How does group buying work?

June 1st, 2011 : posted in Industry by C Steele

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If you’ve ever had dinner at a local restaurant for something ridiculous – say, 90% off the usual cost – you might have wondered how and why group buying works.

The concept is simple: collective buying power means that group buying sites can negotiate deals with local merchants and promise to deliver crowds of customers in exchange for large discounts.

The merchant is assured of a large group of customers, as well as the exposure of their brand/business, while the group of users receive sizable discounts on products or service they actually want.

The group buying concept has origins in the Chinese tuangou trend where a group of friends or acquaintances from an online forum or group would negotiate a bulk price on an item or service that they wanted to purchase. The difference now is that the group buying sites do the negotiations and gather the collective so that the individual only needs to take up the offer.

The leaders of group buying are, without doubt, Groupon. The company serves over 150 markets in the US, and over 100 locations throughout Europe.

Other sites are a little truer to the tuangou concept and connect deal-seeks either individually or collectively with merchants. One example is Ask for a Deal in the US – a company which acts as an intermediary between buyers and merchants where the former can ask for a discount. While the site isn’t actively negotiating the deal, as with the more common group buying sites, they can secure discounts for their users for much the same reason – they are promising large quantities of purchases.