What is group buying?

Group buying is also reffered to as collective buying or daily deals and is a mechanism which provides buyers with the opportunity to enjoy huge bargains on products and services they really need to buy. The significantly low prices are offered provided that a minimum number of buyers would purchase the product or service.

Group buying sites differ from normal sites where purchases can be made largely because of the deals and rewards offered. Most of the group buying sites operate by negotiating with local businesses and making a deal for a significant discount in exchange for the promise of a large amount of customers.

These sites like Groupon and LivingSocial work by approaching local merchants and requesting them to wipe off 50 - 90% off standard prices in exchange for large volumes of sales and the publicity the merchant would receive. These could range from restaurant deals to spa deals to retails consumer commodities.

It is believed that Groupon would charge about 50% of the gain while LivingSocial would take 30% to 50%. This too depends on the type of deal they strike with the seller.

The origin of Group buying has been traced back to China where they practiced team buying or Tuángòu. Teams of people with a common need would get together to negotiate a bulk price with a merchant to buy the same item.

At present, Group buying websites have become so popular because of the role they play in the online shopping business by doing the negotiating themselves and featuring a deal of the day that its customers can enjoy. All that the consumer has to do, is to enjoy a major discount on the product or service of his or her choice by printing off the voucher and presenting it to the merchant! To some, it may seem too good to be true, but that's just what it is!

Some of the sites require a minimum number of consumers to agree to make the purchase before the deal can materialize. Some sites allow consumers to invite others to purchase the commodity they desire through their website itself. Some sites limit the number of coupons an individual can use.

Given that the sites benefit from larger groups of people making use of them, some tend to have rewards schemes that reward people for introducing friends etc. This model works well for small businesses struggling to survive the aftermath of the recent economic downturn.