Gome

7/28/2019 Gome

1/9

The 9th International Conference on Electronic Business, Macau, November 30 - December 4, 2009

TUG OF WAR BETWEEN THE RETAILERS AND CONSUMERS: THE

PHENOMENON OF GROUP PURCHASE IN CHINA

Benjamin Yen1, and Minyi Huang21School of Business, The University of Hong Kong, Hong Kong

2Asia Case Research Centre, The University of Hong Kong, Hong [email protected]; [email protected]

AbstractRetailing shops are the contact points betweencustomers and supply chain. On one hand, theretailers need to satisfy the customers by providingthe right and enough products to ensure the servicelevel; on the other hand, the retailers also need tominimize the costs while satisfying the customers.This paper uses a case study of GOME is to

illustrate Tuangou, a relatively new phenonmenonthat has spread rapidly in China, and to show howthe company responded to the group purchasingshoppers. The case presents a tug of war happeningbetween the retailers and consumers. Theimplications of Tuangou to the stakeholders ingroup purchase are also discussed.

Keywords: Electronic Commerce, Group Purchase,Supply Chain, Consumer Behavior

IntroductionOne main task for retailers is to satisfy the

customers by fulfilling their needs. In other words,the retailers need to maintain the service level thatcustomers expected. At the same time, the retailersalso need to try all the efforts to minimize the cost(or maximize the profits). How to keep a goodbalance the cost minimization and servicemaximization becomes the most critical andchallenging work for the retailers. From thecustomers point of view their decisions are onlocation, time, type, variety, quantity, price, andamong others. The retailers need to take intoaccount these issues for retailing, shelf, andinventory management. The retailers may do

regular basis or event driven promotion on certainproducts to attract the customers by decreasingproduct price. The retailers may increase thecustomers satisfaction by offering wide variety orhigh inventory. The retailer may also give customermore flexibility on ordering, shipment, or pickup.There are always pros and cons for each option thatretailers try to implement.

The concerns for major stakeholders can bediscussed from the following three aspects:customers choice toward retailers and product,interaction between customers and retailers, andrelationships between the retailers and its upstream

partners in the supply chain.

Customers choice toward retailers andproduct. The customers could purchasecertain product at the specific shop. Thecustomer may also purchase through otherchannels and means to order or to pick up,e.g. ordering on Internet shop, post mail forcatalog shopping, telephone ordering for TV

advertisement. The main concerns focus onordering online and purchasing at shop.

Interaction between customers and retailers.Since the retailers need to keep a goodbalance between the cost control and servicerequirement, normally they would be veryvigilant on demand variability which iscritical in inventory cost. Normallypromotion will result in higher demand in ashort period as a spike that reflects the higherdemand variability. On the contrary,Wal-Mart adopts everyday low pricestrategy to have a better control in order to

stabilize the demand. Relationships between the retailers and its

upstream partners in the supply chain. Theretailers need to work closely with upstreampartners (e.g. distributors and manufacturers)to ensure timely and satisfactory supply. Thedemand variability is transferred, propagated,and amplified to the upstream partners andconsequently it forms the bullwhip effect.The upstream partners can alleviate thebullwhip by information sharing or strategicpartnerships (e.g. vendor managementinventory, VMI).The Chinese term Tuangou could be

translated as team buying or group purchase.It referred to a consumer buying practice in Chinathat unknown consumers joined together via theInternet and leveraged their collective bargainingpower with retailers to get discounts thatindividuals could not. Typically, the group wouldgather at an agreed time and location, and wouldshow up unannounced at a retail store. The practicehad its original in on-line chat rooms but hadspawned numerous websites, such as51tuangou.com, SHtuangou.com, or 020tgw.com,specializing in organizing Tuangou sessions. Thisform of new buying behavior had quickly spread

