Posts Tagged ‘group buying’

Race to the bottom

The way I see money being invested lately makes me think of a proverb, “a fool and his money are soon parted”.

There has been a lot of talk recently about “the gig economy”. The FT has a series titled the New World of Work. The NYT has been covering this as its part of the US election campaign as well (see: Defining ‘Employee’ In The Gig Economy). The WSJ continues on with What’s the Gig Deal?. The Economist was ahead of this trend in 2011 — Labour markets: The gig economy.

Anyway, this isn’t a post about the gig economy per se. For one, I’m enjoying the fruits of such a labour market, say every-time I ride in an Uber. This is me wondering if there’s a lot of money floating via a venture capital fuelled binge, in where companies spend lots of cash to acquire users, while trying to outspend their competition to become the monopoly in the space. This is basically a race to the bottom, except it doesn’t happen via government de-regulation, but more venture capital, the attitude that its better to do first and ask for forgiveness later, and governments wondering what hit them.

Why such a thought? Quite simply, read the headlines. Passport Asia wants “seven figures” to be the ClassPass of Asia. They’re entering a market where KFit exists (and is well funded, by meme hustlers, even). The bottom line being that this is all just a copy of ClassPass. Hopefully it’s “localised”, with the best option being an exit to them, eh? That was the modus operandi for Groupon Malaysia.

What about Uber? They lost a lot of money and will continue to lose more. They’ve even decided that its OK and this isn’t news.

It’s the case of business 101: you raise money, you invest money, you grow (hopefully), you make a profit and that generates a return for investors.

So let’s look a little locally at MyTeksi/GrabTaxi. They championed taxi drivers when Uber came into the market in Kuala Lumpur. They promoted the service like crazy, causing TaxiMonger to basically not exist, and Rocket Internet to pull EasyTaxi out of the market. Once the competition was removed, it became much easier to launch GrabCar and GrabCar Premium, which basically competes with Uber on the same MyTeksi platform! The taxi drivers finally woke up to a protest. But there are now a lot less choices in Malaysia and that’s the crux of the problem – the taxi drivers are using a platform that they’ve become dependent on but don’t necessarily like to be beholden to. And its only now that people might remember that they performed anti-competitive acts, like preventing taxi drivers from having competing apps on their phones (if detected, MyTeksi wouldn’t start).

Today, the headlines are: VCs see a bubble in food delivery services. $1 billion raised last year, and $750 million this year. Imagine the valuations. How much has GrabTaxi raised? Uber?

Yes, its a race to the bottom. As consumers, we should enjoy all these subsidised services. But never allow them to become a monopoly. Don’t be reliant on one app. Spread the love. You’ll get your subsidised services for a much longer time.

Group buying sites & their false advertising

I just read that Coupang, in South Korea, has been fined for using false information by the Korean Fair Trade Commission to sell beef.

What’s amazing is that there was 117 million won (~USD$108,000) worth of beef sold at a 50% discount. The fine for false advertising, which is common in group buying sites as they beef up copywriting, was 8 million won (~USD7360).

Guess they’re big, but everyone’s got to play by fair rules. I wonder how many other trade commissions look into whacky copywriting in other countries.

The chop space (digital loyalty cards) in Malaysia

I love competition and free markets. I read about Pirq coming to Malaysia via the webcampkl group. An interesting thread is brewing.

In Malaysia, I see three players (not including Foursquare for merchants which some establishments use to give mayor discounts, every 5th check-in, etc.): 

  1. ChopChop is the pioneer in this space (bootstrapped around December 2011 by 3 passionate young entrepreneurs whom I’ve had the pleasure of meeting more than once). 
  2. Shortly thereafter Voucheres came along and they picked up a nifty RM700,000 from MyEG & MDEC (newsclip, crunchbase). They’re a startup with 4 founders (January 2012), claiming 10 employees, and they seem to be relaunching 10 months into it. 
  3. And the latest to the block? ChopInk (July 2012). Four young founders who were AllStars graduates (RM18,000 + mentorship for some 6-7% equity), which I’m told reliably is a pivot from a different unworkable idea. ChopInk has goals of a 1,000 merchants by year end and is supported by Cradle and possibly had some investment from Telekom Malaysia.

