Online retailers, buyers win big time with ‘group buying’

There’s power in numbers — buying power that is.

A new breed of Web retailers is using the collective buying power of hundreds of online consumers to sell their wares quickly and gain free exposure to thousands of online shoppers.

Buyers benefit too.

Consumers signing up on such sites as SocialBuy, Groupon, LivingSocial and Emeryville’s Groop Swoop are offered discounts of up to 90 per cent on some items.

While these sites currently cater mainly to U.S. customers , the good news is some of them will be extending their services to Canada shortly.

For instance, Groupon, which launched in Chicago in 2008, will be opening for business in Toronto “any day now”, according to the firm’s Web site.

Group think

Group buying first surfaced during the “dot com” boom. The idea failed to catch on due to the lack of a channel that would spread news of ongoing deals rapidly to wide number of people.

Groups were unable to reach the required sales benchmarks and minimums.

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With the advent of social networking, however, group buying is experiencing a resurgence.

Here’s how group buying works:

  • A merchant posts, on a group buying site, a deal offering steep discount on a product or service
  • Members of the group are alerted of the deal
  • Members purchase a voucher for the item or service
  • The deal goes through only when enough people sign in to purchase. So its in the interest of members to invite friends to get in on the deal
  • Potential buyers need to act fast because deals last only for a brief period (the sales cycle is dramatically short).

Social networking tools, such as Facebook and Twitter, have made a big difference, and are helping businesses boom, according to Eli Natan, social media expert and co-founder of SocialBuy.

“Buy together, Save together” is the motto of the Los Angeles-based group buying firm, which launched as recently as February 1.

“Social media allows for the rapid spread of information. Consumers are promoting the deals themselves through tweets and Facebook posts,” said Natan.

Little surprise then that SocialBuy is on Blogspot, Facebook, Twitter and has this promotional rock video on Tumblr.

As of this writing, the company was offering a $25 food and drink voucher at the Santa Monica, Calif Rosti Tuscan Kitchen for only $10.

Throughout the promo SocialBuy serves up call outs, such as this post on Twitter:

Craving pizza? I sure am. Check out our Rosti Italian Kitchen deal ($10 for $25 voucher)

There’s a small proviso of course.

The deal goes through only when a pre-determined number of buyers sign in, Natan said.

But quite apart from the sale, for the merchant, such social media exposure is priceless, the SocialBuy co-founder said.

“Many SMBs don’t have the time, money or know-how to set-up a social media presence. When they sign up with us, we do it all for them,” said Alan Garcia, SocialBuy co-founder.

Word-of-mouth recommendation on the social net can work wonders for a retailer. For example a recent SocialBuy campaign for Zaza Nail Spa in San Francisco sold 30 service vouchers worth $50 for $25 in a couple of hours.

“Those were confirmed purchases. Sure they could have passed out more vouchers to passersby in less time, but how many of those would be confirmed sales?” said Garcia.

SocialBuy focuses on selling services rather than products. The company earns money by getting a percentage from the sale of every voucher.

Creating excitement and urgency

By setting a time limit on the deals and encouraging buyers to invite friends into the deal, group buying sites create a sense of excitement and urgency around a product or service that’s on the block.

Groupon claims to have sold more than 1.9 million vouchers and saved its members in excess of $91.4 million.

It offers would be members $10 if they invite friends to join in too.

Currently available in more than 45 cities in the U.S., Groupon recently managed to raise $30 million in funding from venture capitalists, such as Accel Partners, which also funded Facebook.

As of this writing no deals are available yet for Toronto, but discussion on the site indicates some healthy anticipation.

If many consumers are this eager, perhaps retailers should be happy.

According to The Chronicle, when Groupon offered up $22 coupons at San Francisco restaurant Asgew Grill for $10, almost 1,900 coupons were sold. The restaurant owner was only hoping to sell 500.

Groupon CEO Andrew Mason, however, admitted that not all deals are met with similar enthusiasm.

He told The Chronicle that a bus tour to Gary, Ind., to view Michael Jackson hot spots turned out to be a dud.

“Even though we have a lot of Michael Jackson fans, no one liked him enough to go to Gary, Ind.,” he said.

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