The basic idea of group buying is that buyers come together to approach a vendor about buying a particular product in bulk. Buying at scale usually means they can negotiate a lower price by working together. A lower price isn’t the only motivating factor though. This type of trade can even enable transactions that simply wouldn’t have been viable without the group buying approach.
Buying in groups isn’t a new concept but these communities have been hugely enabled by technology, particularly social media. This has meant that these groups are enabled for different types of purchases and for different types of consumer.
Group buying deals can also help businesses manage their capacity better by starting a business with any amount at hand.
Buying groups are increasingly an option for businesses – even ones that aren’t big enough to have a formalized procurement function. Sometimes, group buying is enabled by a middleman, such as a procurement group. Sometimes they’re organized on platforms such as WhatsApp and telegram, to various degrees of formality, and these tend to be sector-specific.
Buying groups in the pandemic
Many businesses have had to pivot at breakneck speed to stay afloat during the pandemic. Import businesses are just one example of an industry that’s had to adapt rapidly to new ways of operating.
Larger scale buying team and access the savings that are usually only available to larger organizations buying at scale.
For newer businesses struggling to set up a supply chain and get taken seriously by suppliers, joining a group may help them gain credibility as a buyer. Some businesses also find the group buying approach less time-consuming as there are fewer suppliers to have to deal with, fewer invoices to manage, and sometimes requires less time spent searching for deals and negotiating with suppliers.
READ MORE: Is the Group Buying Market Becoming Mainstream?
Advantages for suppliers and manufacturers
When buyers organize themselves into groups, there are advantages for the vendor too. For a start, there are advantages for suppliers and manufacturers that are hoping to scale up. There’s usually a lower cost to serve customers that buy as a group, with lower acquisition costs per buyer because the group tends to organize itself and recruit its own members.
Individual buyers aren’t as likely to ask for specially crafted products or deals. Depending on how the buyers are organized, there may be favorable circumstances such as being more closely geographically located.
It’s also the case that group buying may enable sales that wouldn’t otherwise have happened. In a business buying context, it may be the case that individual businesses are too small for a vendor to serve.
If the same business organizes itself into a group with other small businesses, the vendor may find it cost-effective to serve them. Even better, the group mediators may take on some of the work associated with fulfilling the order, such as by distributing goods among members.
Depending on how the group organizes itself, selling this way may be an effective way to reach a new audience. This is often because the vendor is reaching businesses that are usually too small to make them a profitable customer. This has the advantage of helping the vendor cover parts of the market that would otherwise be reached by competitors, and gain market share.
It’s advantageous for suppliers and manufacturers when their custom base organizes itself into a handy reachable group, and that’s exactly what happens when people and businesses with special interests team-up. Not only are they identifying themselves by area of interest but they are also showing they are ready to buy.
It makes it easy to reach the right consumer at the right time. For suppliers and manufacturers trying to reach businesses, it can be a helpful way to reach the right people in that business as the ones responsible for the buying decisions tend to be the ones in the buying group.
Buying groups tend to offer their members more than just deals on products. Whether they are online or offline it’s common for the group to discuss topics of interest with the people in that group, and sometimes organize events. If you’re a vendor trying to engage with this audience it can be an excellent way to see what’s concerning them and try to be part of that solution. In this way, buying groups offer much more than just opportunities for immediate sales.
Group buying for new markets
If you’re thinking of entering international markets, approaching a group buying collective may be an option for your brand. It can be a fast way to gain an introduction to a new audience, mediated by the group buying platform or deal broker.
There are advantages and disadvantages to using group buying to break new markets. Obviously, it’s a fast way to enter a new market and get your brand visible. If you can find the right group of consumers or businesses, it can help you connect really quickly with your intended audience. And it’s a way to rapidly scale in a new market and potentially grab market share.
If you’re bringing a new product into this market and consumers don’t really understand it, then group buying is an abrupt way to find this out. If you start out in a new market with a high volume deal then you may also have to tackle high volume customer disappointment, returns and complaints.
