First Group Buying company is Groupon, founded in November, 2008. And the first market for Groupon was Chicago, then followed by Boston, New York, Toronto. By October 2010, Groupon served more than 150 markets in North America and 100 market in Europe, Asia and South America and has 35 million registered users. Look at Groupon's business modal (Detail go to: http://samidob.blogspot.com/2011/05/is-groupon-business-model-profitable.html), it is a win-win mode. Customers can have great discount on the products they want and Merchants also can increase the reputation and have large sale volume although with small profits.
How does Groupon work?
With the development, Groupon found that 83% of consumers state that they tell their friends if they get a good deal (Source: JWT Intelligence, December 2010). According to Valpak, 66% of Americans say they are currently seraching more for coupons and discounts than in the past (Eliason, E., Frezgi, Y.& Khan,F.).
Since the enter Barrier of Group Buying business is very low, there are over 500 similar site over the world. LiveingSocial has been described as a serious competitor of Groupon. Googe and Facebook also planned to launch a similar product. The competition are quite serious in the Group Buying industry. The idea of Group Buying also launched in the developing countries. Take China for example, following the market share of Group Buying industry in China. Since the Group Buying business is in the stage of development, there is no market leader in the market and the change of the market will be more frequently than the others.
Source: Dataotuan http://www.199it.com/archives/19151.html
Affects of Group Buying in restaurant business
We can figure out that restaurant business is the NO.1 subcategory that use the Group Buying website according the chart above. For the restaurant point, customers' preference ways for online offers as showed below:
source: Eliason, E., Frezgi, Y.& Khan,F
Group Buying increases the power of buyers compared with the traditional consumption model. In the traditional model, customers has much less powers than merchants because they usually buy products in small volume. Group buying increase the volume which increase the buyer power. And it also increases the customers base of restaurant business, since there are the customers who want go out to have a great dinner but do not have enough money. With group buying, customers can enjoy the luxury restaurant service with low price, which attracts more customers go to the restaurants.
It is no doubt that social network message is another effective marketing strategy for the restaurant business. Frederick,M. (August 26, 2011) reported that people were more willing to use the group buying to seeking cheaper offers than go to the restaurant weeks, the restaurant business felt that they should consider to use this kind of advertising to increase their reputations. Because Group Buying also get word of mouth for the restaurant business. There are more customers through the restaurant then more discussion will occur. People will share the great deal with their friends, families, or partners, the effects will be wildly spread.
In addition, Anand, K. S. & Aron, R. found that "under heterogeneous demand regimes, the sellers is able to use group buying to price discriminate and capture some of the revenues lost by setting a single price across both demand regimes."
However, there are also some risk to use Group Buying. Word of mouth can also be a bad effects. The restaurants are reviewed by more people, restaurants face more challenges to keep and improve their quality of service and food. And Anand, K. S. & Aron, R. also found that "group buying involves delays and uncertainty before the final price is realized, the delay leads to utility decay for all parties and uncertainty coupled with risk aversion leads to further devaluation of the eventual trade". Because the delay the buyers' willingness to buy the offers is lower. The demand will be negative influenced. Furthermore, because group buying attracts the price sensitive customers, the customers might more focus on the price than the restaurant itself. It might be a challenge for the restaurant to build their own customer loyalty. And the quality of dishes that are provide by group buying sometimes are lower than the original orders because of the low price.
With the increased development of the group buying, the restaurants face both the opportunity to set up their reputation and challenge from the competition. They should carefully define their strategy based on that.
Reference:
Anand, K. S. & Aron, R. Group Buying on the Web: A Comparison of Price-Discovery Mechanisms
Eliason, E., Frezgi, Y.& Khan,F.Daily Deals White Paper: Understanding the industry dynamics of daily deals and implications for merchants and consumers Harvard Businesses School, Retrieved from http://www.slideshare.net/HackStartups/group-buying-white-paper
Frederick,M. (August 26, 2011) Restaurant Week VS Group Buying. Washington Business Journal, Retrieved from http://www.bizjournals.com/washington/blog/2011/08/restaurant-week-vs-group-buying.html
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