Everyone likes a good deal, right? Nothing can compare to the when you buy a desired item with a 20% or more discount.If you are a company that helps people find the best deals available, it shouldn’t be a problem to attract users. This is how things looked on paper when Groupon decided to enter China, one of the up and coming and top ecommerce markets, in 2011.
The company had everything in order to conquer a foreign market:
- An established business model
- $700 million raised in IPO
- Experience in entering foreign country
- A cost-conscious Chinese buyers
As you have probably guessed by this point, things didn’t go as smoothly. Let’s find out the reason behind Groupon’s failure in China by viewing in detail its market entry strategy as a case study.
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The process of globalization has caused social and even cultural reformation in several parts of the world. Still, certain values typical for Asian cultures are deeply rooted in society. One of the society’s most important goals is achieving social harmony. A major tool to achieve this is by respecting one another. Respect is a major cultural and social value in any Asian culture. Each generation has been constantly taught to respect their parents, teachers and seniors. This behavior also applies to business practices.
No Room for Bullies
With millions of dollars in their pockets, Groupon started its expansion in a quite aggressive manner. To pave their way in to the Chinese digital market Groupon wished to partner with Lashou, a Chinese social commerce platform. The Western company offered to buy a 49% stake, but the Lashou refused the offer. The local digital enterprise was not comfortable with giving up such a big of the company in to foreign hands.
Another push tactic was mass email marketing with hard sales’ pitch. It’s become a marketing myth that promoting services and products via email in China doesn’t work. In comparison to Western consumers, Chinese people are not as crazy for email as they are for instant messaging. Needless to say, Groupon’s email marketing strategy didn’t work in China where such high-pressure and non-personal email marketing tactics are not welcomed.
Beware of Chinese Copycats
If we take a look at the majority of successful hi-tech companies from the Silicon Valley, all of them (regardless of industry) have one common trait – they challenge the Status Quo. The phenomenon of creative disruption is what has been driving companies like Uber, Airbnb towards where they are right now: unicorn status, global presence and lots of hatred from local government.
China is different. People look for something more conventional and adapted to their cultural specifics. Although Groupon is not originally from the Valley, it embodied the very same spirit.
What usually happens with foreign visionary companies in China is that they quickly get copied by some local entrepreneurs. And local entrepreneurs copying ideas of foreign companies are often in a better position because they know the local market. Soon after Groupon entered the Chinese market Baidu launched Youa Tuangou – “group buy”. Since then the market has filled with so-called Groupon clones.
The Superbowl airtime, with all its frenzy and million dollar budgets, has one purpose: get in the nationwide spotlight. Afterwards, it usually goes 2 ways: the company receives good publicity or company receives bad publicity. In case of Groupon, well you guessed it, the result was far from intended. You see, creating your commercial around Tibet’s sovereignty debate and entering a country in which Tibet is a sensitive topic might not seem like such a good idea. Actually taking racial, religious other similar topics for your marketing campaign is what must be taught in every marketing 101 class.
Lack of Local People
Another problem was the small number of Chinese stuff. Groupon wasn’t the first company to make this mistake. All the fancy MBA degrees and Western market expertise are not what will help you to be #1 Shopping Site in China.
Out of Groupon’s senior management team in China, only two members were Chinese: one from mainland China and the other from Hong Kong. The local workforce was many times managed from abroad with no knowledge of local customs and habits.
What do Cultural Analytics Have to Say?
If we take a look at the Hofstede’s cultural dimensions, we see that China ranks quite low on the Individualism scale (20). It means that collective way of thinking prevails when a single person is about to make a decision. What does it mean for your business? It goes like a snowball once a customer chooses another company over you. Then his friends and relatives will probably follow his example. In the end, you can lose a lot of potential customers because of just one trigger person.
Bottom line: even with collectivism there are still opinion leaders. It means that you should put special emphasis on dealing with them. Try to identify who they are and use all of your resources to retain them. Usually, it won’t take long until they bring new customers.
Here is what Quora users have to say about the case of Groupon China failure:
What Not to Do in China
Groupon in China is a good new market entry case study. Similar to why eBay failed in China, it shows that the largest ecommerce markets have their own specifics. A good example of how to conquer global ecommerce markets is Louis Vuitton’s success in China.
- As obvious as it sounds, respect Chinese cultural values and social customs. We often hear this, but foreign companies keep on doing the same mistakes. Remember eBay’s fail in China?
- Have a million dollar budget? Good. Use it wisely. Buying your way in to China is not a strategy. Adapt and localize your marketing strategy appropriately.
- Monitor your local Chinese competition. Even if today there is no one on the radar, he may appear tomorrow.
- Whenever you start overseas operation, have local managers and workforce on board.
Groupon marks just another company that couldn’t crack Asian cultural code. hen it comes to Asia, knowledge of cultural specifics trumps a million dollar budget, a sustainable business model and many other traits of a successful business. This is something foreign companies, especially those from the US ecommerce market have to understand. What’s your opinion about this case? Share it in the comments below!
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