The basic idea of group buying is that buyers come together to approach a vendor about buying a particular product in bulk. Buying at scale usually means they can negotiate a lower price by working together. A lower price isn’t the only motivating factor though. This type of trade can even enable transactions that simply wouldn’t have been viable without the group buying approach.
Buying in groups isn’t a new concept but these communities have been hugely enabled by technology, particularly social media. This has meant that these groups are enabled for different types of purchases and for different types of consumer.
One example is collective buying of household solar power. There are many local schemes in places including the UK and US to enable households to get solar panels installed by organizing local households to come together as a group to approach installers. It makes it worthwhile for installers to provide this service if there are enough buyers in a relatively small area and more cost-effective for both parties.
Group buying deals can also help businesses manage their capacity better. A common example is a hospitality business that offers a group meal or entertainment voucher deal that’s only valid on quieter parts of the week. Marketing costs are lower for offering the deal to a group where volume is likely to be high.
This can bring in footfall during the week to a business that’s generally only busy at weekends. Although it might not be as profitable, the venue will attract customers that probably wouldn’t have made a purchase at the normal, higher rate and busier time and helps manage capacity better.
Buying groups are increasingly an option for businesses – even ones that aren’t big enough to have a formalized procurement function. Sometimes, group buying is enabled by a middleman, such as a procurement group. Sometimes they’re organized on platforms such as WhatsApp and LinkedIn, to various degrees of formality, and these tend to be sector-specific.
Buying groups in the pandemic
Many businesses have had to pivot at breakneck speed to stay afloat during the pandemic. Food businesses are just one example of an industry that’s had to adapt rapidly to new ways of operating.
Some restaurants have stayed operational by starting to offer takeaway food and finish-at-home food kits that haven’t previously been a major part of their offering. This has meant scrambling to find the right packaging. Luckily, this type of standardized commodity lends itself well to group buying.
One procurement group in the UK found that its members were particularly demanding of its services during 2020 as their buying needs changed rapidly. It attributes some of the 20% increase in buying from its members to restaurants suddenly requiring take away packaging, as well as a high volume of demand for personal protective equipment (PPE) to meet new hygiene standards in the Covid-19 pandemic.
But we don’t need to be in the midst of a pandemic for businesses to benefit from group buying. For smaller businesses, there’s a real advantage to teaming up in order to form a larger scale buying team and access the savings that are usually only available to larger organisations buying at scale.
For newer businesses struggling to set up a supply chain and get taken seriously by suppliers, joining a group may help them gain credibility as a buyer. Some businesses also find the group buying approach less time-consuming as there are fewer suppliers to have to deal with, fewer invoices to manage, and sometimes requires less time spent searching for deals and negotiating with suppliers.
Advantages for vendors
When buyers organize themselves into groups, there are advantages for the vendor too. For a start, there are advantages for vendors that are hoping to scale up. There’s usually a lower cost to serve customers that buy as a group, with lower acquisition costs per buyer because the group tends to organize itself and recruit its own members.
Individual buyers aren’t as likely to ask for specially crafted products or deals. Depending on how the buyers are organized, there may be favorable circumstances such as being more closely geographically located.
It’s also the case that group buying may enable sales that wouldn’t otherwise have happened. In a business buying context, it may be the case that individual businesses are too small for a vendor to serve.
If the same business organizes itself into a group with other small businesses, the vendor may find it cost-effective to serve them. Even better, the group mediators may take on some of the work associated with fulfilling the order, such as by distributing goods among members.
Depending on how the group organises itself, selling this way may be an effective way to reach a new audience. This is often because the vendor is reaching businesses that are usually too small to make them a profitable customer. This has the advantage of helping the vendor cover parts of the market that would otherwise be reached by competitors, and gain market share.
It’s advantageous for vendors when their custom base organizes itself into a handy reachable group, and that’s exactly what happens when people and businesses with special interests team-up. Not only are they identifying themselves by area of interest but they are also showing they are ready to buy.
It makes it easy to reach the right consumer at the right time. For vendors trying to reach businesses, it can be a helpful way to reach the right people in that business as the ones responsible for the buying decisions tend to be the ones in the buying group.
