Group Purchasing: The next big idea in social commerce has to be more than a deal a day

A wlots of carsoman in China wanted to buy a car. As is true in almost any marketplace, you get a better deal if you can buy in volume. So she listed her intention on a large Chinese social network and asked if anyone in the area wanted to go into a local dealership and buy the same car. Maybe, she reasoned, if we buy two, we’ll get a better price.

Two weeks later, 55 people walked into that dealership and bought 55 cars.

That, I think, is the real potential for group purchasing. And it has potential to radically transform commerce in the United States.

More than Groupon, Living Social or Twongo

Groupon logoToday’s hot group purchasing websites are Groupon, Living Social and Twongo. They are raising good venture capital and doing the very difficult work of localizing specials. They’ve got a lot to do, and they’re executing quickly, so I’m not diminishing their work. In fact, one of my colleagues here at Ignite Social Media will be writing a post about them shortly.

But when you break it right down, they’re just local Woot. A deal a day. Take it or leave it. Good business model for them, sure, and I love Woot, too. But what about the vast array of other things I need to buy that don’t happen to be one of these daily specials?

I’m a big fan of the potential of social commerce, as I discussed in my post on Mashable earlier this month which outlined the battle between Facebook and Google to be our default social profile. Group purchasing as part of social commerce has significant potential for someone to make a lot of money by making our lives easier.

The eBay of Group Purchasing

What we really need is a new “eBay” of group purchasing– a facilitator of true social commerce. A site that allows me to gather with people in my local community and band together to make major purchases, like cars, computers, couches (and presumably other things that don’t start with a c). Let’s call this company GroupCo at this point. Here’s how it might develop:

Phase I, Group Facilitation: In the early days, GroupCo would simply put us together around a particular item and a particular location. “I want to buy a new Ford Explorer this month in Raleigh, NC. Anyone else want to go with me?” This increases negotiation power, but it’s still up to the individuals to meet up at the dealership and negotiate, then handle their discounted purchases individually. Powerful in its own right, but there’s so much more it can be.

Phase II, Group Negotiation: While walking into a dealership with a dozen people ready to buy will no doubt increase your bargaining power, why not put those dealerships to work prior to showing up? If there are six Ford dealerships in the Raleigh area, why not have them compete with their best offers prior to sending the buyers their way? Now the transaction speed is increased, and everyone can be sure they have a good deal prior to making the buy.

Phase III, Procurement and Purchasing: With the success of Phases I and II, GroupCo now has significant power to work deals. Assuming this model works best for large purchases (who wants to go to the hassle for a loaf of bread?), why not buy directly through that company? Now the dealership is making one large sale to the company, and the company is collecting the payments from the sellers and providing the goods. For smaller purchases, credit cards would be charged by the new company, but as firms like GMAC have taught us, there are huge amounts of money to be made through financing programs. Get me the best deal and a great rate on that purchase, and we’re good.

Phase IV: Direct Distribution: Manufacturers offer their wholesale prices to companies that buy large quantities. Once our new company has built up scale, why go to the dealership, or the furniture store or the electronics store at all? Why not aggregate the purchases, and buy them directly from the manufacturer? This would offer the lowest possible prices, and create a retailer with incredible influence on the market. They could rival Walmart in terms of influence on the market relative to prices. It would be highly disruptive to certain channels selling high end goods, but the benefits to consumers are potentially enormous.

Who Can Do This?

Certainly the leaders in group purchasing right now are the firms I mentioned earlier: Groupon, Living Social and Twongo. At least two are raising significant amounts of venture capital, while the third is growing quickly. That may leave them in the best position early on to achieve this.

These businesses may become distracted by buidling sales forces in each market as they drum up deals of the day from local restaurants.  They may build a good business but out on the potential to build a great  business. In that case, I’d look for a startup out of nowhere, a Craig’s List, an eBay type firm, to take this concept, and build it out. After all, it doesn’t take much to build a system to handle Phase I. It doesn’t get really tricky until Phase III.

