Group buying

Group buying, also known as collective buying, offers products and services at significantly reduced prices on the condition that a minimum number of buyers would make the purchase. Origins of group buying can be traced to China where it is known as Tuan Gou (Chinese: 团购) or team buying.^[1]

In recent times, group buying websites have emerged as a major player in online shopping business. Typically, these websites feature a "deal of the day", with the deal kicking in when a set number of people agree to buy the product or service. Buyers then print off a voucher to claim their discount at the retailer. Many of the group-buying sites work by negotiating deals with local merchants and promising to deliver a higher foot count in exchange for better prices.

History

In 2000, with financial backing from Microsoft, co-founder Paul Allen started an e-commerce start-up called Mercata with a business plan dubbed "We Commerce". The website offered high-end electronic deals to shoppers online. Individual web shoppers would sign up en-masse to buy the same product and the price of the product would fall as more people signed up to buy it. However, the website was shut down in 2001 as it could not compete with websites like Amazon.com.^[2]

Recently, group buying has been taken online in numerous forms, although group buys prior to 2009 usually referred to the grouping of industrial products for the wholesale market (especially in China). Modern day online group buys are a variation of the tuángòu buying that occurs in China.^[3][4] Under tuángòu, an item must be bought in a minimum quantity or dollar amount, otherwise the seller will not allow the purchase. Since individuals typically do not need multiples of one item or do not have the resources to buy in bulk, group buys allow people to invite others to purchase in bulk jointly. These group buys, often result in better prices for individual buyers or ensure that a scarce or obscure item is available for sale. Group buys were, in the past, often organized by like-minded online shoppers through Internet forums. Now these shoppers have also started to leverage the group buying model for purposes of buying other consumer durables. Group buying sites are back in demand as small businesses look for ways to promote their products to budget-conscious consumers in a weak global economy.^[5] Group buying is also used for purchasing real estate properties. Real Estate Group Buying is very popular in India where websites like Group Bookings ^[6] offers group deals on various properties.

Business model

If subscribers to a discount website are tempted by a discount offer, they enter their payment details online and wait. When a minimum number of people sign up for the same offer, the deal is confirmed and a voucher is sent to their inboxes. Shops, restaurants and other retailers that partner with these discount websites have to take hefty price cuts. But it means they have instant access to a whole new group of customers.^[7] The online group buying market is fragmented among hundreds of smaller players worldwide. The model has little barriers to entry and has gained attention from shoppers and businesses alike globally...^[8] According to SmartMoney, by August 2010, there were more than 500 group-buying sites worldwide, including local sites that cater only to a single city in some instances.^[9]

Origins of tuángòu

Tuángòu, which translates as team buying or group buying (also known as store mobbing), is a recently developed shopping strategy originating in the People's Republic of China. Several people - sometimes friends, but possibly strangers connected over the internet - agreed to approach a vendor of a specific product in order to collectively bargain (haggle) with the proprietor as a group in order to get discounts. The entire group agreed to purchase the same item. The shoppers benefitted by paying less, and the business benefitted by selling multiple items at once.

The tuángòu phenomenon has been most successful in mainland China, where buyers have leveraged the power of group buying, which has led to English language media, such as msn.com, profiling the tuángòu buying process. The popularity of the strategy in China is often attributed to the Chinese tradition of bargaining for the purchase of goods of all types. Tuángòu buying also ameliorates a traditional distrust of goods purchased from unknown sellers as individual members of the buying group can vouch for a particular seller's quality to the rest of the group.^[10]

Asia

In China, group buys usually happened when dealing with industrial items such as single-board computers.^[11] China had over 1,215 group-buying sites at the end of August 2010 compared with only 100 in March of the same year.^[12] English-language group-buying platforms are also becoming popular. Online group buying gained prominence in other parts of Asia during 2010 with new websites in Taipei, Singapore, Hong Kong, Thailand, Malaysia and the Philippines.