7/28/2019 Gome

2/9

856 Benjamin Yen, Minyi Huang


throughout China. Consumers were organizingthemselves via various Tuangou websites to goTuangou for all sorts of goods and services, rangingfrom home appliances to automobiles, and from

wedding packages to building/renovation materialsfor new homes.Some suggested that Tuangou was a natural

extension of the bargaining culture of China, whereshoppers typically treated sticker prices as thestarting point for negotiations [1]. This, perhaps,explained in part why regular on-line shopping hadnot taken off in China, which had more than 110million Internet users. Many on-line shoppers inChina still preferred cash-on-delivery or checks toon-line payment systems or payment by creditcards. According to Ouyang Jixing, deputydirector of www.020tgw.com, On-line shoppinghas been around for a few years, and Chinesepeople realize that its quick and easy, but theres acrisis of trust and honesty. How do you knowwhether to trust the seller? Chinese web surferswere also very skeptical about the goods that theywould get from on-line shopping. Tuangouoffered consumers an alternate means to leveragethe Internet and killed two birds in one stone itallowed consumers to get better prices bycombining their bargaining power, and, as opposedto on-line shopping, it provided consumers a formof protection against getting faulty items orknock-offs.

By 2005, Tuangou was a way of life of the

Chinese web surfers. Regular trips to retailersselling all sorts of products and services wereorganized through these websites. One suchexample was a group of Nanjing citizens, whoorganized regular shopping trips to the IKEA inShanghai via the Nanjing 51tuangou.com [2]. Toget on the trip, one could simply sign up on-lineand pay a small fee for the transportation by coach.Apparently, these Tuangou sessions had lived up totheir reputation. One participant in Shanghaisaved RMB500 on a Plasma TV over the GOMEprice on a Tuangou trip with Shtuangou.com [3].Others bought a Kodak digital camera (and an SD

card) with a street price of RMB6,500 for lessRMB4,000 with other freebies as more memorycards and camera pouches [4]. By end of 2005, thelargest Tuangou website, 51tuangou.com, hadhundreds of thousands of members. Regionalwebsites, such as SHtuangou.com or 020tgw.com,were also catching up quickly with tens ofthousands of members and growing. And by oneestimate, the volume of transactions completedduring Tuangou sessions nationwide was in themillions per day [5].

Group purchase was not unique to China [6].For decades in western countries, neighborsorganized themselves into groups to get discounts

for all sorts of goods. One person would beresponsible for negotiating the volume discount,grouping and passing on the order, organizing thedeliveries, and performing the treasury function.

During the early part of the second half of 1990s,group shopping was one of the hot opportunitiessought after by dot.coms. Websites were set up togroup consumers together that were interested inbuying a certain item, and to negotiate volumediscounts on the consumers behalf withmanufacturers and wholesalers. Effectively, thesecompanies were acting as an intermediary This waswhat set them apart from the Chinese Tuangou.These companies, as online brokers, askedpeople to sign up online stating an interest to buy acertain product if it hit a certain discounted price;the more people signed up, the more the pricewould drop, so at the end everyone was guaranteedto get the product for the price they had signed upfor, or for less. As an intermediary, these companiestook payments from the consumers, got the goodsdelivered to the consumers, and earned acommission in the process. Whilst Tuangou inChina was organized through websites and thatconsumers agreed the gathering location, time anddate, no intermediary was involved in thenegotiation and in the transaction. Consumers werephysically present at the retailers, bargained fordiscounts with their volume presence, paid theretailers directly, and walked out with the goodsthey wanted.

As Tuangou caught on quickly and spreadlike wild fire in China, it became a phenomenonthat retailers could not ignore. Different retailerstook different stands [7]. Luxury goods retailers,such as LVMH, adopted a fixed price policy thatstopped Tuangou at the door. Others treatedTuangou shoppers with trepidation as they fearedthe aggressiveness of such groups, and hoped theincreased sales volume would make up for the lostmargin. Some tried to manage it by working withTuangou websites to pre-arrange Tuangou sessions.These retailers would not entertain surprisedTuangou, and might close their doors to regular

customers so that they could focus on dealing withTuangou shoppers.

