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14.11.2011

Amit Srivastava and Amit Ola

[Type the company name]

11/14/2011

GOME Electrical Appliances Holding Limited The “TUANGOU” Challenge

By-

Amit Srivastava ( A02)

Amit Ola (A 10)

Write Up

To-

Mr. Rahul Sharma

This case is about a Gome electrical appliances which is a largest retail chain store

of home electrical appliances , how its managing director Mr. Wong Kwongyu laid

the foundation of its success upon certain principles and strong values which

made it the largest retail chain store of electrical appliances in China. This case

also discuss a new kind of buying behavior of consumers and that is “Tuangou”

and how Gome Electrical appliances get effected by this tuangou shopping.

Gome Electrical Appliances:

Gome electrical appliances started by an entrepreneur Mr. Wong Kwongou

in 1987 with a very small amount 30000RMB as a small retail shop in

Beijing, China.

Initially he traded with imported goods which were huge in demand at that

time and were high margin products.

With growing competition and to get the competitive edge over its

competitor he adopted the policy of low price to do so he by-pass the

intermediaries and started dealing directly with manufacturers.

In 1996 he shifted from selling purely imported products to including

domestic brands also.

Gome opened its first store out of the Beijing i.e. in Tianjin in July 1999

and in Shanghai in December 1999.

By the end of 2004 Gome’s Retail network spanned to 144 stores across 25

cities in China.

In November 2003 Gome opened its first store outside the China in Hong

Kong and n July 2004 got listed on Hong Kong stock exchange.

By December 2004 its turnover reached upto RMB9.7billion.

Mission and Culture:

“Competitive pricing from high volume, customer service comes first” this

was Gome’s main mission statement on the basis of which they were able to

get the competitive edge over its competitors.

Gome’s mainly worked on two approach first set out to build a goodwill and

loyalty by providing them good shopping experience and second was its

competitive pricing.

Gome established its strong corporate culture upon certain moral principles

and values.

By providing quality services to the consumers Gome tried to be the pioneer

on its field and Gome also prided that it is contributing in the prosperity of

society.

Gome focused on keeping promises whether it has been made on any level

from superiors to subordinates, headquarters to regional offices, or from

regional offices to retail stores and it also worked on improving its

credibility.

Gome emphasized more on encouraging ethical practices in the organization

and worked on building strong ethical organizational culture by training its

employees.

Gome stressed more on hiring local people and trained them in a way so that

they can give high quality service to its customers and were encouraging

them by giving positive and negative reinforcement.

Gome emphasized more on building and maintaining its strong brand image

and emphasized more on building its goodwill and for that they spent

millions of renminbi.

Gome’s Strategy :

Gome focused mainly three types of strategy and it helped them to achieve their

corporate mission and gole.

1. Low price and low cost:

Products available in Gome’s store were priced at 10 or 15% lower

than those at conventional stores.

This low price strategy helped in attracting large chunk of customers

and generated a large sales volume.

High sales volume helped Gome to increase its bargaining power over

its manufacturers.

With greater bargaining power it was able to negotiate more lower

prices and it helped more price reduction in its products. It worked as

a downward spiral.

2. Exclusive selling rights :

To secure a low price and high volume strategy they started taking

exclusive selling rights for certain products from manufacturers.

Which helped in improving its ability to sell at low prices and

generate high sales turnover.

Products with exclusive selling rights accounted for 10% of total

products carried.

3. High quality Service:

Gome rolled out a large scale quality service campaign with name

“Gome service project”.

Thay also started so many campaigns like this to attract their

customers like moneyback guarantee, complaint award, Mysterious

shoppers, Shopping from afar.

Depending upon the spending pattern of the customers they were

invited to join as rainbow, silver, gold, or platinum card members.

TUANGOU:

Tuangou is a Chinese term and can be referred as team buying or

group purchase.

Consumers who were unknown to each other joined together via

internet and leveraged their collective bargaining power.

Their were numerous websites dedicated to this tuangou only like

51tuangou.com, Shtuangou.com, 020tgw.com etc.

Tuangou was the natural extention of China’s bargaining culture.

Onlne shopping was not that much popular in China due to lack of

trust and honesty.

By the end of 2005 tuangou had become a way of life for Chinese web

surfers.

Now customers were able to get huge discounts on the products than

the normal market price.

Retailer’s Response to tuangou:

For some retailers it was a great opportunity but for some it was like a

problem or threat.

Luxury goods retailers adopted fixed price policy to stop tuangou

otherwise they could have suffered with huge losses.

Some of them were feared of aggressiveness of tuangou shoppers.

Incurred losses due to lost margin but were hopeful that increased

sales volume will make up this loss.

Retailers were not able to focus on its regular customers.

GOME and Tuangou :

Gome was the most preferred choice of tuangou shoppers.

To deal with tuangou shoppers Gome launched GOME tuangou day

project in which a particular day was assigned for Gome shoppers

only.

Gome offered some additional advantaged to tuangou shoppers like

tuangou VIP card and minimum 2% discount on any product, a

complimentary gift and lucky draw offer.

Gome Started Tuangou Banquet which was the largest tuangou event

of the year.

Consumer Behavior:

From this case it is clear that tuangou is a very different kind of

consumer behavior in which a consumer is a rational decision maker.

Initially Chinese customers were concerned about the price only but

later they started giving attention to good quality and sales service.

Because of this buying pattern it was clear that consumer started to

believe that anything that is low or cheap in price can not be good.

This concern for consumers towards quality product in low prices

encourages them for tuangou shopping.