The concept of collective buying or group buying from a supplier is not an entirely new concept, although it has been largely popularized and simplified with the advent of the internet, social media and the emergence of websites such as Groupon. The origins of collective buying can be traced back to China where small businesses would club together before approaching a supplier or retailer to make a group purchase on a specific product at a largely reduced price due to the bulk quantity of the purchase. This practice was known by the Chinese as tuango (pronounced twangoo).
Although Groupon is probably the most well known “daily deal” website, it was not the first nor is it the only one. The are plenty of other websites offering similar deals and the collective buying industry has become extremely competitive. Websites that have emerged recently that compete with Groupon are Swagbucks, Yipit, Living Social, Homerun, Tippr, Buytopia and TeamBuy. The first internet based collective buying platform was actually launched in the year 2000 by Paul Allen with the financial backing of Microsoft. The website was known as Mercata and was dedicated to offering high end electronic appliances. Customers or subscribers would click to sign up to buy a specific product. The more people that clicked to buy, the lower the price of the product would be. Unfortunately the venture failed and was shut down in 2001. Allen stated in an interview that he felt the economy was to blame for the failure, whilst others speculated that Mercata was unable to compete with the hugely popular Amazon.com, and the the public were not yet ready for the collective buying model. Unlike Groupon which states upfront what the discounted price will be, Mercata subscribers were not initially given a final discounted price, but rather notified as the price dropped with more signups for the deal. The fact that social media had not yet come into existence is also another factor which could have prevented Mercata from reaching its potential.
The business model for websites like Groupon is extremely aggressive and does not always favor the retailer. For example, if the offer is 50% off the retail price of a handbag, Groupon would take 50% of the remaining value and the retailer the remaining 50%. In fact what this means is that the retailer is only receiving 25% of the sales value of the handbag or product. It is not uncommon for suppliers to make huge losses when running campaigns with daily deal or collective buying websites. It is imperative that small businesses take their offerings into careful consideration before entering into an agreement with one of these daily deal websites. It’s possible to end up losing a lot of valuable time and money, which then needs to be weighed up against the the marketing value and exposure received through the campaign.
At Twangoo we will continue to review deals and offers on great services in all the major cities in South Africa, including Cape Town, Johannesburg, Durban, Pretoria and Bloemfontein. Stay tuned to Twangoo and don’t miss out on an opportunity to save money or benefit from a great service or business.
