Business group of 5151tuan.com (Guangzhou Daily)
Two students in Guangdong Province who developed 5151tuan.com - the Chinese version of the Internet shopping phenomenon known as "group buying" - this year secured investment of 20 million yuan (USD2.9 million) and now expect to expand their service to 50 cities across the country.
The power of group buying, which has become hugely popular in the US with Websites such as groupon.com, makes it easier for people to enjoy the best things in their community by offering daily deals at unbeatable prices.
It can sometimes decrease the cost by over half on the best things to do, see, eat and buy in a variety of cities.
Business owners Pan Wenwei and Zeng Shixiong are still juniors at the Sun Yat-Sen University in Guangzhou, where they are studying for their MBA and information security degrees respectively.
Their 5151tuan.com Website is modeled on the Chicago-based groupon.com, which of-fers its services in more than 140 cities across the world. Up to now 5151tuan.com has launched in 15 major cities in China including Beijing, Shanghai, Guangzhou and Hangzhou.
Staff members of the website negotiate with local merchants to get huge discounts on the items they sell online.
Customers can register and pay online, and after three days, if the number of people wanting to buy the same item reaches 50, the deal is activated and the customer gets the item express mailed to them.
If the figure is not reached, the Website returns the customers' money.
Adapting the concept
Zeng stumbled across groupon.com late last year, and was inspired.
"Their website secured investment worth USD135 million last year," Zeng said. "With the consumer demand and the use of online shopping developing so rapidly, I thought it would work well in China too."
Zeng shared the idea with Pan, an old friend and schoolmate, and they agreed.
With 5 million yuan from their previous real estate investments and electric magazine business as the initial fund, they set up the Website to cover eight major cities and hired nearly 100 people.
Formal operations began in mid-March, and the idea proved a big hit with merchants as it introduced new customers.
Even if the deal failed, the Website was free advertising for them.
Attracting customers
The immediate problem that the team faced was how to get Chinese consumers to accept the concept of the Website and raise awareness of it.
The team promoted it on campuses around the cities, targeting young people and even offering five yuan to anyone who registered to buy something on the site.
But according to Pan, the most effective way to attract customers is to ensure the quality of items and the delivery service.
"We built a very powerful public relations team that keeps contact with the best local merchants to provide attractive items with the lowest discounts," Pan said.
"We keep every promise we make, such as what time the goods will be delivered and on any money that must be returned. If customers want to purchase something which we don't have, they can make a request and we will talk to the merchants."
By May, the Website had been launched in seven more cities.
In the last two months, over 200,000 people a day have been logging on to the Guang-zhou site alone. Over 10,000 merchants and 2 million customers are now involved across the country.
Escalating overheads
But despite its popularity, the Website is in deficit.
"The costs are too high," said Pan.
"It costs 10,000 yuan per day, in each city, to cover the costs of maintenance, marketing and wages for staff members," Pan said.
"As more users log on, each city's Website becomes more overloaded and the staff are under more pressure," he said.
"We have to invest to maintain the stability of the system and to hire more. We are planning to cover 50 cities in total by the end of the year."
The investment they received was crucial and timely for the team. Pan said they would use it to upgrade the system and spend more on advertising.
"Investors have confidence in our business as it creates a win-win scenario between local merchants and customers, and there is a large potential market," Pan said.
But Pan said even without more investment, he and his partner would carry on with the business.
"Zeng and I are still students, but we think of ourselves as businessmen. A business-man has to have long-term vision. We believe tycoons will be made from this field and we want to be the ones," Pan said.
(By Pan Yan)
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