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Sites like GroupOn are built around the concept of social networking. It could be called Social Purchasing. It could also be called a marketplace because it is about bringing buyers and sellers together.
A bit of background
Traditionally, sellers reach buyers through advertising. This could be TV ads, ads in magazines, billboards, flyers or even the sign above the store. Buyers reach sellers to buy either physically at a store or via on-line e-commerce sites. But there is a problem. There is too much advertising and buyers are tuning out. There are also too many products. Buyers become confused or don't find what they want to buy. Furthermore, they may not know about products that they may want to buy because there are too many ads to pay attention to them all.
From the seller's perspective, they want to sell more. Sometimes they just want to sell something that couldn't be sold. They need a way to find people who will either buy more or buy the thing that is not selling. Don't get me wrong. I don't automatically think that trying to sell something that did not sold well as something wrong. Maybe the target market was wrong. Maybe the product is good but got drowned out by the competition. Maybe the product is a specialty product that can't be sold for the price that would include the costs of traditional advertising. There are also perishable products that have to be sold according to certain conditions, like at a certain time or can only be sold for a specific period. These products need to be sold by those conditions.
What ever the reason, sellers want to sell more or simply sell.
How does Social Purchasing works?
Before we get too far ahead, let's understand trade at it very basic form. We have a buyer, a seller, the thing that is to be traded and the value of the thing that both the buyer and seller agrees on. Money that changes hands represent the value that both parties agree upon. In barter trading, the value of the other thing being traded for the first thing is agree by both parties to be of equal value. Finally, we have a place where all this takes place.
So the central issue is getting the buyer and seller together to do trade. This used to be limited by physical constraints. Buyers need to be at the market to buy from sellers. Buyers are also limited to what is being sold at that market. Sellers at the market also face constraints. First is competition from other sellers who are selling the same or similar items. Second is how many buyers are interested in buying the seller's product. So a price for a product is haggled between a buyer and a seller within all of those constraints.
Fast forward a milenia or so and those constraints facing the buyer and the seller have changed. The marketplace has become global. What is being sold is no longer just physical or service-based but virtual. Ways at looking at those constraints have also changed. In fact, those constraints have been taken advantage of to sell more products.
Take for example the storage limit. If a product is about to be replenished, more space needs to be made in storage. So why not sell what has been in stock the longest at a cheaper price. It's sitting there doing nothing, probably losing value every day. Why do you think we have 2 for 1 Tuesdays for a shrimp plate?
The Social Purchasing is basically about getting the buyer and seller together. It works in a couple of ways. The theme centers around how a group of buyers must change their buying behavior in order to get a cheaper price or discounts. The most familiar model is what we normally see in traditional purchasing: the discount coupon. The discount coupon imposes a time limit in order to enjoy the discount. It also imposes physical possession of the coupon when purchasing which is limited by how many coupons are printed.
Other models imposes additional conditions. The most common is group purchases. A discount will take effect once a certain number of people commit to purchase or when the purchaser buys a certain number of the product. Services being sold through social purchasing can impose additional conditions like delivery conditions. This determines when the service can be used. A common use of this is selling a service at a discount when it is not popular. Ski lift ride in summer anyone?