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 tuángòu or team buying was executed to get discount prices from retailer when a large group of people were willing to buy the same item. In recent time, 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 once 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 crowds in exchange for discounts.
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 shutdown in 2001 as it could not compete with websites like Amazon.com.
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 wholesale market (especially in China). Modern day online group buys are a variation of the tuángòu buying that occurs in China. 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 the 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.
If subscribers to a discount website are tempted by a discount offer, they enter their payment details online and wait. Once 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. 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... 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.
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 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.
In China, group buys usually happened when dealing with industrial items such as single-board computers. China had over 1,215 group-buying sites at the end of August 2010 compared with only 100 in March of the same year. 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.
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 such a 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, and BuyWithMe (Bought by GILT in winter 2011), with hundreds of copycats in different languages. Some big Internet players such as eBay are building their own deal sites, expected to launch in 2011. The Groupon and other group buying sites’ business model is working with local retail stores and restaurants with location-targeted coupons but national chains 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.
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.
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. Industry Analyst Telsyte estimates the Australian Group Buying Market to exceed $500 million in 2011. Daily revenues and market share of Australia's top group buying sites is published by Deals Extra.
On March 22, 2011, the popular New Zealand auction site Trade Me has launched a local group buying site called Treat Me.
Google is planning to launch their own daily deals site in 2011 called "Google Offers" after its $6 billion acquisition offer to Groupon was rejected. Google Offers will function very much like Groupon as well as its competitor LivingSocial. Users will receive daily emails with local deals, which will carry some preset time limit. Once the deal reaches the minimum number of customers, all the users will receive the deal. The business model will remain the same. Facebook's 'Facebook deals' application was launced in five European countries in January 2011. The application works on a similar group buying model. Group buying has become so popular that a new company called BetHalf has brought daily deals to the online poker community which had worldwide revenues exceeding $4 billion USD in 2007.
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