In Iran the first group buying website is NetBarg and launched in early 2011 by two cousins named Alireza Sadeghian and Saman Sadeghian. Netbarg has grown enough that the cousins are now leading the teams behind a couple of new online ventures in the country.^[13]

Europe and North America

Recent developments in group buying have led to a wide increase of appearances of similar phenomena in Europe and North America. While the original strategy for group buying in China was self-organized and executed, most of the group buying in Europe and North America is done only through online intermediaries. Interested buyers are, most often, asked for credit card details, which will be charged only when a required number of buyers registers. Almost without an exception, intermediaries charge vendors a percentage fee in the range of up to 50% of the total value of the whole deal. Due to this business model, group buying remains limited to the physical services sector and is not seeing growth as with the original strategy in the People's Republic of China. Nevertheless, intermediaries with fairly identical business models are appearing daily, especially across the United Kingdom and Germany. The most notable characteristic of all those intermediaries is the selected deals orientation towards local markets, bound to cities and towns. Leaders include Groupon (and their United Kingdom's spinoff, MyCityDeal), LivingSocial, Plum district, BuyWithMe (Bought by GILT in winter 2011), and TeamBuy (Canada), with hundreds of copycats in different languages. The Groupon and other group buying sites’ business model is working with local retail stores and restaurants with location-targeted coupons but national chains are also participating. Gap participated in a Groupon promotion during summer of 2010 that generated over $10 million in sales in one day. Nordstrom has also joined Groupon as a vendor.^[8]

Beyond serving as a means to drive down buyers’ end costs, an emerging subset of group buying is “community buying”^[14] through which virtual or real-world communities of people who share something in common come together and purchase with a common purpose/for a shared beneficiary. This includes online [null]crowdfunding (e.g. GoFundMe, Kickstarter and Crowdrise). DYI custom apparel vendor CustomInk and its affiliates t-shirt fundraising site Booster.com^[15] and Represent (custom merchandise from influential celebrities)-- also aggregate demand and reduce cost for groups and occasions ranging from families, Little League teams, animal shelters,^[16] nonprofits, #STRONG charitable campaigns,^[17] and fan clubs. Another recent development is the growth of the “paint-and-sip” industry which matches public demand for fun activities with excess space at bars and restaurants (e.g. PaintNite “Girls Night Out” and PlantNite events in cities across the U.S.

South America

South America as an emerging market has yet to see popularization of new purchasing models such as group buying. First intermediaries appeared recently in Brazil with slightly different business models than those proposed in Europe. Notably, the difference is in the way volume discount is achieved, as a post-purchase rebate instead of an instant discount, allowing for an immediate buyer's purchase. Major criticism for such model is in the lack of aggregation and unfit differentiation between buyers - those that wish to purchase immediately at any price and those that are willing to sacrifice time for discounts, eventually costing the vendor potential profits. In Colombia, Groupon was launched in July 2010 and, within one year, the largest media companies of the country launched their own group buying websites Cuponidad, QueBuenaCompra and Downtown Colombia, proving there is market for several big players.

Australia

On January 20, 2010, Yahoo!7 (an Australian subsidiary of Yahoo Inc.) bought a local group buying company by the name of Spreets. Yahoo!7 bought 100% share of the group discount company for $40 million. As of January 2011, Spreets has more than 500,000 members and has sold over 274,000 vouchers in its lifetime of less than 2 years. Through this acquisition, Yahoo has joined a cluster of corporate investors including Microsoft, PBL Media, Ten Network, and original Facebook investor Klaus Hommels who are pursuing growth in this new business model.^[18]

New Zealand

On March 22, 2011, the popular New Zealand auction site Trade Me has launched a local group buying site called Treat Me.

Group buying for businesses: In 1963, the Government Stores Board, the procurement agency for government departments was privatised. Following this, the group buying power of the agency was opened up to private businesses, enabling these businesses to benefit from significant purchasing power. Now trading as n3, the company has over 12,000 member businesses and is New Zealand's largest group buying network. New Zealand businesses can join n3 as members to access significant supply discounts from a wide range of suppliers across many industries.

Rising competition

Google launched their own daily deals site in 2011 called "Google Offers" after its $6 billion acquisition offer to Groupon was rejected. Google Offers functions much like Groupon as well as its competitor LivingSocial. Users receive daily emails with local deals, which carry some preset time limit. When the deal reaches the minimum number of customers, all the users will receive the deal. The business model will remain the same.^[19] Facebook's 'Facebook deals' application was launced in five European countries in January 2011. The application works on a similar group buying model.^[20]

See also

• Economy of scale
• Group purchasing organization

References

External links