Ideally, you should do some smaller-scale test sales with customers in a market before you try to make high-scale ones. Group selling will also highlight all the logistical challenges associated with selling to a new market.
If you fail to meet the expectations of your buyers in a group deal then it’s much harder to recover from this than it would be from a smaller volume mistake. Remember that your audience is already organized into a consumer group and may find it easy to organize against you. This can really damage your reputation.
Approaching a buying group
If you’re interested in selling to buying groups, it’s advisable to choose one with a good reputation. Don’t risk your reputation by being associated with a group that is known for bad quality. Buyer suspicion will diminish the value of your product or service merely by associating it with poor-quality suppliers and manufacturers.
Many suppliers and manufacturers have had success in offering a simplified or restricted version of their regular product or service to customers buying as part of a group. An example would be only offering the medium-sized version of a product that usually comes in small and large as well. You’ll need to decide whether your product or service can still generate high volume appeal in a one-size-fits-all version of what you normally offer.
Craft your deal carefully. Some group buying sites offer dynamic pricing, which means the cost to the buyer varies according to how many buyers enter the deal. It sounds obvious, but make sure that whatever the price and volume are, it’s still worthwhile for you fulfilling the order.
Make sure you can deliver on time and meet the terms of the deal, as it’s a high profile failure if you can’t.
You should also be aware that when a high volume of buyers receive your product or service at the same time, there may be a corresponding rise in demand on after-sales care and customer support.
You might also see a high volume of returns that need processing at the same time. Make sure you have the infrastructure in place to handle all this within the timescales suppliers and manufacturers expect. Fulfilling big deals from group buying sites can really test your resources, particularly for things such as response and delivery times.
Dangers of group buying
Suppliers and manufacturers have got into trouble thanks to badly crafted deals on sites it’s important to approach group buying deals in an informed way. Make sure they have live office there’s a cap on sales so you don’t overcommit or see the deal become unprofitable for your business. Additionally, ensure that you plan your capacity and be wary of intermediaries taking a huge cut of any sales.
You should also be wary of group buying intermediaries that tell you group buying can bring in new customers and win them away from competitors. While that may be the case sometimes, it’s by no means guaranteed.
There is a risk that customers that previously bought from you individually might switch over to buying as part of a group, which may not be as profitable. If you get new customers, they may be price-sensitive and may switch again if the deals aren’t as favorable. Customers that previously enjoyed a lower price buying from you as part of a group may not be prepared to pay the usual price when buying as an individual in the future.
Although group buying can be a very different prospect from your usual way of doing business, there can be huge benefits if you craft the right deal and approach the group effectively. If you manage to execute a good group buying deal, there are usually opportunities to repeat the transaction at a later date.
Group buying is really about relationships – between the buyers as peers, between suppliers and manufacturers and buyers and between suppliers and manufacturers and any middlemen that represent the group. If you can manage these relationships effectively there can be huge benefits from engaging with buying groups.
The Purchasing Power of a Buying Group
As an independent business owner, you’re constantly seeking ways to minimize expenses, optimize financial management, and outperform the competition. A group purchasing organization (GPO), commonly known as a buying group, provides a solution that tackles all three challenges effectively.
By joining a buying group, you can offload payments, sourcing, contract, shipping, custom clearing, and supplier management tasks to the group, which uses its collective purchasing power to negotiate better pricing than you could on your own. This enables independent businesses to rival their larger competitors who enjoy more efficient supply chains. In many cases, these large corporations offer similar products at lower prices, and may even have exclusive access to new products before independent businesses do. When products are in short supply, larger competitors are often better positioned to obtain stock, leaving smaller businesses with lower profit margins or the possibility of closure.
To stay competitive while maintaining independence, joining a buying group is essential. We explain the purchasing power behind them.
What Is a Buying Group? And How Do They Operate?
