Can’t Just Buy Your Way In. What Groupon Learned in China
Everyone likes a good deal, right? Nothing can compare with a feeling when you buy a desired item with 20% or more discount. And if you are a company that helps people to find the best deals available, it shouldn’t be a huge problem to attract users. This is how things looked on paper when Groupon decided to enter China in 2011. The company had everything in order to conquer a foreign market:
- Established business model – check
- $700 million raised in IPO – check
- Experience in entering foreign country- check
- Cost-conscious Chinese buyers – check
As you have probably guessed by this point, things didn’t really go as smoothly. Let’s find find out the reasons why.
Know how the business is done
Respect. Having respect is crucial in any Asian culture. Every generation has been constantly taught to respect their parents, teachers and seniors. This behavior, however, also applies to business. With millions of dollars in the pockets, Groupon started its expansion in a quite aggressive manner. For example, this strategy didn’t work when Lashou (Chinese social commerce platform) refused acquisition offer. Also it was reported that Groupon offered 50/50 split for local vendors, when usual partner’s cut was around 10. Another push tactic was mass email marketing with hard sales’ pitch. Needless to say it didn’t work in China where such high-pressure tactics are not welcomed.
Innovation and Adaptation
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. 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 was not originally from Valley it embodied the very same spirit. This is what usually happens with foreign visionary companies in China: they almost instantly get copied by some local entrepreneurs. Local entrepreneurs copying ideas of foreign companies are often in a better position thanks to their knowledge of the local market. The new copy companies are often better adapted for local customers and have more sustainable business models at hand.
Superbowl airtime with all its frenzy and million dollar budgets has one purpose: get in the nationwide spotlight. And the thing about spotlight is that once you get there, you need to deliver. Afterwards it usually goes 2 ways: company receives good publicity or company receives bad publicity. In case with Groupon, well you guessed it, 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 as such a good idea. Actually taking racial, religious other similar topics for your marketing campaign is what must be taught at every marketing 101 class.
Lack of Locals
Another problem was small number of Chinese stuff. Groupon wasn’t the first company to make that mistake. All the fancy MBA degrees and Western market expertise is not what will help you to be #1 Shopping Site in China.
— florianlacombe (@florianlacombe) February 9, 2011
— Gerard Braad — 吉拉德 (@gbraad) February 8, 2011
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 single person is about to make a decision. What does it mean for your business anyway? Well, 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 loose 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
- As obvious as it sounds, respect another culture. We often hear this but companies keep on doing the same mistake over and over again.
- Have a million dollar budget? Good. Use it wisely. Buying your way in is not a strategy
- Monitor your competition. Even if today there is no one on the radar, he may appear tomorrow
- Whenever you start overseas operation, have local managers on board.
Groupon marks just another company that couldn’t crack Asian cultural code. The thing is, when it comes to Asia, knowledge of cultural specifics trumps million dollar budget, sustainable business model and many other traits of successful business. What’s your opinion about this case? Share it in the comments!
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