GOME, founded by Wong Kwongyu, hadgrown from merely a 100-square-metre store inBeijing in 1987 to being the industry leader inelectrical and home appliances retail in China with259 traditional stores and four digital stores by theend of 2005. Its success stemmed from its lowmargin, high volume strategy, which wascomplemented by its quest for service quality andinnovation. In 2005, GOME, alongside with manyretailers in China, faced a new challenge Tuangouor group purchase. In order to amass bargainingpower to demand for discounts from retailers,

7/28/2019 Gome

3/9

Tug of War Between the Retailers and Consumers: the Phenomenon of Group Purchase in China 857


consumers with similar needs in China were unitedby Internet chat rooms and would show up enmasse at retailers at pre-agreed time and date.The crowd put relentless pressure on retailers and

pressed for greater discounts. This emergingconsumer behavior had spread like wild fire.From home appliances to automobiles, and fromfurniture to wedding packages, consumersleveraged retailers with their collective bargainingpower. Retailers had reacted differently. Someyielded to the pressure and offered greaterdiscounts, some only entertainedTuangou that hadbeen pre-arranged and/or pre-registered, and othersrefused to give in with a fixed price policy. GOMEtook a proactive stand and welcomed Tuangoushoppers with a series ofTuangou events organizedboth locally and nationally.

Case Study: GOME and Group

Purchase [8-10]GOME, an electrical appliances shop in Beijing,was started by Mr. Wong with a loan ofRMB30,000 back to the beginning of 1987. Thelate 1980s was the time when demand for importedhome electrical appliance was growing rapidly, andGOME benefited from the high demand for andhigh margin of imported products. In 1990, as themarket and competition grew, Wong realized theneed to establish a competitive edge, and hedecided to adopt a low price policy. To do so, he

had to by-pass the intermediaries and started todeal directly with manufacturers. Bolstered bystrong market demand, GOME was able toinstigate a low margin, high volume strategy. In1996, when indigenous home appliancemanufacturers, led by Sichuan ChanghongElectrical, were gaining consumer acceptance,GOME shifted from purely selling import productsto including products from indigenous andjoint-venture brands. Since 1998, the company hasbeen expanding into Tianjin, Shanghai and amongother cities. As GOME expanded and its turnoverrose, GOME was soon among the top retailers inChina. July 2004, GOME reached anothermilestone it successfully obtained a listing on theHong Kong Stock Exchange by way of a backdoorlisting. GOMEs turnover for the nine-monthperiod ending December 31st, 2004 reachedRMB9.7 billion (~US$1.21 billion).

GOMEs mission was to serve its customersthe best it could. The company was committed toproviding its customers with competitive prices,wide product selection, convenient locations andprofessional customer service. To do that, GOMEadopted a two-pronged approach. It first set out tobuild customer goodwill and loyalty by providingthem good shopping experience. And since

competitive pricing was the pinnacle of GOMEsbusiness model, it sought to maintain its positionby enhancing its purchasing power with anexpanding retail network and by driving

improvements internally. Building on its missionand guiding principle, GOME attempted toestablish its own corporate culture on the followingfive pillars: (1) Be a pioneer and contribute to thesociety, (2) Keep promises and be credible, (3)Uphold integrity and develop people, (4) Hire forcapability and hire locally, and (5) Establish astrong brand and emphasize image.

GOMEs StrategyLow price and low cost was the cornerstone ofGOMEs competitive strategy. Products availableat GOME were typically priced 10-15 % less thanthose at conventional department stores. While thistactic cut into GOMEs margin, it createdsignificant attraction to consumers and generatedsales volume. This worked like a continuousdownward spiral as low price brought greatersales volume, volume enabled GOME to buy ateven lower prices from manufacturers, which inturn allowed GOME to sell at even lower price andgenerate even greater volume, which furtherstrengthen GOMEs bargaining and buying power.

Another tactic employed by GOME to securelow price and high sales volume was exclusiveselling right. GOME would obtain exclusive sellingright of certain products from a manufacturer in

exchange for a large volume purchase to ensuredcompetitiveness over its competitors and to helpimprove attractiveness to consumers. To furtherstrengthen this tactic, GOME, armed with marketinformation, would work with manufacturers andorder customized products that providedfunctionality, appearance and price that bettermatch consumer needs.

