A fast growing Internet shopping trend of group buying sites is proving to be highly beneficial for both consumers and businesses. Based on a very simple model, the sites offer customers great online-deals on any product from a cup of coffee to a cosmetic lotion. So how does it work? Suppose the retail price at the shop is $500, the site offers to sell it for $480 if at least three units are demanded, price will drop to $450 if five units are demanded, $400 for eight units and so on. The sales' status is updated and displayed on the Web, this way the buyers can follow the deal and jump in whenever they like.
The sites negotiate these deals with the retailers, in exchange for delivering a large number of customers, with no advertising fee. They make their money by taking a portion of the revenue from these deals, and also some advertising. This trend, first caught on US market, is now gaining steam in China. More than 300 Chinese sites are competing with each other, some small sites which focus on a specific geographic area or product-category. Other big and successful give different offers to a larger geographical range. Low entry barriers and extremely low costs lead to this competition.
This is another example of the massive bargaining force the Internet allows to consumers and also a great example of another win-win situation in the B2C/B2B processes you can create online.
References:
2. Krishnan & Ravi (2003), Group Buying On The Web: A Comparison of Price-Discovery Mechanisms, University of Pennsylvania.
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