So if you’re the one who builds this, and if this post was any sort of inspiration, a seat on the board of directors would be pretty awesome. Oh, and I’d like to get a really good price on my next Ford Explorer. Think you can hook up me and 54 of my closest friends?

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26 Comments
  • janetkennedy
    Posted at 19:01h, 27 April

    In theory, the Groupon “deal is on” when a minimum critical mass commits to the deal. So what would happen if the deal was something worth $1,000 instead of $100? Now I am not prepared to plunk down $1,000 on the spur of the moment but the “Big Deal” could run for a longer period of time or with a week’s advance warning to build awareness, who knows? Maybe if Groupon, et al tested this concept they would see if the idea of larger ticket item sales has merit.

  • taylorbarr
    Posted at 19:38h, 27 April

    Good Post.

    One thing I think we fail to recognize is the difficulty with personal prerference. So you are going to buy a Ford Explorer. How many people want, say, the exact same Ford Explorer as you? (Some might want a manual, expanded features, etc.). Does that influence the collective buying power? I think so. The more varied our personal taste, the harder it will be to solve the “all in compassing deal site.”

    Thanks,
    Taylor

  • Ricardo R
    Posted at 21:06h, 27 April

    Jim, great post and way to thing big. I’m new to Groupon, just installed it Sunday. What you’re describing seems like a natural extension of it. By the way, who writes the funny/crazy/interesting descriptions on Groupon? Keeps it interesting, to say the least!

  • Jim Tobin
    Posted at 11:19h, 28 April

    Yes, the challenge is gaining traction. Like any social network the value grows exponentially as the network grows. So getting past Phase I is no easy task.

  • Jim Tobin
    Posted at 11:22h, 28 April

    True. But maybe the dealership just says something like, “For anyone who buys at least an XLT, we’ll give $1,500 below invoice.” But if you can get to Phase III or IV, suddenly maybe local doesn’t even matter. If you’re buying and arranging distribution, now you spread the number of people who want X across a larger area. And manufacturers make an awful lot of the same products (the same laptops, the same couches, etc.).

  • Jason Zhan Jia
    Posted at 12:42h, 28 April

    Such group purchase on social networks has been popular in China for several years. Is it still new in US?

  • Jim Tobin
    Posted at 10:39h, 05 May

    It’s still very new in the US, Jason. A few young services, just beginning to gain traction.

  • Sam Flemming
    Posted at 07:13h, 26 May

    awesome post. just am now seeing this. for more on the case of the 55 cars sold in China, see http://www.seeisee.com/sam/2009/02/26/p682

    on the overall phenomenon of group purchase in China, see here http://www.seeisee.com/sam/2010/02/22/p1751

    Hope these are helpful…

  • Alana Lea
    Posted at 01:52h, 30 May

    I’d like to see a group purchase site dedicated to social enterprises offering products that fund socially and environmentally sound projects.

    For example, if I can find a site that will list my offer to sell 9,000 organic cotton scarves, printed with award-winning designs for the wholesale price of $50 each, we can fully fund the start up of a rainforest renewal nursery in rural Brazil (on former slash/burn degraded land). The cause is funded through our pre-purchase of their rainforest seedlings, while our social venture in the US is funded (without VC) to increase our product offerings at the lowest possible price point to the public, while both ventures become sustainable.

    Sent my first pitch to Groupon with a no-go, but am going to try again with a new angle. Any other group purchase site suggestions are welcome, while I’ll check out the names listed above. Great post, thank you…

  • Alana Lea
    Posted at 01:53h, 30 May

    I’d like to see a site dedicated to social enterprises offering products to fund socially and environmentally sound projects, through the group sales.

    For example, if I can find a site that will list my offer to sell 9,000 organic cotton scarves, printed with award-winning designs for the wholesale price of $50 each, we can fully fund the start up of a rainforest renewal nursery in rural Brazil (on former slash and burn degraded land). The cause is funded through our pre-purchase of rainforest seedlings, our social venture in the US is funded (without VC) to increase our product offerings at the lowest possible price point to the public, and both ventures become sustainable.