Whilst low price and low cost was successformula, GOME sought to complement it with highquality service. In November 2001, GOME rolledout a large-scale quality service campaign GOMEService Project with a series of new services that

were firsts of their kinds in China, such as moneyback guarantee, complaint award, Mysteriousshoppers, and shopping from afar. LeveragingGOMEs extensive retail network, this serviceallowed customers to order and pay for a product inone GOME store and have it delivered in anotherGOME store in the network. In the following years,GOME continued to introduce such new services aslowest price guarantee and householdappliances hospital. In October 2005, it launched anationwide membership system. Depending onthe spending pattern, patrons would be invited tojoin as rainbow, silver, gold or platinum cardmembers, and enjoy a series of benefits including

7/28/2019 Gome

4/9



enhanced interest free installment plan, bonuspoints, trade-in, on-site support, members-onlyshopping, and so on.

GOME intended to continue to expand in

2006, and planned to open about 120 to 150traditional stores and three mega stores. With theestablishment of a management centre for secondtier market, special attention would also be given tostrategic opportunities in second tier cities and toenhancing the quality of store operations in thesecities. New service categories, products would beintroduced to widen the product range and to moreeffectively utilize space and resources.

GOME and Group PurchaseAs the largest retail chain in China, GOME couldnot shun away from Tuangou shoppers. Indeed,GOME was featured in one of the most highlyquoted news article about Tuangou in the westernworld. According to the news story, some 500shoppers gathered outside the GOME superstore inGuangzhou on a Friday afternoon. Hours later,they emerged from the store with boxes of cameras,DVD players and flat-screen televisions, all boughtwith 10-30% discount.

When it came to dealing with Tuangou,GOME chose not to be a sitting duck. In early2006, GOME launched the GOME Tuangou DayProject. To kick off this initiative, GOMEdesignated April 2006 as the Tuangou month, andon a selected day in April 2006, selected GOME

stores would be closed forTuangou shoppers only.Shoppers could sign up on-line, by phone or inperson at the GOME store, providing personaldetails and details of the desired products, andwould receive 5-40 % discount. Furthermore,each Tuangou shopper would also enjoy followingprivileges. A Tuangou VIP card and a minimum of two

per cent discount on any products (except forselected items) in the store ;

A complimentary gift from GOME; and Regardless of the amount patronized, be

eligible to enter into a luck draw.

As part of the GOME Tuangou Day Project,GOME also set aside a selected day of each monthas Tuangou day. GOME would roll out theTuangou Banquet, which was touted to be thelargest Tuangou event of the year. IndividualGOME stores could also cooperate with localTuangou websites to advertise and organizeTuangou trips. Furthermore, GOME would workwith corporations and residential areas to arrangespecial VIP close store shopping events,providing shoppers with bargains and a greatshopping experience.

While GOME had its own bold expansion

plan in 2006 and proactive tactics to deal withTuangou shoppers, the number of Tuangouwebsites continued to increase and theirmembership continued to grow. It was still too

early to tell if Tuangou posed more a threat or anopportunity to GOME. GOME needed to determineif it really had its head around this rapidlyspreading phenomenon and whether it wascompromising other customers with its proactivetactics towards Tuangou.

Impact of Group PurchaseIn this section, the discussion will focus on theimplications ofTuangou to consumer behavior andpurchasing process, the response from GOME, andother alternative strategies the retailers mayconsider.

The decision making process of Tuangou

shopperTo understand the Tuangou behaviour, we can startby looking at the type of consumer decisionmaking it represents. A consumer decision makingcan vary by how complex and expensive theproduct is and by how involved a consumer is inthe buying process. The complexity, level of spends,and consumer involvements are all ranked high [11]as follows. High in Complexity. Tuangou shoppers in

China are buying fairly complicated productssuch as automobiles, electronic devices,

wedding packages, etc. Unlike walk-inpurchase, Tuangou shoppers can have enoughtime to know the product really well. Unlessthey know the products they want really well,i.e., product features, options, price, etc., andthey have compared and contrasted similarproducts, they dont know if they are gettinga good deal. Thus Tuangou typically involvesfairly complicated products.

High in Level of Spend. There is little pointof going Tuangou for everyday items (e.g.staple and toilet papers) when they arereadily available, low in spend, and the

amount one can save in real terms is quiteminimal. Since the efforts put in Tuangou arenormally more than walk-in purchase andonline purchase, Tuangou shoppers tend tobuy items that they only buy once in a while(e.g. wedding packages, furniture, or goodsthat are of a durable nature like TVs orcameras). Such goods also tend to be high inthe level of spend.

