Exploiting the power of Online Social Media through Group Buying
While attending the IQPC Conference on Online Customer Experience, I realized that there was a great potential to bring back group buying web sites. Just in case you don’t know what that is, I though I would paste portions of an article I did for a magazine on group buying…
What is group buying?
A while ago a few friends and I went out to purchase a particular brand of a digital camera. We went to the vendor and asked him to reduce the price since there were five of us purchasing the same digital camera. This beautiful concept, known as group buying, helped us get a good discount on the camera. If any one of us had acted alone, we definitely would have had to pay the full retail price. Interestingly enough the vendor was not at all displeased when selling the cameras at a discount. In fact he was really happy to see a bulk quantity of his product being sold in one go. One of my friends commented on how wonderful a concept this was, and unfortunately it did not apply to the internet. Interestingly, just about any type of business model you can think of in the physical world does exist online.
The group buying model works on the concept of large groups of people purchasing products. The larger the pool of buyers, the greater the amount of discount will be available to the consumers. Group buying sites work slightly differently than the usual online shop. First a customer visits a web site, and selects a product. The consumer is then given a few choices for the price he/she wishes to pay for the produce. For instance, with the camera, it would have its original price, a discounted price if 10 people were to purchase, and even a lower price if the number of people willing to purchase were 25. If a consumer chooses the lowest price, then he/she will have to wait till 25 people sign up to purchase that particular brand of camera.
The obvious benefit is that the consumer gets a discounted price. Perhaps the lowest price in the market will be offered at a group buying web site. Moreover, the consumer doesn’t need to know 25 people to get a group buying discount. People all across the globe can join the group buy. The site selling these products also benefits from this model. They are able to negotiate a discount from the manufacturer or the supplier. The web site keeps a certain profit margin and passes the rest of the discount on to the consumer. Therefore compared to the regular online shop, a group buying shop is far better, since the site is able to sell a larger quantity and make a bigger profit. The manufacturer or the supplier also is happy with the deal. They are happy because they sell in bulk quantity, and often times are able to dispose off excess inventory through these types of web sites.
The major downside to group buying is that the buyer has to wait till the required number of people signup. This may take anywhere between an hour to weeks. Therefore if a customer is looking to purchase a product and get it delivered immediately, a group buying site will not be the best place. Moreover group buying sites come in two different variations. Each variation has its own merits and demerits.
Why Now?
About 6-8 years ago, several group buying sites took off. Unfortunately none of them became very successful, and most perished. At that point in time the idea for group buying was, perhaps, ahead of its time. However, right now may be the best time to get into this. Why? Well, now consumers have the power of the Social Media. The average consumer is linked to over a 100 people! For instance, I have over 600 in my various networks!!! So getting the desired number of people to purchase a produce will be much easier and faster than it was 8 years ago. Therefore I believe that it is the right time to start the group buying business model. If you have an Online Social Community and are not sure where to take it, or how to get the most out of it, they is one thing which may be of use.
Who can use this?
Well really anyone can do this. Group buying works for both B2C markets as well as B2B markets. In a B2B market, SMEs can team up to buy raw materials or goods in bulk and get a cheaper rate, allowing them to compete with the bigger businesses. In the B2C market, just about any business can start doing this. Have extra stock, or would like to move things in bulk, or not sure if a product will sell. Just create a group buying page for it. This can be in addition to the usual goods you sell, and can be done on the same website as the one you currently have! For example, if you’re CVS (US) or Boots (UK) and are not sure if a new brand of vitamins will sell. Why not offer it as a group buy good. If you get enough order, then you will know that there is more demand for this product. Hence, avoiding the risk to pre-order stock! This concept can even be used on a greater level. I get to speak with managers from companies that are fed up with the dirt cheap prices of lower quality goods from China or India. Well, how about a buyers forum where companies from the ‘smaller’ countries get together to obtain raw material, and hence reach economies of scale?
There are numerous applications of group buying. I have done much work on this topic and published a number of articles as well as a couple of research papers. If you’re interested to know more, get in touch. If you would like for me to talk about a specific topic, please do let me know.
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