Buying groups are composed of businesses looking to establish stronger relationships with their suppliers and harness collective purchasing power. Typically, suppliers offer better pricing and services to businesses that place larger orders or spend more money with them each year. By joining a buying group, multiple businesses can consolidate their purchasing power to rival that of larger multinational companies. This allows the group to negotiate better pricing discounts and establish relationships with suppliers on behalf of its members.
Moreover, buying groups can secure additional benefits for their members beyond pricing, such as exclusive promotions and rebate deals. They can also help businesses source their stock and supplies, resulting in lower costs per item and higher profits. While some buying groups serve all small businesses, others specialize in specific niches. It’s essential to research whether a dedicated buying group exists for your industry.
How Much Does It Cost to Be a Member of a Buying Group?
The cost of being a member of a buying group varies depending on the group and the industry. Some buying groups charge a membership fee or require members to pay a percentage of their purchases as a commission. Others may offer free membership, but require members to meet certain purchasing minimums to remain in good standing which is not like that with Overcomers. The benefits and savings provided by a buying group can often offset the cost of membership. For example, the group may negotiate better pricing with suppliers, offer rebates or incentives, or provide access to exclusive promotions. Additionally, the group may provide support services such as contract management, supplier relationship management, and procurement assistance, which can save businesses time and resources.
Before joining a buying group, it’s essential to carefully review the membership fees, terms, and conditions to ensure that the benefits outweigh the costs. It’s also a good idea to compare multiple buying groups to find the one that best fits the needs and budget of the business.
Benefits of Being a Member of a Buying Group
There are many benefits to joining a buying group, such as lower cost of goods purchased from suppliers and manufacturers, lower shipping costs, centralized ordering, and support from the organization itself. We discuss all the benefits in more detail.
Small businesses can leverage their buying power by joining Overcomers group. These groups combine the purchasing power of multiple businesses to negotiate better discounts that would otherwise not be attainable by a single company. The more businesses join the group, the more significant the discount they can negotiate with suppliers.
One of the primary functions of a buying group is to consolidate orders from different businesses and place a single large order with suppliers. Known as group purchasing, this method allows buying groups to enjoy preferential rates and discounts for buying in bulk. These savings are then passed on to the group’s members, resulting in reduced costs for goods and services.
Buying groups can also negotiate discounted rates or free shipping on group orders over a certain size. This results in further cost savings for members. The centralized ordering process also ensures that members receive their portion of the order.
As a small business owner, time is another one of your most valuable assets. A buying group makes it easier for businesses to buy everything they need from one place, saving them time and increasing efficiency. This is especially useful for small businesses that need to order supplies regularly.
Joining a buying group can simplify the procurement process, reducing per unit cost of goods and transaction costs due to the reduced number of contracts to be negotiated, prepared, and managed.
Some buying groups provide additional services such as legal advice, business help, industry news, seminars, and support forums. These groups play an active role in supporting and furthering the interests of their members.
Businesses that will benefit the most from a buying group are those that understand and welcome greater collaboration. When bringing together many different professionals, businesses are able to share best practices and exchange information. Bringing together different professionals in multiple industries with similar challenges and spends, allows members the opportunity to exchange tips and recent experiences whether good or bad.
Since the buying group manages all stages in the lifecycle of contracts on behalf of their network, you as an independent business will benefit from a significant reduction in your workload and are free to focus on the strategic side of your business.
Buying groups strive for longevity when it comes to keeping their members; because of this, the pressure to support the member is immense. In order to give members, the best quality in suppliers, buying groups should subject potential suppliers to a full vetting process which ensures the credibility and value of the supplier, in return the members have a lower purchasing risk. Working with suppliers that are simply the “cheapest” option and provide little overall value may harm a buying group reputation.
Many businesses want to source their goods from abroad because of lower labor and materials costs which translates into lower costs per item, meaning more profit. Unsort Overcomers tally, navigating international suppliers can be tricky, especially with language barriers, cultural differences, and product requirements. Specialized buying groups can support you with this.