And today, you’ve got the fourth player: Pirq. Pirq’s take is different: you receive an immediate discount of 20-50% instantly. You don’t collect chops for later redemption. Pirq is a US-based company flush with cash – currently USD$3.2 million has been raised (yes, thats USD not Ringgit). Their first expansion country: Malaysia, then Singapore. Pirq is like collecting chops meets Groupon (20-50% discounts on a bill last I checked at most restaurants is unsustainable). 

The grapevine tells me that Pirq has four sales people on-board. From an execution perspective, I love how they focus on areas. My biggest problem with these digital loyalty card applications is that I generally never visit any of their merchants! From a tech perspective, Pirq needs work.

I see Pirq as competition with group buying sites, which is definitely seeing fatigue (in Singapore they’re dwindling; in Malaysia?). The verdict is still out there how digital loyalty is going to be managed between ChopChop, ChopInk, Voucheres. Maybe well-funded Singaporean Perx might arrive eventually.

As a consumer, while I may not have to collect loyalty cards in my wallet any longer, I’m going to be collecting smartphone apps. Good thing you have folders on iOS :)

Who’s going to win? The people that make the better product & with better execution. Not just for the consumer (location based alerts, geo-fencing, etc) but for the merchants as well (smart ad posting, etc.). 

In another post, we’ll talk about money. Foreign money is rolling into companies coming into Malaysia (Rocket Internet, now Pirq), mainly because the USD or Euro goes further in Ringgit Malaysia land. Most of the discussion at webcampkl is focused on this.

Me? I’m naturally rooting for the bootstrapped entrepreneurs – that’s ChopChop.

Advice from David Ogilvy about group buying

I just started reading Confessions of an Advertising Man by David Ogilvy of Ogilvy advertising fame. I’m about half way thru it and I think that if you’re in the advertising, media, or the digital/social space, you should definitely read this brilliant book.

He lists four problems that advertising faces, and I highlight excerpts of problem one (highlighting is my own):

The first problem is that manufacturers of package-goods products, which have always been the mainstay of advertising, are now spending twice as much on price-off deals as on advertising. They are buying volume by price discounting, instead of using advertising to build strong brands. Any damn fool can put on a price reduction, but it takes brains and perseverance to create a brand.

Listen to a speech I made in Chicago in 1955:

“The time has come to sound an alarm, to warn manufacturers what is going to happen to their brands if they spend so much on deals that there is no money left for advertising to build their brand. Deals don’t build the kind of indestructible image which is the only thing that can make your brand part of the fabric of life.

Andrew Ehrenberg of the London Business School has one of the best brains in marketing today. He reports that a cut-price offer can induce people to try a brand, but they return to their habitual brands as if nothing had happened.

Why are so many brand managers addicted to price-cutting deals? Because the people who employ them are only interested in next quarter’s profit. Why? Because they are more concerned with their stock options that the future of their company.

Price-off deals are a drug. Ask a drug-addicted brand manager what happened to his share of the market after the delirium of the deal subsided. He will change the subject. Ask him if the deal increased his profit. Again he will change the subject.

This was David Ogilvy talking about modern group buying sites in 1963.

Yesterday I asked on Twitter: Do you run a restaurant? Have you succeeded in running a group buying deal? Have you seen return customers? Comments like its a scam, anyone that wants a cut price deal is unlikely to return for full price, and even feedback from buyers whom don’t return due to disappointing experiences or how the food just isn’t worth the full price. I had some offline conversations about this and the ones that did return were basically already loyal customers saving money through a deal.

My own thoughts about group buying have been posted before: a Groupon before you close looking at the deal dynamics behind a deal, and some initial thoughts when they first started becoming mainstream.

A Groupon before you close?

It has been nearly half a year since I last wrote anything about group buying sites.

Groupon DarabifI see Darabif everytime I’m in town. It’s the store thats been around Damansara Uptown for quite some time. I came back recently and noticed a blank spot, and Sara & I debated what was there before. Then we remembered, it was Darabif.

She had purchased a group deal for that exact store recently; 349 others bought the deal too. Darabif’s cost? RM2,722.20. Darabif earned after the discount? RM1,221.50 (at a loss of RM1,500.70). But wait, there’s Groupon’s cut which is half of what Darabif was to earn, so Darabif really walked away with RM610.75.

