Group Buying v2.0

During the dot com collapse of 2000, flash sales were the rage with sites such as Mercata offering deals on products. However these sites died when the venture capital money ran out. This time around the model has been refined by including a social element and broken into two segments: one offering local services and the other offering products mainly from excess inventory. The segmentation is not only producing real revenues but more importantly generating profits.

Globally, Groupon is the leading social group buying service for many cities around the world. The idea is that a local restaurant or other service related business might want to attract new customers and would use part of its marketing budget to offer a 50% off discount to attract new customers to a restaurant. Then if your friend buys the “deal of the day” you might be enticed to buy it since you trust your friend when it comes to restaurants. This added social component has given Groupon a billion dollar valuation. Closer to home DealsAndYou.com (formerly WanaMo) does the same thing for the major metros in India and has been doing quite well in sourcing deals for its audience. For everyone involved it’s a win-win, businesses attract new customers via relevant offers and customers get a deal on a new place.

The second category of companies such as Hautelook and Gilt Groupe provide flash sales for excess inventory (known as exhaust in the apparel business). The idea is that name brands don’t want their excess inventory to go on sale and cheapen the brand. Instead, they give it to companies like Hautelooks who sell it via alternate merchandising channels to people that might otherwise never buy a high end brand and in turn attract new customers. The added social element makes certain offers viral and attract even more new customers.

Another twist to the product category is ShoeDazzle which is completely changing the distribution model for shoes. You pay a monthly fee and get access to new shoes that are designed specifically for ShoeDazzle customers. ShoeDazzle is able to leverage it’s vast customer database and run analytics on what type of shoes it’s customers want. In this scenario ShoeDazzle owns multiple parts of the buying chain – designing, marketing and selling to the customer. It’s a great strategy that can be extended to other segments in the apparel space.

The idea of a company putting up an online catalog with no social interaction is dead, it’s all about the social group buying experience.

The above article originally appeared on GQindia.com.