    Sent my first pitch to Groupon with a no-go, but am going to try again with a new angle. Any other group purchase suggestions are welcome, while I’ll check out the names listed above. Good post, thank you…

  • CarLaborator
    Posted at 18:24h, 14 June

    Like it Jim- Have you seen anyone out there doing anything similiar?

  • Rosenberg Jon
    Posted at 21:48h, 22 September

    What companies in China are doing this?

  • Squreshi
    Posted at 19:49h, 11 January

    Yes we have been doing this and I’ve tried several times to add this comment but for some reason won’t post, so this is another attempt. TheBula.com we are in BETA but we do precisely what Jim talks about in this blog. We have been forming this site for about a year (just two people getting it off the ground) but now it’s fully functional. Take a look! http://www.thebula.com

  • Anonymous
    Posted at 18:05h, 15 February

    Does anyone know of any other companies who are emerging with this concept?

  • mikeclose
    Posted at 18:05h, 15 February

    Does anyone know of any other companies who are emerging with this concept?

  • Anonymous
    Posted at 21:20h, 11 March

    I have seen a ton of ‘vertical specific’ group purchasing clones as of late. EX: http://bigappdeals.com/

  • BrianChappell
    Posted at 21:20h, 11 March

    I have seen a ton of ‘vertical specific’ group purchasing clones as of late. EX: http://bigappdeals.com/

  • mikeclose
    Posted at 21:30h, 11 March

    Yeah, but they’re all doing it the same way. It’s funny how they almost all cite Tuangou as an analogy to what they do, yet there is no consumer-originated aspect to any of those services. It’s Deal of the Day Site X working with Business Y to offer consumers a deal. Tuangou is consumers 2-n getting together to approach Business Y to demand a deal. The “group buying” component is all smoke and mirrors; these services are really marketing machines with an awesome gimmick, a giant mailing list, and a bunch of hyper-local businesses who are willing to give a 75% discount to get bodies in the door.

  • mikeclose
    Posted at 21:30h, 11 March

    Yeah, but they’re all doing it the same way. It’s funny how they almost all cite Tuangou as an analogy to what they do, yet there is no consumer-originated aspect to any of those services. It’s Deal of the Day Site X working with Business Y to offer consumers a deal. Tuangou is consumers 2-n getting together to approach Business Y to demand a deal. The “group buying” component is all smoke and mirrors; these services are really marketing machines with an awesome gimmick, a giant mailing list, and a bunch of hyper-local businesses who are willing to give a 75% discount to get bodies in the door.

  • Anonymous
    Posted at 05:26h, 13 December

    Spend on goods & services in a Group, ensuring continuity of supply without compromising quality and cost.  This can be achieved through a well structured and documented procurement process. 

  • jomia
    Posted at 05:26h, 13 December

    Spend on goods & services in a group, ensuring continuity of supply without compromising quality and cost. This can be achieved through a well structured and documented procurement process. 

    procurement process

  • Erol Akarsu
    Posted at 19:41h, 30 January

    Jim,

    My startup will be realizing what you have mentioned in your blog. I have sent email to you. I am waiting your response to share some details with you. Hopefully, we will have site up within a couple of months

  • Erol Akarsu
    Posted at 19:41h, 30 January

    Jim,

    My startup will be realizing what you have mentioned in your blog. I have sent email to you. I am waiting your response to share some details with you. Hopefully, we will have site up within a couple of months

  • Jim Tobin
    Posted at 13:01h, 31 January

    Excellent, Erol. All the best. I’ve messaged you back. 

  • Jim Tobin
    Posted at 13:01h, 31 January

    Excellent, Erol. All the best. I’ve messaged you back. 

  • Alex Kanner
    Posted at 14:22h, 05 September

    I would love to join your Startup!

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