What is Group Buying?
Group buying, also known as collective purchasing, is a method of shopping in which many customers approach a single seller in the hopes of gaining a group discount in exchange for the purchase of a certain commodity or service by each individual.
The objective is to leverage the purchasing power of bulk purchases such that both customers and the vendor or supplier profit from the transaction.
There are several methods to establish a group purchasing scenario, ranging from a casual one-time effort by a collection of interested individuals to the formation of an ongoing consortium that acts as a broker for the group members in achieving continuous discounts for specified products and services.
Example Of Group Buying
A casual example of group purchasing may be a bunch of neighbors who approach the proprietor of a neighborhood vegetable stand with a clear plan of action. In return for a 10% reduction in the price of a basket of tomatoes, each neighbor promises to buy two baskets.
If 10 neighbors participate in the group purchase, the stand owner may easily sell 20 baskets of tomatoes by providing a little discount on each. Neighbors get a discount that is unavailable to single customers, while the operator enjoys a single transaction that considerably boosts daily revenue.
In some circumstances, group purchasing might be on a considerably larger scale. Common in the 1990s was the creation of retail consortiums that enabled member firms to pool their buying power and gain discounts from specialized suppliers for items such as office supplies, telecommunications services, and even courier services.
The strategy was rather straightforward. Authorized representatives of the consortium would engage into contracts with various suppliers that contained discount pricing for various products and services, with the discounts dependent on the volume of volume buying represented by consortium members.
Understanding Group Buying
Typically, the reductions secured by these group purchasing agreements were more than what the members could have bargained on their own.
At the same time, the vendors were able to make up the difference owing to the volume purchases, as well as the prestige of selling products and services to a variety of well-known enterprises, which may be extremely beneficial when pursuing new customers outside of the consortium. The final outcome was advantageous for all parties concerned.
The notion of group purchasing only works if both the buyers and the sellers obtain some form of profit from the transaction, regardless of whether it is used by a small local organization or by a large business.
As long as the buyers are able to save money and the sellers are able to produce profits that are sufficient to make the agreement profitable, there is a strong likelihood that both sides will be satisfied with the result and be willing to engage in similar business arrangements in the future.
There is a considerable risk that the supplier or vendor may deny the option to engage in a subsequent transaction if the members of the group or group fail to acquire the quantity first pledged.
History Of Group Buying
Paul Allen, a co-founder of Microsoft, launched the e-commerce startup Mercata in 2000 with the business concept “We Commerce” and financial assistance from Microsoft. Online consumers might get premium electrical goods on the website.
As more online consumers joined up to purchase the same item, the price of the item would decrease. However, the website was shut down in 2001 since it was unable to compete with Amazon.com.
Prior to 2009, group buys typically referred to the aggregation of industrial items for the wholesale market. Recently, group purchasing has taken on a variety of online formats (especially in China).
Modern internet group purchases are a version of the tuángu purchasing practiced in China. Under tuángu, an item must be purchased in a minimum quantity or amount of money; otherwise, the seller will not let the transaction.
Individuals often do not need multiples of a product or lack the financial means to purchase in bulk; thus, group buys enable individuals to ask others to purchase in bulk together. These bulk purchases often result in lower pricing for individual purchasers or the availability of a rare or obscure item.
In the past, group purchases were often planned via Internet forums by online consumers with similar interests. Now, these consumers are using the paradigm of group purchasing to acquire more durable goods.
In a bad global economy, small firms are searching for methods to market their goods to budget-conscious customers, which has led to a resurgence in demand for group purchasing websites.
Purchasing real estate properties is another use of group purchasing. Real estate group purchasing is quite common in India, where companies such as Group Bookings provide group rates on a variety of properties.
When enticed by a discount offer, subscribers to a discount website input their payment information and wait online. When a minimal amount of individuals sign up for the same offer, the deal is verified and a coupon is sent to each participant’s inbox.
The stores, restaurants, and other merchants who collaborate with these discount websites are required to implement substantial price reductions. However, this provides them with immediate access to a whole new set of clients.
