The Hype Around Group Buying Web Sites (And Why Costco Is King)

Group Buying SitesI recently attended a great technology event organized by Battery Ventures, a West Coast venture capital firm. The theme of the event was monetizing the location-based Web. Not surprisingly, group-buying services were a hot topic. Discussion was amplified by the presence of Andrew Mason, founder and CEO of Groupon, a deal-of-the-day Web site, empowered by group buying localized to major markets.

Groupon is on a tear with its flash fire sales, as evidenced by rapid U.S. expansion and recent fund-raising that values the start-up at over $1 billion. Its success has prompted an industry of other group-buying Web sites, and renewed excitement around the general category of group purchasing. Indeed, VCs are all over these start-ups.

Groupon is great, and I recommend you try it out. It’s is a fun, quirky daily email with an uncanny ability to spark the consumer instinct in all of us. Ever turn your head while driving past a going-out-of-business sale? Groupon subject lines have the same impact on me when they arrive in my email inbox.

Groupon is an exciting story, but group buying wasn’t invented yesterday. While unsexy, dorky and perhaps wreaking of suburban tendencies, my favorite group-buying phenomenon is far larger and more impactful. It’s called Costco.

According to Wikipedia, Costco is the largest membership warehouse club chain in the U.S., and one of the top three retailers. In existence for over a quarter century, Costco sells products at low prices, and often in bulk. It does not carry multiple brands of the same product, which results in mores sales from single vendors, enabling further price reductions. If Costco feels the wholesale price of a product is too high, it will refuse to stock the product.

Moreover, Costco has built one of the best private-label brands in history — embracing products with quality higher than most mainstream premium brands. That high standard forces competing mainstream brands to work harder to prove their value. Costco’s bargains are also enhanced by a worker culture that is universally motivated to delight its customers (or buyers).

Costco sends me hot deals via its email newsletters. I open those as fast as I do the ones from Groupon. While the types of deals are different than Groupon’s locally based ones, they’re often still outrageous, usually more relevant, and always more plentiful.

That’s group buying power for the people!

This also was my column in MediaPost.

Published by Max Kalehoff

Father, sailor and marketing executive.

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  1. The newsletter is pretty compelling to me, even if ancient. I've purchased things on the site and it worked well. In terms of social media presence, I notice has integrated Baazaarvoice to integrate authentic people, product reviews of the items they sell. That's a huge commitment and pretty powerful to improve the experience for buyers. I agree they're lagging on creating a bold, public “social media presence,” but they're taking care of the other important details about the business — something most companies who have “social media presence” fail to do. I fundamentally dig the brand, so would welcome social media connection.

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