Buying groups tend to offer their members more than just deals on products. Whether they are online or offline it’s common for the group to discuss topics of interest with the people in that group, and sometimes organize events. If you’re a vendor trying to engage with this audience it can be an excellent way to see what’s concerning them and try to be part of that solution. In this way, buying groups offer much more than just opportunities for immediate sales.
Group buying for new markets
If you’re thinking of entering international markets, approaching a group buying collective may be an option for your brand. It can be a fast way to gain an introduction to a new audience, mediated by the group buying platform or deal broker.
There are advantages and disadvantages to using group buying to break new markets. Obviously, it’s a fast way to enter a new market and get your brand visible. If you can find the right group of consumers or businesses, it can help you connect really quickly with your intended audience. And it’s a way to rapidly scale in a new market and potentially grab market share.
If you’re bringing a new product into this market and consumers don’t really understand it, then group buying is an abrupt way to find this out. If you start out in a new market with a high volume deal then you may also have to tackle high volume customer disappointment, returns, and complaints.
Ideally, you should do some smaller-scale test sales with customers in a market before you try to make high-scale ones. Group selling will also highlight all the logistical challenges associated with selling to a new market.
If you fail to meet the expectations of your buyers in a group deal then it’s much harder to recover from this than it would be from a smaller volume mistake. Remember that your audience is already organized into a consumer group and may find it easy to organize against you. This can really damage your reputation.
Approaching a buying group
If you’re interested in selling to buying groups, it’s advisable to choose one with a good reputation. Don’t risk your reputation by being associated with a group that is known for bad quality. Buyer suspicion will diminish the value of your product or service merely by associating it with poor-quality vendors.
Many vendors have had success in offering a simplified or restricted version of their regular product or service to customers buying as part of a group. An example would be only offering the medium-sized version of a product that usually comes in small and large as well. You’ll need to decide whether your product or service can still generate high volume appeal in a one-size-fits-all version of what you normally offer.
Craft your deal carefully. Some group buying sites offer dynamic pricing, which means the cost to the buyer varies according to how many buyers enter the deal. It sounds obvious, but make sure that whatever the price and volume are, it’s still worthwhile for you fulfilling the order.
Make sure you can deliver on time and meet the terms of the deal, as it’s a high profile failure if you can’t.
You should also be aware that when a high volume of buyers receive your product or service at the same time, there may be a corresponding rise in demand on after-sales care and customer support.
It’s also important to remember if you’re using buying groups as a first point of entry for a new language market, say France for example, you’ll need to have additional French language resources to tackle associated customer support enquiries. A report from the ICMI revealed over 70% of customer service leaders said: “support in a customer’s native language increased their satisfaction with customer support”.
You might also see a high volume of returns that need processing at the same time. Make sure you have the infrastructure in place to handle all this within the timescales vendors expect. Fulfilling big deals from group buying sites can really test your resources, particularly for things such as response and delivery times.
Dangers of group buying
Vendors have got into trouble thanks to badly crafted deals on sites such as Groupon. It’s important to approach group buying deals in an informed way. Make sure there’s a cap on sales so you don’t overcommit or see the deal become unprofitable for your business. Additionally, ensure that you plan your capacity and be wary of intermediaries taking a huge cut of any sales.
You should also be wary of group buying intermediaries that tell you group buying can bring in new customers and win them away from competitors. While that may be the case sometimes, it’s by no means guaranteed.
There is a risk that customers that previously bought from you individually might switch over to buying as part of a group, which may not be as profitable. If you get new customers, they may be price-sensitive and may switch again if the deals aren’t as favorable. Customers that previously enjoyed a lower price buying from you as part of a group may not be prepared to pay the usual price when buying as an individual in the future.
Although group buying can be a very different prospect from your usual way of doing business, there can be huge benefits if you craft the right deal and approach the group effectively. If you manage to execute a good group buying deal, there are usually opportunities to repeat the transaction at a later date.
Group buying is really about relationships – between the buyers as peers, between vendors and buyers, and between vendors and any middlemen that represent the group. If you can manage these relationships effectively there can be huge benefits from engaging with buying groups.