The online group purchasing industry is scattered around the globe, with hundreds of smaller competitors. The strategy has few hurdles to participation and has attracted worldwide interest from consumers and corporations…
According to SmartMoney, there were more than 500 group-buying sites globally as of August 2010, including local sites that often serve just one location.
A closer look at group buying
The notion of group purchasing, also known as collective purchasing or community purchasing, leverages the purchasing power of large quantities to reduce the cost of each item. This e-commerce method generates a win-win situation for all stakeholders.
Customers get a discount on their purchases, while merchants transfer many items in a single transaction and cut last-mile delivery expenses.
In internet shopping, group purchasing often occurs in two ways. One method is informal organization. A selected community leader organizes the gathering of interested persons and the scheduling of a product purchase.
Typically, these people are members of the same communities, both in the real world, such as neighborhoods and apartments, and online, such as specialized or interest organizations and forums. Some informal groupings might evolve into a consortium that negotiates an agreement with merchants for the interest of its members.
The second approach is more systematic. Influencers and key opinion leaders (KOLs) use social media and other channels to organize collective purchases of a product. Influencers sell a product in limited quantities or within a short time frame, often at special discounts.
Group buying on the rise
In 2008, the American firm Groupon was one of the first internet companies to leverage communal purchasing as a business model. It provided vouchers for reduced activities, items, and services based on group discounts.
Group purchasing became a specialized feature of e-commerce despite the fact that the business first caused a stir. However, in recent years there has been a revival in group purchasing in China, a trend that is now spreading across Asia.
The explosive growth of internet purchasing and social commerce prepared the foundation for its recent success. Since 2018, community purchasing income has quadrupled and is projected to reach $13.6 billion in 2020.
The e-commerce company Pinduoduo, a household brand in China for group purchasing, has developed a reputation for selling at inexpensive costs through group purchases. Additionally, it pushed customers to recruit others for more cost-effective group offers.
The demand was sufficient for Pinduoduo to grow and develop Kuaituantuan, a new group purchasing platform for groceries and everyday essentials in local communities.
In Southeast Asia (SEA), consumer interest in food and beverage (F&B) products, imported goods, and other specialized items is accelerating the growth of collective purchasing.
The Chinese concept of community-based group purchasing is becoming the standard in Singapore’s e-commerce sector. Local community leaders coordinate purchases and oversee last-mile deliveries, either independently or as employees of a consortium or corporation.
WeBuy is an e-commerce firm that is capitalizing on the group purchasing trend in Southeast Asia. Since its 2019 debut, the site currently serves over 100,000 consumers and 3,000 group-buy leaders. WeBuy serves three Southeast Asian (SEA) markets: Singapore, Malaysia, and Indonesia. The firm intends to expand in the Philippines and Vietnam in the near future.
Social commerce fuels the resurgence of group buying
Social factor is crucial to the growth of communal purchasing. Community leaders organize purchases using instant messaging applications such as WhatsApp and WeChat. Other organizations, like GroupBuysSG, offer things through Facebook and Instagram.
Through these channels, smaller online communities organize group purchases for specialized or hobby products. There are also KOLs who use live streaming to persuade people to purchase products in bulk.
Beyond adding items to a shopping cart and completing a purchase, these casual and regular interactions assist to establish a closer connection with customers. As consumers are encouraged to persuade their friends to participate in the promotion, the community as a whole expands in size and gets closer.
Group purchasing is likely to become the next enduring e-commerce trend in Southeastern Asia. Six nations in the area have an average social media penetration rate of 71 percent. Thailand, Indonesia, and Malaysia are among the top 10 most active nations online, while the Philippines ranks first in daily Internet use.
Thai and Filipino users spend more than nine hours per day online, whilst Indonesian and Malaysian users spend less than eight hours per day online. The Philippines and Indonesia are also among the most socially engaged nations.
Coronavirus epidemic has increased social commerce and digital consumption in the affected area. In the year 2020, Southeast Asia gained 40 million new internet users, of which 94% want to continue utilizing digital services post-pandemic. Prioritizing necessities and value above luxury and brand names has become the new norm among customers.
