In the world of group buying, there’s more than strength in numbers; there are discounts.
The group-buying concept builds off the principle that more is less: the more people who want to buy a product, the less it will cost.
Initially, the idea worked best for warehouse retailers such as Sam’s Club that could buy in bulk, then pass on the savings to members who visited their stores.
Then a few years ago, the idea hit the Internet, with its ability to pool buyers from across the nation. Companies like MobShop, formerly Accompany, and Mercata.com got involved, bringing group buying to the masses.
“Group buying shows that consumers have control over buying,” said Jeff Pundyk, an executive with Zwirl.com Inc., a group-buying Internet site based in New York.
Group-buying sites offer a range of items from personal data assistants such as the Palm V to jewelry, even luggage. Consumers select the product they want, enter the price they are willing to pay and wait to see if enough consumers join in the group to trigger the asking price. Products are offered in buying cycles that vary from a couple of days to two weeks.
Some consumers play sort of a marketing role by trying to get friends, family and co-workers to buy a product.
“It’s a great incentive for anyone who participates in group buying to tell other people and drive the price down,” said Dan Infanti, chief marketing officer for ActBig Inc., a New York company that sells software for organizations to offer group buying. “It’s very different than an auction where if you tell somebody, they might bid on it and the price goes up.”
Group buying works for consumers who are looking for deals on popular products but are not brand-loyal.
Consumers who have their hearts set on a Sony DVD player may not find it, but there are options for those willing to buy a different brand.
Barbara Miuccio of Detroit said she is sold on group buying.
“It’s really worth it, and it’s really easy,” she said.
As the mother of a 4-year-old son and twin 18-month-old girls, she said she doesn’t have time to go shopping, let alone run from store to store to compare prices.
After hearing a radio ad, she checked out Mercata.com and spotted a flat, metallic blue stereo for sale. At more than $200, the price was more than she was willing to pay.
“I waited for some time to go by to see if it would be less money,” she said.
Miuccio checked back two hours before the buying window closed and found enough buyers had signed up to drop the price to $170.
She signed up for the stereo and said that if the price dropped to $150, she’d take two. It did.
She spotted the same stereo in a store sometime later and saw it selling for more than $300.
“They didn’t even charge me shipping, and it was here in two days,” she said.
It’s not just the consumers who benefit from group buying; sellers can also take advantage of the process and save on transaction costs.
“They would rather sell 1,000 units in one transaction than sell one unit at a time,” said Tom Van Horn, chief executive officer, president and founder of Mercata.com in Seattle.
For e-commerce sites, group buying is a way to bring in customers without having to spend advertising and marketing dollars to get them.
“Right now, everybody on the Internet is looking for ways to bring in more and more users and drive down customer acquisition costs,” said Infanti of ActBig.
There are a few different approaches to group buying:
Destination sites such as Mercata.com and MobShop.com let consumers browse through product offerings.
At matchmaking sites like Zwirl.com, consumers request a product and the company tries to find a supplier willing to sell it for the asking price.
Zwirl.com also allows buyers to rate suppliers so consumers can read other customers’ comments before they purchase items.
Shipping varies. Some companies offer free ground shipping while others charge based on destination.
Sales tax is charged if an item is shipped to the state where the supplier, either the group-buying Web site or a third-party company, has a presence.
Return policies also vary.
Mercata.com handles all its returns while MobShop and Zwirl ask customers to deal directly with the companies that supplied the purchased item.
Electronics, personal data assistants, DVD players and digital cameras are popular items at destination Web sites.
Let’s say you’re interested in a Toshiba SD1200 DVD player.
On a recent Friday afternoon, it was selling on MobShop.com for $169.95, $130 off the manufacturer’s suggested retail price. (Best Buy in Madison Heights, Mich., was selling it recently for $229.)
Nineteen buyers were on board at MobShop.com for $169.95. A few hours later, 14 more buyers joined in, causing the price to drop to $165.95.
If 18 more buyers agreed to buy the item, the price would fall to $159.95. Lowest price rules, so consumers who signed up at $169.95 would get the item at $165.95 if enough people joined to trigger that price.
If you’re not willing to pay $169.95 but are definitely interested at $159.95, you can reserve the item with your credit card.
The charge doesn’t go through until the item reaches the price you requested.
If you’re still not willing to commit to buying an item with your credit card, you can ask for an e-mail notification when the item reaches your target price.
MobShop gets a cut of the sale once a deal is closed.
Most items at Mercata.com are offered at a static discount price, meaning there are no group-buying discounts.
However, the Web site always has 10 “power-buy” items that get less expensive as more consumers agree to purchase them.
A Toshiba SD1200 DVD player was selling for $218.40 on a recent Friday afternoon, down from $268.84 the previous day.
“We may not be below all competitive markets, but our power buys are generally attractive deals,” Van Horn said.
The DVD player wasn’t available on Zwirl.com, but someone interested in it could start a buying group and get others to join.
Zwirl would then contact its 150 sellers and see which might be willing to sell the item at the requested price.
Consumers who start a group have to be patient. Not all requests get filled.
An ink jet printer group started on Oct. 22 has 37 people interested in buying a four-color, 1,200-by-1,200 d.p.i. resolution, eight-page-per-minute printer costing $150 to $450.
There are 102 offers, but they are all for printer ribbons.
“It’s an imperfect science,” Zwirl.com’s Pundyk said.
Launching e-commerce Web sites is just one aspect of the business for group-buying companies.
Their real money comes from selling the software and technology to other organizations.
Zwirl.com Inc. has licensed its software to 12 organizations, including the American Federation of Musicians, where members can engage in group buying.
ActBig has sold its product to Consumerreview.com and freeagent.com, both Web sites.
MobShop has created group buying capabilities at www.buyers.gov where federal government agencies can pool their purchasing.
“We started the Web site because we are looking for the ability to fine-tune our technology so that we can license it out to other organizations,” said Becky Porter, public relations manager at MobShop.
