Online as a new market entry platform: The daigou phenomenon

Daigou is an emerging Chinese consumer trend that is literally translated as ‘buying on behalf of’. It works by consumer asking others to buy for them overseas what they cannot access locally. A consumer finds friends and relatives overseas and requests them to attend to their shopping list. They would normally pay a deposit before the actual shopping and the final payment made after shopping has been done and the products are ready for shipping. Daigou can be adopted as a good market entry strategy by brands. In fact, Australian brands are known to exploit daigou as a means of entry into China.

Under normal circumstances, the diaigou arrangement is private and among friends and relatives already known to each other. But as the trend develops, there is a growing presence of private resellers who purchase products needed in China and resells them online to the end consumers. For the foreign brands, this is a cost-effective way of expanding into a new market. These private resellers would be marketing the brands to their respective niches. The consumers could then get accustomed to these brands and seek to contact them directly. This is an opportunity for cost-effective market entry of foreign brands into the Chinese market.

An example of a product exploited by daigous is Weet-Bix. While it retails in Australia for only A$5; the daigous were asking for up to A$50. The disparity in prices is such that the end consumer is likely to seek making direct contact with the manufacturer instead of depending on these resellers. This means that as these private sellers get consumers accustomed to the brands, the foreign companies have the opportunity of identifying a niche and attracting it by offering much lower prices for products they have already become accustomed to consuming. But this approach could also be counter-productive.

The consumer landscape in China is such that trust plays an important role in determining what consumers buy. This is one of the lessons that have resulted in many strategic management failures. The daigous are persons who are trusted by their circles of customers. This trust is so strong that it is possible for them to advise that certain brands be purchased and others be avoided. Since consumers listen to them, it means that seeking to edge them out by trying to reach the market directly could be counter-productive. This leads to the recommendation that a collaborative approach be adopted where brands seek to work closely with these daigous.

But the diagou trend is not without challenges. It is a newly developing area that is yet to be properly regulated or streamlined. This makes it prone to rogue traders and con artists. There may therefore be need to review the structure of this daigou communities to safeguard the end consumer. Online intermediaries such as Alibaba could play an important role in streamlining where the private sellers could be listed on the platforms as sellers. With safe payment provisions available in such online platforms, the dangers of an unregulated daigou community can be minimised.