As a result, it becomes more appealing for consumers to take advantage of group purchase discounts. Collective purchasing will certainly become a prominent shopping trend among Southeast Asia’s digital customers in the future, given the region’s already engaged online population and these characteristics.
As such, it becomes more attractive for customers to patronize lower prices from group buys. Amid the region’s already-active online population and these factors, collective buying will likely take off and be an influential shopping trend among SEA’s digital consumers moving forward.
What is a Group Purchasing Organization?
A group purchasing organization (GPO) harnesses the collective purchasing power of its members to negotiate discounts on the products and services they need to operate their companies.
Any firm, regardless of size, may take advantage of the GPO’s buying power and get access to pre-negotiated contracts with some of the nation’s leading suppliers and retailers, resulting in substantial savings.
Partnering with a group buying organization enables procurement executives to leverage purchasing solutions that improve their current procurement techniques, enhance cost savings, and refine their entire approach to spend control.
Until recently, GPOs have been the procurement industry’s best-kept secret.
By examining the notion of group buying and learning how to effectively interact with a group purchasing organization, we will examine how you may save money, time, and effort, and even streamline your procurement program.
Should I join this Group Buy?
Assuming you find the product appealing, the response is “it depends.”
Group Buys are dangerous enterprises!
Even the most dependable Group Buys have a substantial amount of inherent risk.
You are handing your money to a stranger on the other side of the planet in the hopes that they would provide you with the item in return. And the completion of group purchases might take months, if not over a year.
Be ready for a delay. If you’re participating in a collective purchase to save money, you may choose to pay a higher price rather than assume the risk.
Who do I trust?
However, as previously said, many group buys are for things that are otherwise unavailable, so you must decide whether or not to trust the organizer. The moderation team has recently begun screening Group Buys in an effort to reduce the number of unprepared users who organize Group Buys and fail to deliver.
In this regard, I’d say the GB situation is better than it was a few years ago, but it’s still not ideal. It is very difficult to determine a person’s aptitude for managing a complicated operation such as a group purchase without prior experience; yet, at that point, they are not new to the process.
What if a Group Buy goes south?
The moderator staff is far from apathetic; after all, we are also members of this community and engage in group purchases just like everyone else. As stated before, there is a degree of pre-approval before a group purchase post is permitted, but after money has been exchanged, the moderator team has limited recourse.
Remember that we are all just human beings sitting in front of computer screens, and that no matter how hard we try, we cannot compel someone in another country/state to drive to the post office.
It’s a sad fact that is sometimes ignored. This is not to imply that we do not care about the result of collective purchases (we do), but rather to emphasize the reality of the situation.
Group Buying’s development regions of the world
In China, collective purchases of industrial products such as single-board computers are common. China has over 1,215 group-buying websites by the end of August 2010, up from 100 in March of the same year. The popularity of English-language group-buying sites is also on the rise.
In 2010, new websites in Taiwan, Singapore, Hong Kong, Thailand, Malaysia, and the Philippines increased the popularity of online group purchasing in other regions of Asia.
Ali Reza Sadeghian and Saman Sadeghian, two cousins, created takhfifan, Iran’s first group-buying website, in early 2011. Netbarg has expanded to the point that the cousins are now managing the teams of many new internet businesses in the nation.
In the Iranian market for group-buying websites, there is intense rivalry between takhfifan and Netbarg. takhfifan offers a greater variety of restaurant categories than Netbarg.
Europe and North America
Recent advancements in group purchasing have led to an explosion of comparable occurrences in Europe and North America. While the initial method for group purchasing in China included self-organization and execution, the majority of group purchasing in Europe and North America is conducted exclusively via internet intermediaries.
The majority of the time, interested customers are needed to provide credit card information, which will not be charged until a minimum quantity of purchasers register. Almost without exception, intermediaries charge sellers a percentage fee ranging from 30 to 50 percent of the overall value of the transaction.
As a result of this business model, group purchasing in the People’s Republic of China is restricted to the physical services industry and is not seeing the same development as the original plan.
