Localizing Group Buying in Indonesia

One of noticeable recent trend in ecommerce is group buying. The trend is ignited by the rise of Pinduoduo (PDD), Chinese company offering group buying services. In just 5 years, Pinduoduo skyrocketed from small aplication inside We-chat into challenging Alibaba as the biggest c-commerce in China. Fueled by this trend, group buying startups are emerging in Indonesia. Among them are Kitabeli, Chilibeli, Rates and Woobiz.

Image of traditional market in Indonesia. Photo by Artem Beliaikin on Unsplash

Ecommerce in Indonesia has been rapidly growing for the past decade. Penetration compared to offline retail however is still less than 1%. There is an ample room for innovation in this space, including group buying. But blindly copying what works in China might not produce similar result here.

In this article, i write my thoughts on how PDD does group buying and whether bringing in their model could work in Indonesian context.

Lets go!.

How Pinduoduo Does Group Buying

PDD unique value proposition is group discount. Every item sold in PDD app has two price, individual price and group price. Group price is much cheaper. It can get to 90% cheaper. The bigger the group, the greater the discount.

PDD price comparison with Taobao. Images taken from GGV Capital.

Due to this group mechanism, PDD rely on chat mechanism. PDD started as service inside We-chat app ecosystem. Their initial main acquisition funnel is group chat and their only payment method is Wechat balance. Early PDD users can browse, initiate group buying and pay inside Wechat app. This make the experience seamless to Wechat users.

PDD app overview. Image from Y Combinator.

Focus on Perishables

In the early days, PDD sold fruits, vegetables and other perishable groceries. Why fruits ? the main thing is because at those time, fruits and other groceries are rarely sold online. This give PDD differentiation edge among other e-commerce.

Product differentiation is important because PDD cant rely on cheap price only. Big player with loads of cash like Alibaba can easily match their discount. Without low price, group buying is a hassle compared to buy stuff individually in a marketplace. Selling items which are not widely available give reason for users to cope with high friction of setting up a group. Lastly, selling groceries means higher buying frequency in PDD compared to selling fashion or luxury items.

Fruits and vegetables are still core SKUs of PDD right now. With small household items such as tissue, cooking utensils and umbrella followed behind as their top selling items.

Recommendation instead of Search

PDD dont offer explicit search feature. User log in to PDD will be offered products tailored for them based on their purchase history. Their homepage is more like social media rather than e-commerce. Shopping experience in PDD is designed to be impulsive. User with a specific item to buy, probably will use other marketplace such as Alibaba or Taobao. PDD user mostly login to the app, scroll endlessly and buy something impulsively.

Just like how we use Instagram, with purchase instead of likes.

This decision enable PDD to do these things : 1) reduce inventory cost, 2) selling unbranded-good value stuff. PDD only maintain 20 SKUs on their early days. They also sell unbranded stuff directly from manufacturers, reducing price significantly.

Rural Appeal

PDD core segment is woman living in China small cities. Images from

Most PDD users reside outside China 1st tier cities. Majority of their users are women and housewives in China 2nd or 3rd tier cities such as Changde or Foshan. User in rural areas tends to have lot of free time hence they dont mind putting effort to share PDD links to many of their friends to get discounts. They also dont mind buying non-branded stuff as long as the value still good enough. These segment is also under served by other e-commerce in terms of product offering and delivery access hence winning rural e-commerce shopper become a advantage for PDD.

Float-fueled Growth

Merchant who want to sell in PDD Platform is charged upfront fee by PDD. They also received payments, two weeks after the goods are delivered. On the other side, customers are paying upfront when they initiated group buying, even though group order hasnt finished yet. Their money will be refunded if the order failed but when they still looking for friends to join, money is already in PDD account.

Both of this mechanism created float fund for PDD. Money in between transaction which havent been transferred to both merchant and users. The float fund become nice cash buffer for PDD to fund their marketing and customer acquisition expense without having to spend outside capital upfront.

What Might or Might-Not Work in Indonesia

Behavior of buying things together are not novel in Indonesia. We have arisan as form of group-savings to buy stuff together. Arisan is prevalent from rural kampung to the urban-cafe of Kemang. Mapan, which was acquired by Gojek, is well known to leverage arisan as their main value proposition.

