I was doing some online shopping this past week, and came across an interesting new web retail model from the site Groupon.com. The idea behind the site is the collective buying power of many customers being able to negotiate discounts. If 100 customers are interested in a product and will buy it at a certain discounted price, will the retailer give it to them at that price? What if the retailer is guaranteed 1,000 customers: will they price even lower?
For retailers, essentially means that you can offer a great deal and it will only kick in if a set number of consumers take you up on it. For consumers, it means that we can get highly discounted prices that would not otherwise be available.
The site works amazingly simply. Retailers post an assortments of products on the Groupon.com website. For that day, prices are set at certain discounts depending on the number of consumers commit to buying at that price. At the end of the day, if enough people signed up, the product is sold at that price and quantity. The next day, the process gets reset all over again.
I think this is an incredibly novel business model that is hugely beneficial to online retailers. Not only does the model guarantee retailers a certain quantity of sales, but it also helps generate buzz and interest in their products. For consumers, it allows them to capture value as well, and presumably achieve greater price discounts than other standard discount sites like Bluefly, where the suppliers have much more price risk. Moreover, with new discounts being cycled each day, the site creates a valid reason for users to return day after day, much like how Gilt Groupe generates high daily return traffic.
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