Group Buying: Power in Numbers

A General Theory of Consumption

     It has been theorized that the feudal system died because it could not find the path to rational productivity.  By 1929 market economies had discovered methods to compel people to work but nonetheless narrowly escaped their own destruction.  In the 1930’s the effects of mass production created oversupply that lasted until wartime efforts stimulated enough demand to pull the United States from a deep depression.  As a result, in the 1930’s and 40’s a shift occurred.   Since then, stimulating, managing and maintaining sufficient levels of both investment and consumption became the key to economic growth and stability.  

       As labor become less a factor in production, capitalism grew more distant to traditional pricing of goods, services, salaries and wages related to use and exchange.  As the earlier era of small firms competing for the organic needs of its customers gave way to corporate giantism supported by salesmanship and advertising, the needs of consumers became fantastically expanded.   Along the way a social code of consumption was born.  Goods and services become symbols of identity and status, signifying conformity, sexuality and even politics. 

       Today, 70% of the U.S. economy is devoted to consumption, representing the largest percentage in the world.   So important now is consumption that it has become the best means for the global social order to be maintained and rule over individuals.  Thus Thomas Friedman has said with confidence and credulity, “No two countries with MacDonald’s go to war with one other.”

       Consumption is a meta-language, creating a universal apparatus of signification that is immediately readable, facilitating communication and socialization from one society to another.   Consumption may substitute for social convention and morality while renewing our obsessions with hierarchy and distinction.   Codes of consumption fulfill our vital need for information about others.  

       Yet for all that, the consumer remains isolated and alone.  The consumer invests alone and buys alone.  The social relation takes place after the fact.  As a result, one buys to conform and exclude when one could do the reverse, conform and include, gathering upon the power and strength of others.  

       As a result of group buying processes and business practices, we can create better market efficiencies, more opportunities and greater value and control on behalf of the consumers and investors.  Even more, collaborative buying promises to alter the code of consumption itself, emphasizing connectedness and community.  

       Whereas competitive consumption accentuates marginal differences in production, renewing our sense for hierarchy and distinction, resulting in a positional arms race for objects of possession, collaborative consumption may achieve those same goals but in atmosphere of socialization that emphasizes collective goals and cooperation.  The result is likely to create more sustainable and useful consumption, emphasizing “real” as opposed to “marginal differences” in production.

Beyond Separation and Isolation        

         Producers, meanwhile, are both advantaged and compromised in the business process of isolation.  Since the forces of production are isolated from consumption, they remain retarded by systemic risk and periodic failure.  

        Consumers passively wait for risk capital to accumulate and be redeployed as products and services.   Awestruck by the spectacular display of choices offered by our existing system, the individual consumer increasingly pursues objects of gratification in ways that are more connected to codes of consumption (status, identity, and politics) than utility.    

       Investors also remain isolated and passive, waiting for Wall Street firms to direct their purchases into fee soaked funds or into small slivers of ownership of public corporations (shares) in which they have no control. 

       The consumer has freedom of choice, but is denied true freedom in the activity of consumption as it is directed via advertising and multi-media, paid by producers whose interests are not his own.  Wants and needs are confused in this process, resulting in consumption that is oftentimes unproductive and unsustainable.   Investments are likewise made in an unproductive fashion, with Wall Street writing a script that both large and small investors follow to a point of excess.  Recent speculative bubbles followed by their subsequent collapse bear witness to the excesses created when these scripted themes packaged by Wall Street firms become aligned with other sympathetic forces. 

      Bubbles (NASDAQ, 1999, Housing 2005, Oil present) and crashes (NASDAQ, 2000-2003, Housing 2007 – present), represent a process of inefficient investment and consumption rested upon the mechanics of 20^th century business patterns predicated on isolation, separation and competition.

Power in Numbers

       The Internet has created new possibilities in constructively connecting consumers and investors to one another and removing them from isolation.   Consumers may freely combine forces with others and insert themselves as a force of production.  Consumers and investors are now free to write there own script or follow the paths made by friends and associates in a networks that transcend location and space.  From the collaboration of the consumer/investor follows a new social logic that values human relationships and connectedness rather than sets them apart.   With regard to large, high margin items such as real estate, small and medium sized businesses, automobiles, water and aircraft, the consumer/investor should not act alone. 

      There is power to be harnessed in numbers.

       With the success of blogs, Wiki’s, and social networking on the Internet, the stage is set to move beyond the solicitation of friends and the advertising of the social.  The state is set for a massive re-ordering of both investment and consumption.  Group buying is unique in that it creates a social, monetary, and organizing structure for a re-mapping of both consumer and investment behavior through the structure of collaboration and cooperation.  

