Group buying
Encyclopedia
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.
, 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.
, 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.
. 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.
s. 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
.
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.
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.
(an Australia
n 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.
auction site Trade Me has launched a local group buying site called Treat Me.
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.
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
where tuángòu
Tuangou
Tuángòu , which loosely translates as team buying or group buying , is a recently developed shopping strategy originating in the People's Republic of China...
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.
History
In 2000, with financial backing from MicrosoftMicrosoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
, co-founder Paul Allen
Paul Allen
Paul Gardner Allen is an American business magnate, investor, and philanthropist. Allen co-founded Microsoft with Bill Gates...
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
Amazon.com
Amazon.com, Inc. is a multinational electronic commerce company headquartered in Seattle, Washington, United States. It is the world's largest online retailer. Amazon has separate websites for the following countries: United States, Canada, United Kingdom, Germany, France, Italy, Spain, Japan, and...
.
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
Dollar
The dollar is the name of the official currency of many countries, including Australia, Belize, Canada, Ecuador, El Salvador, Hong Kong, New Zealand, Singapore, Taiwan, and the United States.-Etymology:...
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.
Business model
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 SmartMoneySmartMoney
SmartMoney The Wall Street Journal Magazine of Personal Business was launched in 1992 by Hearst Corporation and Dow Jones & Company. In 2010, Hearst sold its stake to Dow Jones. Its first editor was Norman Pearlstine....
, 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 ChinaPeople's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
. Several people - sometimes friends, but possibly strangers connected over the internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
- 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
English language
English is a West Germanic language that arose in the Anglo-Saxon kingdoms of England and spread into what was to become south-east Scotland under the influence of the Anglian medieval kingdom of Northumbria...
media, such as msn.com
MSN
MSN is a collection of Internet sites and services provided by Microsoft. The Microsoft Network debuted as an online service and Internet service provider on August 24, 1995, to coincide with the release of the Windows 95 operating system.The range of services offered by MSN has changed since its...
, 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.
Asia
In China, group buys usually happened when dealing with industrial items such as single-board computerSingle-board computer
A single-board computer is a complete computer built on a single circuit board, with microprocessor, memory, input/output and other features required of a functional computer. Unlike a typical personal computer, an SBC may not include slots into which accessory cards may be plugged...
s. 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
Taipei
Taipei City is the capital of the Republic of China and the central city of the largest metropolitan area of Taiwan. Situated at the northern tip of the island, Taipei is located on the Tamsui River, and is about 25 km southwest of Keelung, its port on the Pacific Ocean...
, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
, Malaysia and the Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...
.
Europe and North America
Recent developments in group buying have led to a wide increase of appearances of similar phenomena in EuropeEurope
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
and North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
. 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
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
. The most notable characteristic of all those intermediaries is the selected deals orientation towards local markets, bound to cities and towns. Leaders include Groupon
Groupon
Groupon is a deal-of-the-day website that features discounted gift certificates usable at local or national companies. Groupon was launched in November 2008, the first market for Groupon was Chicago, followed soon thereafter by Boston, New York City, and Toronto...
(and their United Kingdom's spinoff, MyCityDeal), LivingSocial
LivingSocial
-Business model:LivingSocial offers a new deal each day to its members who subscribe via email. Once a deal has been purchased, members are e-mailed their redemption vouchers the following business day, around 5 a.m. local time...
, Plum district
Plum district
Plum District is a group buying website that focuses on mothers and their buying power. The company is headquartered in San Francisco and offers deals in North America as a 'Everywhere Deal' and in local markets including San Francisco, New York, Chicago, Los Angeles, and Seattle.In March 2011, the...
, and BuyWithMe
BuyWithMe
BuyWithMe is a group buying website allowing consumers to leverage group buying power to get discounts with local merchants. The company is headquartered in New York City. Funding was obtained via a group of angel investors. BuyWithMe's first market was Boston, where restaurants including UFood...
(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
Gap
-General:* Gap , a spacing between large trees in a forest* Gap , a mountain pass, often carved by a river* Gap year, a prolonged period between a life stage-Places:* Gap, Hautes-Alpes, France* Gap, Pennsylvania, United States...
participated in a Groupon promotion during summer of 2010 that generated over $10 million in sales in one day. Nordstrom
Nordstrom
Nordstrom, Inc. is an upscale department store chain in the United States, founded by John W. Nordstrom and Carl F. Wallin. Initially a shoe retailer, the company today also sells clothing, accessories, handbags, jewelry, cosmetics, fragrances, and in some locations, home furnishings...
has also joined Groupon as a vendor.
South America
South AmericaSouth America
South America is a continent situated in the Western Hemisphere, mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere. The continent is also considered a subcontinent of the Americas. It is bordered on the west by the Pacific Ocean and on the north and east...
as an emerging market has yet to see popularization of new purchasing models such as group buying. First intermediaries appeared recently in Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
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.
Australia
On January 20, 2010, Yahoo!7Yahoo!7
Yahoo!7 is a 50-50 partnership between the Seven Network and Yahoo! Inc. in Australia.As part of the Yahoo! Inc. and the Seven Media Group, Yahoo!7 brings together the online assets of Yahoo! Inc. and the television and magazine content of the Seven Network and Pacific Magazines...
(an Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
n 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 $40 million. As of January 2011, Spreets has more than 500,000 members and has sold over 274,000 vouchers in its lifetime of less than 2 years. Through this acquisition, Yahoo has joined a cluster of corporate investors including Microsoft, PBL Media
PBL Media
Nine Entertainment Co. is a media company owned by CVC Asia Pacific.Originally a 50/50 joint venture with Consolidated Media Holdings, in June 2007 PBL announced that it would sell a further 25% to CVC for A$ 515 million...
, Ten Network, and original Facebook
Facebook
Facebook is a social networking service and website launched in February 2004, operated and privately owned by Facebook, Inc. , Facebook has more than 800 million active users. Users must register before using the site, after which they may create a personal profile, add other users as...
investor Klaus Hommels
Klaus Hommels
Klaus Hommels is a seed and early-stage venture capitalist based out of Zurich, Switzerland. He has founded his own venture capital fund by the name Hommels Holding through which he has been investing mainly in Internet businesses. He has been involved in successful internet investments such as...
who are pursuing growth in this new business model.
Industry Analyst Telsyte estimates the Australian Group Buying Market to exceed $500 million in 2011. Daily revenues and market share of Australia's top group buying sites is published by Deals Extra.
New Zealand
On March 22, 2011, the popular New ZealandNew Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
auction site Trade Me has launched a local group buying site called Treat Me.
Rising competition
GoogleGoogle
Google Inc. is an American multinational public corporation invested in Internet search, cloud computing, and advertising technologies. Google hosts and develops a number of Internet-based services and products, and generates profit primarily from advertising through its AdWords program...
is planning to launch their own daily deals site in 2011 called "Google Offers
Google Offers
Google Offers is a deal-of-the-day website that will be localized to major geographic markets in the United States and abroad. Google confirmed the website in January 2011, after an attempted buyout by Google of established competitor Groupon for a reported sum of US$ 6 billion was turned down...
" after its $6 billion acquisition offer to Groupon was rejected. Google Offers will function very much like Groupon as well as its competitor LivingSocial
LivingSocial
-Business model:LivingSocial offers a new deal each day to its members who subscribe via email. Once a deal has been purchased, members are e-mailed their redemption vouchers the following business day, around 5 a.m. local time...
. 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
Online poker
Online poker is the game of poker played over the Internet. It has been partly responsible for a dramatic increase in the number of poker players worldwide...
community which had worldwide revenues exceeding $4 billion USD in 2007.