There also MLMs such as Oriflame, K-Link, Sophie Martin. Behavior is quite similar to group buying : people sell stuff to communities, get discount if you buy in bulk and user-promoter / get incentives per purchase.

In this section, i will discuss what aspects that might (or might not) work if Pinduoduo model are implemented here in Indonesia.

Maintaining price difference to marketplace

One strategic questions group buying startups must answer is : how to maintain lowest price offer in the age where all the unicorns marketplace still happily burn money ?

One of the promotions by Tokopedia which give 90% discount and free delivery

If customer can get similar or even better deals in Tokopedia, Shopee or Bukalapak, they have no reason to deal with the additional steps of organizing your friends to do group buying.

PDD maintain their price advantage by doing :

  • Direct sourcing from manufacturer or farmer, cutting of distribution cost
  • Holding small SKUs, reducing warehouse and logistics cost
  • Focus on selling fruits and vegetables which are not widely sold by incumbents

Group buying startups should think about strategic steps along those line to hold price advantage sustainably.

Whatsapp instead of WeChat

Being on top of Wechat, enable PDD to seamlessly exist in an ecosystem with hundreds of millions active users. Sixty percent of PDD users are accessing the service using WeChat instead of PDD own app.

In here, Whatsapp is the default messaging app. Whatsapp own the market so much, it become the primary reason why people switch from feature phone to smartphone.

The problem is whatsapp is not so customizable as wechat. It didnt allow apps to built on top of it. There is still Whatsapp Business Api, but currently it didnt support Groups functionality.

Chat mechanism is crucial for customer acquisition and making the group buying mechanism seamless. Two options for Indonesian players : 1) work with WA API limitation, 2) develop own in-app chat.

On related note, i wrote why we should develop financial services on top of Whatsapp.

Offline Community vs Online Group

Another choice that group buying has to consider is whether they tailor their service for offline community or online group.

Offline community is a local community who know each other. Have a high degree of trust. It can be neighbours, but can also religious based community in a mosque or church. Usually have strong community leader. Group relatively small size, up to 20-30 people. Stronger in rural areas.

Online group is WA group based community. They meet over similarity of hobby, school, workplace or interest. They dont live in the same area. Dont have any obvious leaders. Can be quite large in size, up to 100-200 people. More prevalent in urband or suburban areas.

Designing group buying mechanism for each of this type of community can be very different. PDD is more on the second type. While there are also other big group buying player called Shihuituan, taking the first approach.

Comparison between PDD and Shihuituan. Image from GGV capital.

PDD group buying dont have to know each other. Even if you dont have friends, PDD has feature to let you join exisiting group. Shihuituan is the opposite. It rely on community leader so most likely people know each other in every group purchase.

Aggregated Last Mile Delivery

Continuing from last point, advantage of serving offline community over online group is you can aggregate the delivery. PDD user dont have to live in the same area, because each user will be delivered individually. In Shihuituan model, all of the stuff in each order will be delivered to the community leader’s house. User then pick up the stuff from the community leader house. Shihuituan model allows for cheaper logistic cost.

Recently i bought a book from a marketplace and i set the delivery address to Pangkajene, a small city near Makassar in South Sulawesi. The book price is 80k while the delivery cost is 60k, even with discount coupon.

I believe aggregated delivery model like Shihuituan is more suitable if group buying players want to tap in into 2nd, 3rd and 4th tier cities in Indonesia (where ecommerce incumbents is under serving them).

Handling Cash Payments in Group

In China, cashless payment is ubiquitous. Here not so much. Cash on delivery still one of the most preferred payment method. Handling small amount of money from group of people can be costly.

Agent-based cash collection can be solution for this. Group buying order are collected by the community leader who then pay to the platform using bank account or e-wallet. This bridge the need for cashless payment while still being inclusive.

So not only the delivery, payment is also better be aggregated in Indonesian context.

Conclusion

Group buying or social commerce could be the next driver for e-commerce in underserved areas in Indonesia. In current condition, i think offline community, aggregated delivery and payment model like in Shihuituan is better suited for our local context compared to PDD model.

Thats it for today’s post. I read couple of insightful reference to write this. Check below for the list :

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