economics

May 11, 2010

A Deal on a Haircut? That’s What Friends Are For

Filed under: Uncategorized — ktetaichinh @ 1:28 pm
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Last week, I went to my hair salon and paid half of what I usually spend because of a deal that I—and more than 2,000 other people—bought online two months earlier. When I bought the deal, I suggested it (via email) to two friends, who each bought it and I was rewarded with two $10 credits. I used those to buy a deal at a local restaurant that gave me $40 toward food and drink for just $20. And the cycle continues.

Welcome to the world of group buying, Internet style, where the power of the Web can be utilized to offer surprisingly large discounts to a sizable number of people for things they actually want to buy.

Many of the group-buying sites work by negotiating deals with local merchants and promising to deliver crowds in exchange for discounts. The sites differ from other buying sites in how they work and what they do to reward users who share deals.

Several of these group-buying sites are available nationwide, mostly in big cities. I focused on Groupon.com, which is available in 42 cities, and LivingSocial.com, which works in 13 cities. Both are popular in Washington, D.C., where I live, though others may be more well-known in your area. If group-buying sites aren’t popular near you yet, they may soon start working there thanks to business models that allow them to work in all sorts of locations.

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Other sites offer similar or slightly different selling techniques. Woot.com, a pioneer of group buying on the Web, started in 2004 by specializing in flash sales, selling a different item each day for just 24 hours or until it sells out. The site evolved from a wholesale distribution company and is known for its focus on selling technology gadgets. Another site called Tippr.com works in Seattle (not D.C., where I live, so I can’t yet use it) and uses a patented technology that makes discounts bigger as more people join a deal. New York-based Gilt.com and Ideeli.com focus on selling high fashion items at less expensive prices and can offer deals that last longer than a day.

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