High in Consumer Involvement. Unlikebuying everyday items (e.g. shampoo ornewspaper) which are very simpletransactions, Tuangou shoppers are very

much involved, from gathering information

7/28/2019 Gome

5/9



to determine the products that they want tobuy, selecting the retailors, signing up on aTuangou session, to actually showing up andbargaining with retailers.

There are three types of consumer decisionmaking: (1) extensive decision making (whichrequires most time and effort as the purchaseinvolves complex or expensive items), (2) limiteddecision making (which requires moderate level ofefforts in searching and comparing alternatives),and (3) routine decision making (which usuallyinvolve packaged goods that are simple,inexpensive and familiar and that consumers mayhave developed their favorite brands or products)[18]. It can be concluded that a Tuangou purchaseis one of an extensive decision making. A typicalconsumer decision making process may consist ofthe following stages: (1) need recognition, (2)alternative search, (3) alternative evaluation, (4)purchase decision, and (5) post-purchase evaluation[12]. In the case of a Tuangou purchase andwalk-in purchase, the salient features at each stageare summarized in Table 1.

The response from GOME to Tuangou shoppersGOME has basically declared war (in a positivesense) to Tuangou shoppers. It recognizes thatTuangou is an unstoppable force. So, rather thanresisting it, GOME has chosen to go with it in acontrolled manner with Tuangou sessions

organized by its own stores. GOME first rolledout its plan with Tuangou month, which was April2006. Then it set aside one day in each month asTuangou day. It further announced the biggestTuangou event of the year in November. With theseand other incentives that GOME offers to Tuangoushoppers, GOME is trying to achieve the following. Since all Tuangou sessions at GOME are

organized by GOME, GOME will know priorto any Tuangou session that how manypeople are coming when and what exactlythey are looking to buy. Armed with thisinformation, GOME can better plan its offers

to the shoppers, and better stock its inventoryto minimize disappointments. This is doablebecause Tuangou is an extensive decisionmaking purchase and the consumer knowswell in advance what they want.

Since only a limited number of people areallowed in any given Tuangou sessions,GOME avoids an overly large crowd that canbe difficult to control and limits its exposureto reduced margins.

With its doors closed to the regular shoppersduring a Tuangou session, GOME alsoavoids any potential conflicts anddissatisfaction arising from different prices

being offered to Tuangou shoppers and toregular shoppers.

GOME could make use of these sessions tosell off soon-to-be-replaced models and free

up its warehouses for new arrivals. This isprobably a reasonable expectation asTuangou shoppers are not likely to be afterthe cutting edge products. In other words,in terms of adopter categories, they areunlikely to be innovators or early adoptersbut are more likely to be the early majority orlate majority [13]. This makes it possible tosell the more mainstream items or soon-to-bereplaced models.

GOMEs bold expansion has affected otheraspects of its financial performance.

In short, while its Cost of Goods Sold(COSG) has gone up nearly 43 %, its inventoryvalue has more than doubled, thus lowering itsinventory turnover from over 10 to about 6, andincreasing its days inventory by over 70 %. GOMEis now tied up with more inventory and itsinventory is turning slower than before. If we lookat GOMEs financial leverage, Tuangou may helpGOME ease its pressure on inventory turnover andget the extra cash that helps pay off its liabilities[14, 15]. Nonetheless, GOME also runs thefollowing risks. It is unclear if GOME can really stop

unannounced Tuangou shoppers. If they

show up in a huge group and demand largediscounts, they can be difficult to control.

To what extend GOME compromises its salesto and healthier margins from regularshoppers by turning them away whenTuangou is in session?

While GOME continues with its boldexpansion plan, which will negatively affectGOMEs margin, a concomitant welcome toTuangou shoppers will put a bigger dent inGOMEs financial performance.

GOME has been building up its reputation asa quality service provider with all sorts of

value-added services available to regularshoppers and GOME members. Offeringfurther discounts to Tuangou shoppers maymake regular shoppers and GOME memberswonder if it is worthwhile to shop as regularshoppers or GOME members when hugesavings can be gained up front from Tuangousessions.

