see now is definitely not the final model. Therefore, Hema internally does not use the term 'community group buying' because these words cannot represent its future. 'We are optimistic about the development potential of this format, believing it is already a new e-commerce model. There is still a long evolution of models possible.' On January 1, 2021, Meituan Youxuan issued a notice to internal employees: officially naming its business model as 'community e-commerce' business, and clearly stipulating that internal employees, from 2021 onwards, must not use other terms like community group buying when describing Meituan Youxuan's business model. In fact, before the 'Nine Prohibitions,' in May 2019, during communication with Zhou Yingjie, CEO of Xingsheng Youxuan, she always emphasized that Xingsheng Youxuan is an e-commerce company, not a group buying company. Amid the diverse opinions, community veteran Li Baolin said: Community group buying goes left, community e-commerce goes right. Two flowers bloom, each on its own branch; let it be. Xingsheng subsidizes Xingsheng Youxuan took the lead in a new round of subsidy war. After receiving $700 million in ammunition from JD.com, Xingsheng Youxuan changed its defensive stance and took the lead in launching a nationwide order-subsidy war. Just on January 8, Tencent threw another $100 million in 'ammunition' to Xingsheng. After filling the ammunition, whether it's a gun or a cannon, they fired a couple of shots to test. The Xingsheng Youxuan app showed that from January 3-9, each user could receive a 3-yuan red packet once a day, with a 3-yuan discount on orders over 9.9 yuan, and it could be stacked with other coupons. That means, even without other discounts, based on an average order value of 10 yuan, it is equivalent to at least a 30% discount on all items. Didi gets tough Didi, leveraging its main app's traffic advantage, officially began directing traffic to Orange Heart Youxuan. According to Phoenix News, in the new version of the Didi app, Orange Heart Youxuan appeared on the homepage's 'service entry collection card,' and users can click to enter the service page. Orange Heart Youxuan is a core strategic project within Didi, and Cheng Wei once said at an internal meeting, 'We must strive to win the market first place.' The importance of Orange Heart Youxuan to Didi is self-evident; Didi will not easily admit defeat. Also, Orange Heart started advertising. Guo Degang led the team, joined by Cai Ming, Ma Li, and Li Xueqin, a group of comedians, to talk about grocery shopping. Hema launches Internet platforms entering the physical e-commerce field one after another is a provocation to Alibaba, the giant in physical e-commerce. On December 29, 300 Hema Jishi BD personnel entered Changsha, and after training, they quickly began to develop the market. In addition to investing in Shihui Tuan, Alibaba also personally founded Hema Jishi. Although entering the game late, Hema Jishi has already achieved full coverage in Hubei Province and entered four provinces nationwide. Changsha, Hunan, is the first stop for Hema Jishi in the new year. Meituan charges to the top In the first week of the new year, Meituan Youxuan's national average daily orders reached 20 million items, surpassing old rivals like Orange Heart Youxuan, Xingsheng Youxuan, and Duoduo Maicai in volume. This is a blitzkrieg: while Orange Heart Youxuan focused on offline store openings, Duoduo Maicai concentrated on warehouse point adjustments, and Hema had not yet expanded on a large scale, Meituan Youxuan ran ahead. Moreover, Meituan Youxuan also began advertising, hiring the 'hot' duo Shen Teng and Jia Ling to shoot short videos, and in the videos, they intentionally or unintentionally directed traffic back to the final 'Meituan' portal.

-04- Group Leaders In the group leader segment, there has been a long-standing debate between strengthening and weakening group leaders. In the blink of an eye, 2020 ended amid such discussions. As the new 2021 arrives, group leaders have also undergone significant changes. There are models like Daqing Jiubai Street, where some group leaders' income has exceeded their offline store income, and even group leaders voluntarily ask to change their storefront signs to Daqing Jiubai Street. Group leaders and platforms are highly one-to-one bundled and exclusive, with 100% interaction and absolute loyalty, not allowing other competing platforms. Secondly, regional local platforms like Youjingyoutian, leveraging their differentiated positioning advantages, have subtly adopted a '1+1' selection model for group leaders: 'Buy cheap things from the new and old three groups, buy good things from local leading platforms.' Finally, more group leaders open as many groups as possible, holding the mentality that 'if there are many lice, you don't itch,' accepting all comers and securing their position first. Even if they don't open, competitors on the same street will, turning themselves into a 'Amap' with n types of vehicles; if you want to 'take a taxi,' just go to the map. After discussing the differentiation of these three types of group leaders, what remains unchanged for group leaders? Whether it's the new three groups, old three groups, or local groups, overall, there is a greater emphasis on the function of the group leader's self-pickup point. Because 'de-grouping' would mean community group buying reverting to the original traffic e-commerce model, and applying traditional e-commerce thinking to a new business model will definitely not work. In other words, removing group leaders and going directly F2C is a pipe dream. The weight of group leaders has been further confirmed.

-05- Users Through first-hand market observation, for users and consumers, community group buying, like Taobao and KA in history, offers an additional choice and comparison. It is gradually forming a new consumption scenario, and more users are beginning to accept community group buying. According to China Merchants Securities data, the penetration rate of community group buying among consumers from first-tier to fifth-tier cities will reach 35%/40%/45%/50%/55% in the future. From the user's perspective, they are actually benefiting from the dividends of this new business model. But whether it's brand owners, suppliers, platforms, or group leaders, they are all discussing it, yet no one is willing to listen to consumers' voices. Consumers have actually become more positive, more embracing, and more affirming of this matter. Because community group buying itself brings them benefits, and the state's 'Nine Prohibitions' are more about regulating the seller's non-standard and irregular competition, not regulating consumption patterns. Moreover, the unconditional after-sales service of community group buying will compensate for platform flaws in product selection and delivery. Overall, users are satisfied with this consumption model, and users' opinions are the most fundamental indicator of whether a business model can go far. For example, why hasn't WeChat business, which is very similar to community group buying in operation, developed well? Because WeChat business only treats users as payment objects, emphasizing the seller's interests, and consumers completely lose the initiative. So the emergence of community group buying can directly defeat WeChat business. For users, what remains unchanged is that they always vote with their feet: I will go wherever the consumption model has lower costs and better experiences. But although community group buying is gradually becoming a third consumption scenario besides offline physical stores and online e-commerce, according to iiMedia Research, the community group buying market reached over 70 billion yuan in 2020. Compared to the 40 trillion yuan offline physical retail market or the 10 trillion GMV of traditional online e-commerce, 70 billion is still 'a drop in the bucket.' This also means that currently, community group buying is still used by users as a supplementary consumption scenario.

Summary: Kevin Kelly, founding editor of Wired magazine, said, 'When it rains, every drop of water's path into the valley is unknowable. But you know the direction—because of gravity, it must go down.' The way of business is indeed so.

Authors:

Chen Haichao | Chief Consultant, Mai Marketing New Retail Consulting Agency

He Nian | Researcher, New Retail & Community Group Buying Tips will be paid 400-2000 yuan upon adoption.