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What is Group Buying?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 November 2016
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Also known as collective buying, group buying is an approach to shopping that calls for several consumers to approach a single vendor in hopes of obtaining some sort of group discount in return for each one purchasing a specific good or service. The idea is to utilize the power of buying in bulk so that both the consumers and the vendor or supplier benefits from the transaction. There are a number of ways to structure a group buying situation, ranging from a casual one-time endeavor by a collection of interested parties to the creation of an ongoing consortium that functions as a broker for the group members in securing ongoing discounts for specific goods and services.

A casual example of group buying could be nothing more than a collection of neighbors who choose to approach the operator of a local vegetable stand with a specific plan of action. In exchange for the operator reducing the cost of a basket of tomatoes by ten percent, every neighbor within the group agrees to purchase two baskets. Assuming there are ten neighbors involved in the group buying, this means the stand operator is able to quickly sell 20 baskets of tomatoes by offering a small discount on each. The neighbors have the benefit of getting a bargain that single consumers do not, while the operator is able to enjoy a single transaction that significantly improves sales for the day.

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In some instances, group buying can be on a much grander scale. During the 1990s, the development of retail consortiums that allowed member companies to combine their purchasing power and obtain discounts from specific vendors for products like office supplies, telecommunications services, and even courier services were common. The approach was relatively simple. Authorized representatives of the consortium would enter into contracts with various vendors that included discount pricing for different goods and services, with the discounts based on the amount of volume purchasing represented by the consortium members.

The discounts locked in by these group buying agreements were typically higher than anything the members could have negotiated on their own. At the same time, the vendors were able to make up the difference due to the volume purchases, as well as having the prestige of supplying goods and services to a range of well-known companies, something that could be very helpful when seeking other clients not involved with the consortium. The end result was a win-win situation for everyone involved.

Whether used as a strategy with a local group or on a massive scale involving major corporations, the concept of group buying only works if both the buyers and the sellers receive some type of benefit from the transaction. As long as the buyers get to save money and the sellers are able to generate profits that are attractive enough to make the deal worthwhile, there is a good chance that both parties will be happy with the outcome, and remain open to a similar business arrangement in the future. Should the members of the group or collective fail to purchase in the volume initially promised, there is a good chance that the supplier or vendor will decline the opportunity to participate in a later transaction.

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Ana1234
Post 4

@bythewell - It can be done on a small scale as well though. Any kind of market stall is probably going to be willing to negotiate, for example, and if you are able to buy in bulk then that's another negotiation tool up your sleeve.

The best deals happen when you are talking face to face with a person selling their own produce or products.

bythewell
Post 3

@umbra21 - Those deal websites were aiming to provide discounts for companies that wanted exposure rather than to provide bulk deals. Group buying has been around a lot longer than that and the discounts aren't usually so drastic.

It also depends on the situation, but if the group was trying to get something from a wholesale company, I don't think they would negotiate so much as just buy together and get the established discount for bulk orders. If they are buying from a retailer then they won't be able to get any lower than wholesale, because it's not worth it for the retailer.

Aside from that, they could be dealing with producers directly, which is the ideal circumstance. But often if

they are doing that, they have to be able to make it worth it to the producer as well as the members of their group. This is why collectives fall apart so easily, but they can be very worthwhile if they are set up properly.
umbra21
Post 2

This can be good, but it isn't an infallible system, as the collapse of all the group voucher sites online showed. You have to be able to provide the kind of bulk purchase that makes it attractive to a wholesaler or retailer and you have to be able to guarantee that purchase and make the terms clear.

If people pull out of the agreement to purchase or if the company selling the goods doesn't have the stock to provide what they agreed to then it can become a huge headache for everyone involved. I think often companies expect it to be a great marketing scheme but it turns out to not be worth the money, because the only people they are marketing to are bargain hunters who are unlikely to ever want to pay full price.

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