It is important to point out the pros and consof other options GOME may adopt. Thecomparisons of several such options aresummarized in Table 2.

7/28/2019 Gome

6/9



DiscussionWe take into account Tuangou or group purchasingand re-visit the discussion from three aspects:

customers choice toward retailers and product,interaction between customers and retailers, andrelationships between the retailers and its upstreampartners in the supply chain. Customers choice toward retailers and

product. Two extremes are selecting,purchasing, and pickup purely atbrick-mortar shop or on the internet shop (e.g.Amazon). One hybrid model is order onlinebut pick up at the shop near by. Grouppurchase combines ordering online andpurchasing at shop together but differs fromthe hybrid model in several aspects. It is only

product selection is via the Internet or emailand reaming still is conducted in the shop. Inaddition, the price is flexible or negotiable(i.e. not determined). Further, it is forcollective force to aggregate demand ratherthan individual power of purchasing.

Interaction between customers and retailers.Marketing promotion is used to boost up thesales and the price is the demand variabilitycausing the higher inventory cost. Thecontrol is on the retailers side. However,group purchasing implies the promotion is,on the contrary, driven by customers and thiswill end up with even higher uncertainty indemand. The trials of Tuangou for certaintime (i.e. day, week, or month), product, andlocation (i.e. shop) is to maneuver the extentto move the control back to the retailers.

Relationships between the retailers and itsupstream partners in the supply chain. Thegroup purchasing indeed has a profoundimpact on the retailing side. The demanduncertainty is passed on to the upstream andworsens the bullwhip effect. In addition, itbecomes more challenging to satisfy bothtypes of customers (i.e. original customersand group purchasing customers). This

triggers the partnerships with upstreamplayers in order to be more flexible andresponsive.

If the lens move back to GOME case, it hasdone a fair bit managing the impact of Tuangouwhile accepting its challenge. But besides thosetactics designed specifically to deal with Tuangou,we also need to look at other areas that makeGOME a strong competitor in its sector homeelectrical appliances retailing. GOMEscompetitive advantages are built on its relationshipwith suppliers, its logistics network, its retail

network, its quality and innovative service, and its

knowledge of market and consumer information.Suppliers probably have a love-hate

relationship with GOME. For one thing, it drivesthem nuts to reduce prices and margins. For

another, it promises sales volume, which is veryhard to ignore. GOME can leverage thisrelationship and help suppliers to increase salesvolume for products targeted Tuangou shoppers.This can help lower the cost of goods sold ofGOME to Tuangou sessions and maintain ahealthier margin.

Looking at its logistics network and retailnetwork, from empirical data, GOME can identifylocations that are best suited to deal with Tuangoushoppers from both the demand standpoint andfrom the operations and logistics standpoint.GOME can then focus its attention on specificlocations to deal with Tuangou shoppers the waythat it has been and keep its doors in other storesopen all year round to better serve regularcustomers and GOME members. This would alsohelp GOME improve its profit margins.

Armed with market and consumerinformation and the ability to deliver quality andinnovative service, GOME can continue to exploitthe more profitable segments such as thosehigh-end electronic appliances commanding abigger profit margin. When we analyze theconsumer decision-making process for Tuangouand non-Tuangou customers, we realize that theyare quite different and need to be catered for

differently. If we look further into the smallersegments, we find further differences and betterways to serve different segments. In particular,establishing GOME in the more profitablesegments will ensure better margins and make itmore resilient to both secular downturns andchallenges from Tuangou shoppers.

ConclusionsRetailing shops are the contact points betweencustomers and supply chain. On one hand, theretailers need to satisfy the customers by providingthe right and enough product to ensure the service

level; on the other hand, the retailers also need tominimize the cost (or maximize the profits) whilesatisfying the customers. In addition to the naturalconflict on price between the retailer and thecustomer, usually they also have many otherdifferent agenda, such as spectrum of productvariety and promotion/discount. Nevertheless, theretailers struggle to keep certain degree of controlon retailing in order to keep a good balancebetween coat and service issues. The shops are likea battle field for tug of war between the retailersand consumers. As the emerging phenomenon ofgroup purchase (a.k.a. Tuangou in Chinese), the

war transforms into a quite different form.

