Successful business model of group buying – market analysis

Successful business model of group buying – market analysis

If this article we will discuss the phenomenon of group buying and we will try to answer the question: is it worth to use collective buying your sales strategy.

Introduction

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.

The business model of such vernier-type transactions includes a combination of selling and buying, with a minimum of risk. The price the buyer gets is often the same as what he and others of his species would pay for it, and the product and/or service available at the price is usually the same as the one or a combination of the items.

The customer must be willing to pay the seller a small investment, while the value of the product and/or service offered at the time of sale is minimal. A number of vernier-like transactions may be found in the animal world.

For example, a common practice among many of the animals in many cultures is to purchase a variety of different animals, and then to keep them in herds until all are dead.

The animals are killed and eaten by humans who then sell them into the market, where they become very valuable commodities for the animals themselves, who then sell their offspring to people interested in the dead animals’ skins and fur.

The big one can afford more

The more you buy, the better the price you can negotiate. Thanks to this basic principle of trade, the biggest market tycoons built their power. Ikea, Alda, or other chains owe their position on the market to, inter alia, large orders of goods, thanks to which they can dictate price conditions to suppliers.

Large hypermarkets also operate on a similar principle, and by ordering together (often for the entire chain or a specific region of the United Kingdom), they receive greater discounts .

Groupon and others players

There are several deal sites that allows consumer to get marketing coupons and deep discounts for local merchants, national businesses, travel and other products and services. Globalization and digitization of the purchasing market popularized alternative forms of sophisticated purchasing by electronic means.

Groupon is by far the largest of the daily deal sites but there are some alternatives like: LivingSocial or Gamdroid.

Groupon has recently been making a meteoric career in the US and in the Western Europe as well. Global expansion and success encourage other players to get into that new type of business.

Many companies try to clone the idea and transfer it to the UK market. What is it all about and how can you benefit from it?

Gruopon’s idea is simple. This is a group shopping service. Here, companies sell their services and products at very high discounts, provided that the service gathers the appropriate number of buyers.

Other projects are based on the same principle where

It looks like that on the website of the website there is an advertisement with a 40% discount, for example a meal in a restaurant – but the discount will be active only when, for example, 100 people gather.

It’s important to understand that Groupon isn’t for everybody – and it isn’t meant to be. The service was designed to attract a specific demographic: young, urban professionals who want to explore their cities affordably.

The kinds of deals featured on Groupon fall squarely into the category of wants, rather than needs. They advertise products and services that you may not have otherwise tried if the price wasn’t so low.

Here are the most common types of Groupon deals:

  • Restaurants and bars
  • Hotels, B&Bs and getaways
  • Spas and resorts
  • Yoga, Pilates, spinning and assorted fitness center classes
  • Hair and nail care
  • Cosmetic dentistry
  • Cosmetic surgical procedures
  • Laundry and dry cleaning
  • Classes
  • On-line retailers

As it is easy to see, the common feature of the above-mentioned industries is their massiveness and universality.
Group purchases certainly do not include luxos goods, specialist equipment or very niche industries.
Wherever we have a mass customer, low margins but high turnover – group purchases will help increase turnover and boost sales.

However, is this the only advantage of group shopping?

Well no. In the case of services or products intended for a wide audience, brand recognition is decisive for success.
thanks to group purchases, we can provide our brand with greater recognition.
We don’t need to earn money from group buy customers. Our research shows that 90% of such offers are practically without profit for the entrepreneur (at cost) in the financial sense.

It is, however, something completely different.

We want to tie the customer to our product or service and we hope for a positive impression and that the customer will come back.

If the restaurant serves tasty food and provides a good atmosphere – the next time we can invite the family there for a joint dinner.

When the Spa or hotel provides high comfort, there is a great chance that we will return there soon or recommend it to our friends.

The invaluable role of social media

In the era of social media, where the average person has several dozen friends, this effect will be magnified. It is enough to put a post on facebook or Instagram when collecting a group.

The very fact of building the range in this way is very desirable for building our brand awareness.

Summary

From the point of view of the business owner – group shopping is a very good form of promoting your product and an element of the brand building strategy.

It should be noted that not all types of business will apply.

The main criterion should be a potentially large scale of business for a wide audience, i.e. retail sales of general-purpose goods, travel, services in the field of health and beauty, gastronomy, training courses on universal topics.

Lowering the price and entering a platform that offers coupons and promotions can increase overall turnover and brand recognition, which is of great importance when selling low-margin products.

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