      Post modernist thinkers maintained a position that the world has become a vast accumulation of commodities and spectacles (events and images for the purpose of consumption) where the consumer reacts both passively and interactively to a world dominated by producers that are rapidly consolidating and expanding their positions to serve a global marketplace.

       Whereas group buying platforms of the past (Mercata, Mobshop, Taungua-China) concentrated on low cost, low margin items, I maintain that a group buying platform focusing on expensive, high margin items like real estate that may be highly leveraged is a potential focus.  The effects of combined credit capacity will quickly deliver significant savings, creating transactions large enough to benefit both customers and business alike.   

       While buyers are unlikely to postpone purchasing to save $20.00 on a $300.00 item, they are likely to wait significant periods to save $20,000 on $300,000 item.   Consider that 12 buyers with $300,000 in credit capacity wield enormous leverage compared to 120 buyers at $300.00.   

Now image 1200 buyers with $300,000 in buying power:   Yes, that’s $360 million! 

       Enough to buy a sports franchise.  Enough even to build a town or large community.

       Difficulties in arranging the synchronic movement of the group in order to consummate a transaction, even where it is clearly beneficial to buyers, has made progress difficult.  In 1999 and 2000, several patents were awarded to eCommerce companies to facilitate group buying discounts.  Several of them were heavily promoted, visible and well funded - yet failed.  Their high profile failures resulted in the abandonment of group buying strategies through ecommerce platforms in the United States.

        However, the failure of these start ups lie more with the goods they focused on and less with the process.   Mercata, Mobshop and others concentrated on electronic goods and other low margin items that were already bought in larger amounts from major retailers that include Wal-Mart, Best Buy and Target.

          A group of like-minded individuals, who, for example, want to buy a TV or camera, use a combination of the internet and flash mob techniques. Buyers meet at a store for a spot of good old-fashioned collective haggling.  This is known as team-buying in English.

         This compares to a Cooperative, where informal groups organize to buy directly from a wholesaler and save substantially on groceries or other items.

Emerging Opportunity

            Participation on the Internet has grown dramatically.   The success of social networking sites and Wikis has shown that online collaboration can work.

      According to trendwatching.com online group buying or “Crowd Clout” is a business opportunity waiting to happen. Crowd Clout is all about co-buying, about consumers revealing their purchasing intentions to make the most of their budget.   Some key information regarding group buying is summarized below.

• Likeminded, action-ready citizens and consumers can now go online and connect, group and ultimately exert influence on a global scale. Call it group power, call it crowd clout.
• First of all, a billion people are now online. We cannot emphasize this mind boggling statistic enough. Whatever web-based business you’re planning to set up, you now have a potential audience. And this audience can be reached with virtually no significant marketing budget to speak of, as good ideas will spread instantly, thanks to the blogosphere.
• Secondly, this huge online audience actually shops online. In the US, consumers spent more than USD 200 billion online last year (including travel), while Europeans shelled out EUR 100 billion for online goodies and services. Online sales in Asia are also in the tens of billions USD. (Sources: Forrester, Shop.org and eMarketer.)
• Thirdly, as the past few years have seen an all-determining shift from ‘visiting’ to ‘participating’ (if not grouping) in the online world, many consumers may now be up for more active and involved business models like crowd clout. As Jeff Jarvis put it: consumers are now both the audience and the participants.

       In September of 2006, The Economist reported

"On an otherwise quiet Friday afternoon in Guangzhou, a city in southern China, 500 shoppers gather outside a Gome electrical superstore in the downtown district. They arrive en masse at the designated time—June 16th at 4pm—that they had previously agreed online. Several hours later, they emerge clutching boxes, having secured 10-30% discounts on cameras, DVD players and flat-screen televisions."

       When considering the prospects of doing the same here in the United Sates, one cynical commentator on the web had this to say (offering perhaps a hint to the current status of free-markets today).

“If you got a couple hundred people to go down to your local Best Buy, they’d probably call the cops. Even if they didn’t, the iron-fisted corporate policies of most retailers would probably preclude getting any kind of deal.”

     Perhaps a more important landmark success that validates this business model is the recent group purchase of an English Soccer team, via the internet.  This event provides us inspiration, modeling and a major success story, setting the stage for a new generation of higher dollar assets that may be bought, owned and controlled by groups, encouraging participation and benefiting from the wisdom of crowds.

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