RM610.75 to feed 349 people nasi lemak and teh tarik for breakfast. That’s RM1.75/pax. When they usually walk away with RM7.80/pax. That deal expired June 6 2011. They’ve wound up June 30 2011 (their Facebook fan page suggests the nearest location is now Tropicana City Mall). This is the third Groupon the branch had participated in.

I asked on Twitter if anyone (especially group buying sites) had done studies to see how business fared post-group purchases. No one came back with a response. Google shows many people “studying” this phenomenon in America, with one example being: 5,722 new customers – how can I not love Groupon? However, nothing definitive.

Are you a business that has participated in a group purchase? Did you notice an increase in your customer base after the initial group buying thrill?

Thoughts on group buying sites

Congratulations to Khailee for getting GroupsMore sold to Groupon (in a record five months since its inception!). He tells me they’re now Groupon Malaysia and Joel (his partner, co-founder of YouthSays) is going to be CEO of Groupon Malaysia. A lot of people instantly said that since Groupon is now in Malaysia, all the other deal sites can go the way of the dodo.

I don’t think so. For a site that does group purchases to be successful, people need to know it exists. Savvy Malaysians have always been into group purchases because a) our currency generally sucks, b) its difficult to get cool stuff shipped to Malaysia. Of course the currency is improving now, and there are virtual postboxes that ship stuff to Malaysia for a small fee.

But I digress. Group purchasing has been happening for years, heck over a decade. I remember when PDAs (Personal Digital Assistant’s, in case you’ve forgotten) were starting to become cool, there were many forums for PDA owners to hang out at. PDAs require accessories and since it was not mainstream yet, the best place to buy accessories was on the forums with other forum members. Someone would collect the money and negotiate to get a deal done to bring in the items for cheap. Most of these forums probably don’t exist any longer, but the LowYat.Net forums are still kicking. I’ve seen this applied to other niches like photography as well; and I’m probably missing out a whole bunch of other industries where people gather together on a forum and choose to grab something at a better value.

This is why I’ve generally not been too excited by group buying sites. I see it as an old idea being rehashed, except this time the target is the masses. For a group buying site to be successful, I think a few rules hold true:

  1. you need to successfully get the word out to buyers
  2. you need excellent (convincing) copywriting
  3. you need to find good deals that your audience will want to purchase

Am I missing some rules?

Now to address some of the rules. How do you gain critical mass and get the word out to buyers? I focus on buyers because you may have a community, but if your community is only focused on making money rather than spending money, you’re not reaching the right audience. Depending on your target market, you will have to look at ads in the newspapers, radio, television, Google Ads, Facebook ads, and so on.

Malaysia is a melting pot. People generally don’t speak the same language, though English and Bahasa Malaysia are widely spoken. Copywriting needs to be spot on. If you target only the English-speaking audience, it will affect where you target buyers and it also affects the deals the audience are after. No point having great copy (in English), putting up ads in The Edge Daily, and having deals on products from Zaitun, right?

Audience, target and language all play a role for a successful general group buying site. We have to celebrate our diversity. In other words, there’s market for plenty of group buying sites. Do you think forum group buying will disappear? I don’t.

If you happen to run a group buying site, think of your niche and pivot. Why for example, have we not seen people focused on getting good daily (or weekly like GroupsMore does) deals on fashion items? Would a site that said “first 50 people to buy this model Coach handbag gets it at RM1,800 and the deal takes place, and if the number breaches 51, the bag becomes a mere RM1,500 for everyone” be successful? I think it will, if you’ve got the correct target market (people that buy luxury goods very rarely want to pay full price for them — if you’ve worked for your money, you’ll want to save ever penny).

We’ve just seen that in the UK, Facebook has launched Deals. From a cursory inspection, this looks like a cross between Foursquare and Groupon, i.e. it finally makes using a location based service useful. Not that its impossible to do with Foursquare — they sell custom badges to corporations. What I think Facebook will do is decentralise it, just like they currently have done with their ads — let anyone run one. Google Offers will work for anyone that has a Places page — you create a Places page (helping make a better location database, quite unlike Foursquare’s) and you give an offer to people (no check-in’s required). Very decentralised.

Tie group buying dynamics with social shopping aspects, provide useful bargains, and you may just have a very profitable business, that also helps spur the economy!