Group Buying Gets Personal (and Local)

Regardless of your view of demand aggregation and buying groups in the workplace, it appears there's definitely a place for them in the home. As a user of Groupon, which was recently featured in the New York Times blog, I can vouch that the service delivers as promised (hat-tip: Becki Lindley). But Groupon is not a buying group in the traditional sense. Rather, the company assembles individual buying groups to drive demand over a certain threshold with suppliers to negotiate a bulk discount. Based in my hometown, Chicago, the NYT writes that the site "offers daily deals in which people can score reduced prices and discounts on acupuncture, meals, opera tickets, Segway tours, even teeth cleanings -- as long as enough people participate.”

As an example of how it works, consider "a recent deal in New York offered two one-hour massages at a local spa for $75, a purchase valued at $150. But in order to receive the discount, a minimum of 60 people needed to agree to buy it by the end of the day the deal was offered. Otherwise, it would not go through. More than 1,000 people ended up purchasing the deal at the reduced cost." The concept of group buying on a local level makes sense, at least to me. Earlier this year, I purchased a half-price Pilates lesson (still unused) from what is regarded by many as the best studio in Chicago, which also happens to be a five-minute drive or ten minute bus ride from my office. Perhaps there are some lessons in here for GPOs and others that aggregate and pool demand to negotiate discounts from suppliers.

In fact, one of the biggest criticisms I've heard of group buying to date is how such services aimed at businesses fail to take into account regional areas (e.g., a pharmacy benefits administration plan might work on a national level but other health related benefits might not). The same is true for direct materials often purchased through local distributors or producers. Still, perhaps the existing paradigm is wrong. Maybe the future of group buying really is local. I, for one, am a convert. Moreover, the fact that Groupon is poised to generate "$75 million" in revenue in the next 12 months, a growth rate that I'm estimating exceeds 200%, suggests that the model is here to stay and has converted a good many followers. Perhaps a similar and as simple a model will as well in the procurement universe at some point.

Jason Busch

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