The ‘Group Buy’ phenomenon

Written on 04 November, 2011 by Larry Bloch
Categories CEO BlogE-commerceMarketingTags customer behaviour

Since Groupon kick started the global phenomenon of Group Buy sites, we have seen the rapid expansion of this market sector, through the rejection of a $6bn offer for Groupon by Google to the stratospheric $30bn price for their IPO, now pared back somewhat.

There has been a media frenzy of commentary about Group Buy with experts expressing diverse opinions from "this is a fad that will disappear" to "Group Buy trains consumers to expect lower prices" to "businesses never make a profit" to "the quality of the customers is not worth it".

All of these and other opinions may be true, but none of them tell us where the Group Buy takes us in a commercial/social sense. There are many unanswered questions and even more unasked questions, because this is a trend that will not disappear and one that is already changing the world.

What are the underlying forces driving this model? Where will this trend lead to? What will change because of the success of Group Buying? What does this success tell us about consumerism? Will Group Buy survive? What are the impacts for traditional retail? Is this simply about a new way for retailers to market themselves or is this a new way to retail?

Group Buy is a fundamentally different retail model, not a new marketing strategy. It changes the economics of production and distribution and the supply and demand economics of retail. In doing so, it leads inexorably to a new future. The fantastic volumes and gobsmackingly low prices leverage the universality and reach of the internet in a way promised by the dot com boomers, but practically unobtainable with a simple retail website. Group Buy finally delivers on the internet's promise to retailers of accessing a market of gigantic - if not global - proportions.

In doing so, the industry is changing consumer behaviour and expectation. The more retail sales are driven through this channel, the more the economics of retail move towards the lower margins/greater volume end of the spectrum. And as as result, smaller retailers dependent on low volume, high margin for the same commodity product group will find it tough to compete, leading to less product and outlet diversity.

Group Buy economics are also dependent on greater efficiency which in labor terms means greater productivity - a code any union official knows means fewer workers. And as an online phenominon, this also means less bricks and mortar premises close to their local market. Coupled with the increased ability of workers to telework, it is not impossible that this decline of the small, local retailer will - over time - alter cities.

Less product diversity driven by the growth of Group Buy matches a changing consumerist outlook after years of debt fuelled consumer binging. On a recent trip to the USA I was surprised how often I heard it expressed that the US had too much consumer choice; I was told repeatedly told that people felt society had gone too far down the consumerist path. And that social comment is echoed by the Tea Party movement who are also in their way seeking a simpler model.

So the metrics of Group Buy are playing well to a market under pressure to reduce its costs and leary of the consumerist society that brought about the financial crises and recession. It is a product of the Internet economy and with the rise of the new generation of Inernet natives Group Buy will grow without bound for many, many years to come, fracturing into specialists serving niches, but all with the same basic fundamental: high volume/low margin.