How Group Buying Works

Elaine Sutton
• Monday, 19 October, 2020
• 8 min read

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 Than You (Chinese : ), or team buying.

infographic buying australia potential marketing market marketingmag remains unfulfilled magazine groupon
(Source: www.marketingmag.com.au)


In recent times, group buying websites such as Pinduoduo in China and Teammate in India have emerged in the 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.

In 2000, with financial backing from Microsoft, co-founder Paul Allen started an e-commerce start-up called Mercia with a business plan dubbed “We Commerce”. The website offered high-end electronic deals to shoppers online.

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). Under tango, 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.

buying purchase
(Source: www.slideshare.net)

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. 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. The online group buying market is fragmented among hundreds of smaller players worldwide.

The popularity of the strategy in China is often attributed to the Chinese tradition of bargaining for the purchase of goods of all types. Tango 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.

Netball has grown enough that the cousins are now leading the teams behind a couple of new online ventures in the country. Recent developments in group buying have led to a wide increase of appearances of similar phenomena in Europe and North America.

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.

economics money buyer power works buying rich seller above larger
(Source: freebreakfastapparel.com)

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 spin off, MyCityDeal), LivingSocial, Plum district, BuyWithMe (Bought by GILT in winter 2011), and Team (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. Beyond serving as a means to drive down buyers’ end costs, an emerging subset of group buying is “community buying 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 crowdfunding (e.g. GoFundMe, Kickstarter, and Crowd rise) as well as crowd gifting (e.g., Presently, Leech). Consumers come together in order to obtain lower electricity rates by pooling their usage together: e.g. Empowered.

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. Painting “Girls Night Out” and Plantlike events in cities across the U.S. South America as an emerging market has yet to see popularization of new purchasing models such as group buying.

buying pinduoduo shopping does actually services
(Source: wedodesign.com.au)

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 Caponized, QueBuenaCompra and Downtown Colombia, proving there is market for several big players. Yahoo!7 bought 100% share of the group discount company for $40 million.

As of January 2011, Streets 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 Pommels who are pursuing growth in this new business model.

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.

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 presets time limit. Facebook's 'Facebook deals' application was launched in five European countries in January 2011.

buying slideshare retail
(Source: www.slideshare.net)

^ “Interview with the Founders of Netball, the Iranian Group Buying Website”. “From Digital to Families: the Iranian startup revolution, phase two”.

“Online crowdfunding site Booster lets users raise money for social causes”. ^ “#Sam Strong: A Region Fights Alongside Two-Year-Old West Monroe Boy Battling Cancer”.

There are dozens of ways to shrink expenses, from minimizing your credit card processing fees to automating common tasks. These GPO scan provide the essentials for running a business: Stationery supplies, vehicle purchases, healthcare, computer equipment and hardware, consumables, and various other goods, services, and sundries.

Other GPO's help businesses source their stock and supplies for manufacture or resale to customers, meaning a lower cost per item (and higher profits). Due to the economy of scale, manufacturers and suppliers will often give preferential rates and discounts for buying in bulk.

Your buying group may be able to negotiate discounted rates or free shipping on group orders over a certain size. Whether you’re setting up a new office or you just want to order stationery supplies once a quarter, being able to buy everything through one group is simply more efficient.

groupon works moving quick take
(Source: blogs.ubc.ca)

These groups are often formed from industry bodies, lobbying organizations, and trade associations. They will provide services in addition to purchasing, such as legal advice, business help, industry news, seminars, and support forums.

Unfortunately, navigating foreign manufacturers can be tricky, especially with language barriers, cultural differences, and product requirements. Perhaps the biggest one is that buying groups aren’t likely to work with all suppliers, so if there’s a vendor you prefer, you may not be eligible for buying group discounts on that company’s products or services.

Additionally, depending on the size of the buying group, you may need to put in some time to help the group and other members. As I’ve already mentioned, there are many areas where a good buyers’ group can secure you some significant discounts and benefits.

Grouping your payroll and HR services together can mean good discounts and more benefits for your employees. There are a number of specialized small business buyers’ groups that can help you get employee coverage at better rates than on the open market.

FedEx, UPS, and other carriers give much better pricing based on the quantity of items shipped. Desktop and laptop PCs, tablets, smartphones, servers, and other technology infrastructure will be one of your largest capital expenditures.

buying guide trying social vendor buyer benefit tap selling into
(Source: www.letspool.com)

Many GPO's have specialized programs letting you buy hardware at a discount from some of the biggest manufacturers. Most buyers’ groups are funded through membership fees, paid by the small businesses they represent.

In short, read the fine print and rules of membership to make sure you’re getting a good deal. Contact your peers in similar businesses to find out about their purchasing habits and see if there are dedicated GPO's who can help you out.

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