3. Business Models Analysis
3.1. Model 1: Direct Buying / Direct Selling Model
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Figure 4 shows the evolution of these five phases. Each model will be presented with the help of pictorial illustrations and case examples so as to show how Daigou business works in each phase. As Model 4 and Model 5, more prevalent nowadays, are more systematic and well-developed, they will be further analyzed with Business Model Canvas, which is a strategic management template or a visual chart for developing new or documenting existing business models [58].
3.1. Model 1: Direct Buying / Direct Selling Model
The Direct Buying / Direct Selling Model indicates how Daigou business starts at the very beginning and is still applicable for today’s Daigou business. In this model, a business activity is mainly between one seller and one buyer per transaction. It happens very often when someone is travelling or will go for a trip, and he/she wants to shop on behalf of customers according to a buying lists in exchange of money, goods or financial instruments. Such list generally includes product information and target buying prices. Since there is no specific promotion for the
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considered a Daigou business since there is no transaction involved.Same as any other businesses, mutual communication is needed before a Daigou business starts and the ways people communicate are mainly by direct talking or messaging. Due to their close and trusted relationship, no advanced payment is requested. A seller normally gets money in cash when he/she gives the products to the buyer in person. It works also for a seller currently living oversea, who shops and ships the oversea products to his/her buyer, who will pay via bank transfer or online banking and the buyer has to wait longer to get the products through this channel. Generally, the closer the relationships they have; the lesser the premium they will charge/pay for. Therefore, it is the simplest and the most direct business model as compared to the other four models. This model is more suitable for small orders and business activity is mainly conducted within a seller’s circle (i.e. his/her friends, family members, relatives, etc.).
3.1.1. Model 1: Case Examples
My personal Daigou experience, stated in Chapter 1 is one of the examples for the Direct Selling/Direct Buying Model. In that example, the Daigou activity was conducted for customer outside China because I shopped in Hong Kong and shipped the products to my customer, who was Chinese and living in Germany. The customer paid in cash when he received the products.
In return, other than money, I got a free meal and several free samples. Even though my friend helped look for other customers but she had no physical reward, neither money nor goods, so she was not a seller nor a middleman in this daigou activity. There are many similar examples happening every day in the Chinese Daigou market as well.
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Another example is found through the personal interview with a Daigou agent named Chiwai Leung. Mr. Leung likes travelling so he is eager to run daigou activity in order to make money and to cover parts of his travelling expenses. He shops for his friends or family members when they request to. He mentioned about a recent Daigou experience he had. It happened on August 2016, when he travelled to Osaka Japan with his sister, his brother-in-law and his friend. It was a 5-day trip and also could be regarded as a Daigou trip because other than Miss Leung himself, his sister and friend also shopped for their relatives or friends to make some money. Japan was well-known for beauty products and medicines, which prices were much lower than Hong Kong or mainland China, so their customers also looked for similar products from Japan. Since the customer relationship were close, none of them asked for advanced payments and they got money in cash when they delivered the products to their friends.
In that Daigou activity, Mr. Leung’s sister did not charge extra money but she was beneficial from the tax refunds, which were 8 percent of the retail prices. However, for Mr. Leung, he generated revenues differently. Since there were diverse selling prices in different stores for the same products, he always charged his friends for the highest selling prices and kept the tax refunds as his own income. He made more money than his sister. On the other hand, Mr. Leung’s friend, currently living in mainland China, chose to charge his friends 5 to 8 percent more than the selling price for each product he shopped because he thought that the prices were still much lower than what his customers had to pay in their local stores.
By looking at these examples, the Direct Selling / Direct Buying Model is really simple and straight forward. Sellers shop for their customers as requested and get paid after delivering the
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products. The profits generated from this model are limited due to the close buyer-seller relationship and profits, if any, are from the tax refund or exchange rate only.