How Social media is changing the dynamics of group buying

Group buying is one of the latest trends on the internet which has caught on like wildfire and I admit not to have been untouched by its reach. To give a background on it ,what it essentially means is that group of consumers come together and leverage their power of group size in exchange for discounts. One of the biggest players in this area is Groupon based in Chicago.Currently Groupon offers one deal per day in each market it serves. If a certain number of people sign up for the offer, then the deal becomes available to all and if the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers (restaurants, bars, gyms) who can treat the coupons as quantity discounts as well as sales promotion tools. Groupon makes money by getting a cut of the deal from the retailers.

Now how does social networking fit in to all this? Previously companies like groupon used their own websites and word of mouth advertising for spreading the news on their deals, but recently they have started using Facebook & other social media to help people find deals that may interest them by geography, then share these deals on the their Facebook wall or twitter feeds allowing everyone in their friend network to see it and make comments, like, and do other things. This kind of viral marketing is taking the social interaction to the next level by potentially inviting a user’s entire Facebook network to get in and take advantage of the deal. The fact that the offer will disappear if there are not enough customers creates a sense of perceived scarcity which further fuels the fire to get hold of the offer . Also it has been scientifically verified that people are generally more inclined to buy stuff that their friends have recommended them. Apart from posting deals and promoting their web site, Groupon is also encouraging more interaction from the fans on their facebook page in terms of sharing tips on saving money.As per Compete(site which analyzes traffic data) over 41% of all the incoming traffic to groupon is through facebook, which clearly highlights the role it plays in making a deal reach to the end customer.

Janet Paskin, the managing editor of Bundle, a website devoted to tracking consumers and their relationship with money, recently wrote about the addictive nature of the daily hit and how people end up buying coupons for services which they don’t need but just because such a deal offers savings. Some critics have noted the possibility of an erosion of customer loyalty and the danger that small businesses could be buried by an overwhelming response. I believe that in today’s world of online retailing the finicky customer will only go to a place which offers him the best price and no retailer should be under the assumption that he has loyal customers forever. At the end of the day, the customers are only loyal till you have them attracted by your discounts and schemes and then they are gone. Besides it gives smaller companies a launch pad to scale up their operations and increase their customer base. They need to make full use of a platform like this. To answer Janet’s question, I feel that in current recessionary times, these kind of deals are playing a very significant role in boosting the consumer spending by making people to purchase more thus giving a push to the entire economy.

I would like to further emphasize the pivotal role of social media in enabling collective buying by giving two examples:

1. Phoenix Suns forward Amar’e Stoudemire has teamed with AtCost.com and Razorgator Tickets to turn his Facebook Page into a group buying hub where fans can purchase discounted playoff tickets. The fact that an individual athlete or celebrity can drive bulk ticket sales via Facebook is quite unique and unheard of.

2. Walmart has also jumped into the group buying space through a new app on its Facebook Page called Crowdsaver. All WalMart is asking people to do is to “Like” its deals on Facebook and once a deal gets to the required number of Likes, the deal is live.

In times to come we can expect to see more companies/individuals using the social medium to reach the end consumers and provide them with good discounts. Over the last year many group buying websites have come and gone but Groupon’s connection to social media is turning it into a revolution and it is here to stay.

http://www.chicagomag.com/Chicago-Magazine/August-2010/On-Groupon-and-its-founder-Andrew-Mason/index.php?cparticle=2&siarticle=1#artanc

http://www.insidefacebook.com/2010/01/27/livingsocial-deals-groupon-make-coupons-a-social-experience/

http://www.facebook.com/groupon#!/groupon?v=app_4949752878

http://ryanspoon.com/blog/2010/05/31/groupons-facebook-widget-includes-referral-invitations/

http://thenextweb.com/us/2010/10/27/walmart-now-doing-group-buying-on-facebook/