7/28/2019 Gome

7/9



Tuangou is a relatively new phenomenon thathas spread rapidly in China. It is still a growingphenomenon and very little research has been doneon it. Tuangou is not really a brand new

phenomenon nor is it unique to China. It is foundthat (1) Tuangou is one of an extensive decisionmaking purchase, (2) Tuangou shoppers have goodideas of what they want and have made up theirmind about the specific products that they desire topurchase, and (3) they are likely to be among theearly majority or late majority. With theseunderstandings, a company such as GOME candetermine what tactics may and may not work. Inthe process, the company also needs to think aboutits overall strategy and positioning in the marketplace, and makes sure it holds its right course anddoes not overly cater for one segment (especiallyone that cuts into its margin).

The main issues for the stakeholders in thisbusiness scenario (i.e. group purchase) to considerare as follows: Customers - to take or not to take. The

customers need to consider the tradeoffsbetween time, location, price, flexibility,product selection, privilege, and among others.Though customers need to put in a lot ofefforts, tuangou allow them to enjoy somebenefits of both online and offline purchase.They can use Internet to search for informationon the product and organize more people tonegotiate with the retailers. Meanwhile, they

can assess the retailers and the productcharacteristics in a deterministic manner intraditional offline retailing [16].

Retailers - to do or not to do. The retailers maybenefit from higher sales for certain popularproduct types in a short time; however, theretailers also need to watch out the risk oflosing control on the demand and enhancementof customer loyalty.

Product - to offer or not to offer. The questionabout what kinds of product is good candidatesfor group purchase does not seem trivial. Theexamples provided in this paper only serve as

the starting point to explore the possibledecision issues for right product to be offeredby the retailers and to be accepted by thecustomers.

Upstream - to follow or not to follow. Tacklingthe problem of group purchase is not limited tothe retailer side. All the other upstreampartners in the supply chain may suffer fromgreater demand variability and contribute toenhance the agility, adaptiveness, andalignment for better control as well [17].

References

[1] Montlake, S. Chinas newest shopping cr

aze: team buying. The Christian Science Monitor, May 11th 2006 edition, (http://www. csmonitor.com/2006/0511/p01s01-woap.html, visited April 2, 2009)

[2]

Xu, F. Worry-Free (Group) Shopping Strategies in IKEA for online friends in Nanjing, November 30 2004, (http://nanjing.51tuangou.com/article/article_show.php?article_id=287, visited Feb 2, 2007).

[3] Flemming, S. Online tuangou group purchase giving offline retailers a run for their money, China Word of Mouth Blog,May 17 2006. (http://www.samflemming.com/2006/05 /online-tuangou-group-purchase-giving.html, visited April 3, 2009)

[4] Chen , Peijin. Team Shopping: We love itwhen a plan comes together. Shanghaiist,May 15 2006. (http://www.shanghaiist.co

m/archives/ 2006/05/15/team_shopping_w.php, visited April 2 2009)

[5] 51tuangou. (http://51tuangou.com/index/, visited April 2, 2009).

[6] Giussani, B. Group Shopping, Tuangou Style, LunchoverIP, July 28, 2006. (http://

giussani.typepad.com/loip/2006/07/group_shopping_.html, visited April 3, 2009)

[7] The Economist Shop affront, Economist.com, June 29, 2006, (http://www.economist.com /printedition/PrinterFriendly.cfm?story_id=7121669, visited April 3 2009)

[8] GOME (http://www.gome.com.cn/aboutus /index.jsp?Cid=506)

[9] Zhou, Dongsheng. GOME Home Appliance Co., Ltd, Ivey Publishing, 905M65, The

University of West Ontario.[10] Yen, B.P-.C. and Andrew Lee. GOME El

ectrical Appliances Holding Limited: TheTuangou Challenge. Asia Case Research

Center, 06/313C, 2006. The University of Hong Kong.