Nonetheless, intermediaries with quite similar business strategies are cropping up constantly, particularly in the United Kingdom and Germany. The most striking feature of all of these intermediaries is their focus on local, city-bound marketplaces for the transactions they facilitate.
Leaders include Groupon (and its United Kingdom offshoot, MyCityDeal), LivingSocial, Plum Shop, BuyWithMe (acquired by GILT in the winter of 2011), and TeamBuy (Canada), with hundreds of imitators in other languages.
The business concept of Groupon and other group purchasing websites is based on location-targeted coupons for local retail businesses and restaurants, although major brands also participate.
During the summer of 2010, Gap engaged in a Groupon deal that produced daily sales of over $10 million. Additionally, Nordstrom has become a dealer for Groupon.
Community buying is an emerging subset of group purchasing that enables virtual or real-world groups of individuals who have something in common to purchase for a shared purpose/beneficiary. This encompasses online crowdfunding (like GoFundMe, Kickstarter, and Crowdrise) as well as crowdgifting (e.g., Presently, Leetchi).
Utility group purchasing is another kind of group purchasing that demonstrates individuals working together for a similar goal. Consumers band together to gain reduced power costs by pooling their consumption: e.g., EnPowered. GroupGets is a website that encourages individuals to make collective purchases.
Other examples include DIY custom apparel vendor CustomInk and its affiliates T-shirt fundraising site Booster.com, and Represent (custom merchandise from influential celebrities) – all of which aggregate demand and reduce costs for a variety of groups and events, including families, Little League teams, animal shelters, nonprofits, #STRONG charitable campaigns, and fan clubs.
Another recent trend is the expansion of the “paint-and-sip” sector, which connects public desire for entertaining activities with extra space at bars and restaurants (e.g. PaintNite “Girls Night Out” and PlantNite events in U.S. cities).
As a developing market, South America has not yet adopted innovative purchasing methods such as group purchasing. Recent developments in Brazil have seen the emergence of intermediaries with somewhat different business models than those offered in Europe.
Notably, the volume discount is obtained via a post-purchase rebate instead of an instant discount, enabling the consumer to make an instantaneous purchase.
The lack of aggregation and unsuitable difference between consumers – those who want to buy instantly at any price and those who are ready to sacrifice time for discounts – is a major criticism of such a business, since it ultimately reduces the vendor’s potential revenues.
In Colombia, Groupon was introduced in July 2010, and within a year, the country’s top media corporations created their own group-buying websites, including Cuponidad, QueBuenaCompra, and Downtown Colombia, demonstrating that there is a market for many huge players.
Yahoo!7, a subsidiary of Yahoo Inc. based in Australia, acquired Spreets on January 20, 2010. For $40 million, Yahoo!7 acquired 100 percent of the group discount firm. As of January 2011, Spreets has over 500,000 users and has sold over 274,000 certificates in less than two years of operation.
Yahoo has joined a group of corporate investors, including Microsoft, PBL Media, Ten Network, and Facebook’s founding investor, Klaus Hommels, in seeking expansion in this new economic model.
Scoopon, Cudo, and Groupon are the other Australian market participants.
Treat Me was founded on March 22, 2011 by the prominent New Zealand auction website Trade Me.
In 1963, the Government Stores Board, the procurement agency for government departments, was privatized in order to facilitate group purchasing for enterprises.
Following this, private enterprises were granted access to the agency’s collective purchasing power, allowing them to profit from enormous purchasing power.
The firm, now operating as n3, has over 12,000 member companies and is the biggest group purchasing network in New Zealand. New Zealand companies may become members of n3 to get access to substantial supply savings from a vast array of suppliers across several sectors.
Group buying is an excellent way to save money on a variety of items. If you are new to group buying, make sure you read up on it first before jumping into the fray
The key to saving money with group buying is to find a company that allows you to do it right. You don’t want to be locked into anything or have too much trouble redeeming points. Look for companies with a proven track record.
Nowadays there are countless companies offering group deals. These deals can be anything from restaurants and spas to vacation rentals.