China Group Buying Sites Gain Steam

In a fast-growing Internet and shopping trend that is proving to be highly beneficial to both consumers and businesses, Chinese group-buying websites are offering bargain-basement deals on everything from coffee and cake to cosmetics.

A piece of cake and a beverage at an exclusive restaurant in Beijing, for example, were selling for $5.75 on Thursday, 55% less than usual, while a medicated lotion from a respected Japanese brand was $45.56, or 45% off.

The sites work by negotiating deals with retailers and other businesses. They agree to deliver a large number of customers, typically in the hundreds, and in exchange get big discounts on products. They make money by taking a portion of the revenue generated by the deals and also through some advertising.

Most of the sites offer one deal a day and news of the deal spreads virally. Some guarantee the deals they offer, while others require that a certain number of customers purchase a product before confirming the sale. Users can sign up to get notices through e-mail, Twitter, Facebook, or an iPhone app. Buyers typically print out vouchers on the site and take them to the retailer to receive their discount.

The trend first caught on in the United States, where one of the most popular sites is Groupon.com. It offers deals in around 100 cities and almost two dozen countries.

The manager of Chinese website Fenpier.com, Ye Fei, said that it costs around $737 a month to run one of the sites, with about two-fifths going toward renting a server and the rest to promote and run the Web site. Ye added that manpower requirements are low, especially in the early stages. "As far as I know, there are some group-buying sites that are being run by just one person," Ye said.

The low entry barriers and relatively simple business model have led to a large number of competing sites. In China alone there are already more than 300. Small sites are able to thrive by focusing on one area. In large cities, successful sites usually have different offers for various neighborhoods.

The key to getting and retaining users is to offer products that they want and that appeal to a large number of people. Some sites in China are having trouble building up a sufficient user base because the immature market makes it difficult to add new products.

But the deputy operations officer of the group-buying site 58.com, Chen Xiaohua, is optimistic that more and more businesses will open up to the idea.

"Businesses accept orders from group-buying sites because they don't have to pay an advertising fee to the sites or make an initial investment. What can businesses have against this?"