[11] Kolter, P., and Gary Armstrong. Principlesof Marketing, 6th Edition, Prentice Hall:

New Jersey, 1994.[12] Peter, J. Paul, and James H. Donnelly. A

Preface to Marketing Management, 9th

Edition, McGraw-Hill: New York, 2003.

[13] Rogers, Everrett M. Diffusion of Innovations, 4th Edition, The Free Press: New York, 1995.

[14] GOME Electrical Appliances Holding Limited 2004 Annual Report.

[15] GOME Electrical Appliances Holding Limited 2005 Annual Report.

[16] Gefen, D., Karahanna, E., and Detmar W.Straub. Trust and TAM in online shoppi

ng: An integrated model, MIS Quarterly,2003, 27(1), 51-90.

7/28/2019 Gome

8/9



[17] Lee, Hau. The Triple-A Supply China,Harvard Business Review, R0410F, Octobe

r 01, 2004.

Table 1. The summary of the salient features for Tuangou purchase and walk-in

purchase

Stages Salient features (when, where,

how, etc.) ofTuangou purchase

Salient features (when, where, how, etc.) of

walk-in purchase

1.Needrecognition

Well in advance of the purchase,not likely to satisfy an immediateneed

Probably well in advance of the purchase,could be due to an immediate need, e.g., brokedown of an air-conditioner in the middle ofsummer

2. Alternativesearch

Well in advance of the purchase,using various channels (on-line,store visits, asking friends,asking store sales, etc.)

Probably done during the store visit, thoughresearch in advance using various channels asdescribed in a Tuangou may be done as well;more likely to be influenced by whatsavailable in the store

3. Alternativeevaluation

Well in advance of the purchase,using various channels (on-line,store visits, asking friends,asking store sales, etc.)

Probably done during the store visit, thoughresearch in advance using various channels asdescribed in a Tuangou may be done as well;more likely to be influenced by the sales person

4. Purchasedecision

Pretty much made when signingup on a Tuangou session

Probably made during the store visit, may bedecided in advance

5. Post-purchaseevaluation

Less likely to have cognitivedissonance

More likely to have cognitive dissonance asproduct research and comparisons done areprobably less rigorous

Table 2. The comparison of possible options for GOME

Pros ConsDo not entertain Tuangou

at all.GOME can adopt the samepolicy as LVMH.

A consistent policy will stopTuangou at the door and will helpprotect the margin of the business.Arguably, regular special sale onsoon-to-be outdated items can bean effective means to get rid ofthem.

As GOME is positioning itself asthe low-cost/price seller providingquality service, turning Tuangouaway can be bad to the companyimage that GOME has worked sohard to build. It can also shut thedoor to a great way to sellsoon-to-be outdated items fast.

Embrace Tuangou with

your open arms.GOME can go the otherextreme and welcomeTuangou any time

It shows that GOME doesnt fearTuangou and is confident in itsability to make money with lowmargins. It is consistent with theprice-leader image that GOMEhas built.

This can be very disruptive tonormal sales operations, and cancause dissatisfaction with regularcustomers (as they may feeldiscriminated). Anyone can walkinto a GOME store and claim to bethere forTuangou on any given day.Impact on margin can besignificant.

Open GOME outlets and

use them to get rid of

outdated itemsGOME can choose low costlocations to do that and sellmainly outdated orsoon-to-be outdated goods,and may entertain specialrequests (pre-agreed by

This is perhaps a good alternativeto dealing with Tuangou shoppersin regular stores. Thiscompletely segregates Tuangoushoppers from regular shoppersand they have very differentrequirements and would need tobe served differently. GOMEcan entertain Tuangou any time at

This creates a new set of questionsthat GOME needs to address.How many such outlets should itopen and where should they belocated? How do these outlets fitinto the overalllogistic/supplier-relationship thatGOME has established? Whilethese questions may not be cons

7/28/2019 Gome

9/9



GOME) to pre-arrangedTuangou sessions.

these locations and whether theyare pre-arranged or strictlyunannounced. And GOME canstill get rid of outdated goods

quite easily.

per se, they do pose implications tothe cost structure of GOME, mayupset Tuangou shoppers as it maybecome inconvenient for them to do

Tuangou.

Documents

Gome