A New Slant On Group Buying (Slightly Changing The Groupon Model)
Monday, February 14, 2011 at 6:07 PM 
Last year I stumbled upon Groupon and with it on the new model of group buying that they seem to have perfected. I have been doing business online and offline for the past 25 years and I can say from experience that this kind of model is rare. I won't go into the details since there is a ton of material online explaining exactly why its such a win-win-win model (for business partners, for customers and for Groupon). I will just mention that one of the pieces of the puzzle that makes this work is that a customer who just bought one of the coupons has a vested interest in spreading the word about that same coupon. For each daily deal, if there isn't a minimum number of buyers the deal is off and no one gets the coupon or the discount.
I liked the whole model so much that I launched a similar company in Hungary. I was surprised (actually shocked) by the scale and speed at which we have grown since we started offering daily deals. In the first 4 months we have helped our customers save around 1 million US dollars. That's from scratch to one million in just 4 months and in just one city of a small country.
Its all just wonderful and I am giddy with joy - really, I am :-)
However (here it comes)... There is this one little quirk I found. It might be unique to the Hungarian market. You see, here in Hungary, when you order online you have to complete the order BEFORE you can pay. It's very different than what is common in most other countries. When I order online at Amazon, I provide the merchant with my credit card number and when I complete the order the merchant takes care of the transaction - they charge my card. Basically when I have finished ordering I have also committed my money - I have paid.
Not so in Hungary. The payment happens as a separate process AFTER the order, and that means anyone can order and not pay. That in itself is not such a big problem as the overwhelming majority of orders do get paid.
The only reason I mention this difference is because I think it influences the social aspect of group buying, something that helps Groupon grow at a very fast rate. In Hungary, because the buyer's money is not committed when he (or more likely she) orders, his mental commitment to the "cause" of getting lots of his friends to buy (so the deal will proceed and he will get the big discount) has diminished. No money committed = less commitment to the whole "game" of group buying.
I set out to find a solution to this and I think I found one.
We will be launching this new model for group buying in a couple of months. I have not seen this implemented anywhere or by anyone in our field (not by Groupon, Living Social or anyone else we could find online).
Watch this space for more information as we prepare and then launch this new model. Its an experiment and I look forward to seeing the results :-)
Haim Schlesinger
We have finished the implementation of my new model a lot faster than I anticipated, so our new group buying system will go online tomorrow at www.napitipp.hu for the first time :-)
We will not use this model for every deal we offer, but start testing it on a few deals in the following few weeks.
And now to the actual explanation of this new model!
The basic change to the model, and the one we hope will change the behavior of our customers is very simple: instead of having a minimum number of buyers for the deal to be on, our deal is on from the first second, but with every new buyer the discount amount for all buyers will increase (and the price will decrease.) Very simple isn't it :-)
So the normal (Groupon kind of) group buying a deal might look like this:
Get $20 worth of food and drinks at your local coffee shop for $6 (a 70% discount) with a minimum of 50 buyers for the deal to be on.
With my new model it will look like this:
Get $20 worth of food and drinks at your local coffee shop for $10 (current discount of 50%), but the more coupons bought the higher the discount and the lower the price - up to 80% discount (and a price of $4.) The final discount is for ALL buyers, even the ones that ordered for the starting higher price! So if you bought at $10 and at the end the final price went down to $5, that is what you will pay - not the initial price of $10.
That is it - simple, and I hope very successful :-)
Haim Schlesinger
Now after the first deal implementing our new sliding discount model has ended and we analysed the results, I can declare it a success :-)
I did not expect such a flood of buyers. We have sold over 200 coupons in the first 10 hours and peaked at 496 coupons at the time the deal ended. The discount started at 50% and went up to the maximum of 80% after 210 coupons were sold!
We are planing on trying the same sliding discount model in the next couple of months with different types of deals and using different parameters (starting discount, maximum discount etc.)
Watch this place to get more updates on this new model, or follow me/us here:
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