How Group Buying Websites (Daily Deals) works?

Group Buying Websites (Daily Deals)  is one of latest trends in Web commerce, it's a way to use the Web to get a volume discount, Groups of consumers will band together to buy a particular good, and local Merchants will be forced to offer wholesale prices to these groups.
I'll try to gather all important information in a series of posts to explain all about Group Buying (Daily Deals) websites .

Group Buying websites (Daily Deals) definition:
Group buying ( Daily Deals) websites partner with local merchants to offer consumers products and services at significantly reduced prices on the condition that a minimum number of buyers would make the purchase.
Many of the group buying (daily deals) websites works by negotiating deals with local merchants and promising to deliver crowds in exchange of discounts. The group buying (daily deals) websites differ from other buying websites in how they work and what they do to reward users who share deals.

How does group buying ( Daily Deals) websites works? 
The merchant agrees to offer customers a specific product or service at a greatly discounted rate (usually 50% off or more) if the group buying website can generate more than the specified minimum number of sales chosen by the merchant. Once the minimum number of sales is reached, the deal becomes activated and all the customers that signed up for the deal become eligible.

What if the minimum number of sales isn’t reached? 
If the minimum number of orders isn’t reached then the deal is canceled, no one is able to take advantage of the deal.

How does group buying (daily deals ) websites really works ?
Group buying promotions are able to generate a large number of sales for the merchant in a short period of time. Usually these deals are only posted for a 24-hour period  ( but here in Egypt it may take longer, sometimes the offer is posted for a week) and the viral nature of this promotion means that sales can be on the order of hundreds to thousands of orders in a single day/week.
For many local business owners equates this to an entire month’s worth of sales that are obtained in just a single day/week.
While the business owner is only making 25% of the profits (Grouping websites takes 50% of sales) business owner (local merchants) would normally earn for a typical sale but they are willing to take this short-term loss for the following reasons:


1-Cash flow boost:
Payments for vouchers are processed by the collective/grouping buying website within a very short period after the deal is closed, and the local merchant will soon receive a quick boost in cash flow for that month.

2-Not everyone will redeem their voucher:
People are lazy and not everyone will show up to turn in their voucher to the merchant and take advantage of the deal ( a very true fact, me myself bought some vouchers & never redeemed them, I will refer to the exact percentage of customers that never redeem the vouchers in the next post)  .

3-Inexpensive, effective advertising:
Businesses spend a lot of money on advertising and yet it’s often very inefficient. Daily deals promoted by group buying websites are fairly inexpensive and they are much more effective at generating real sales rather than just increasing brand awareness.

4-New customers:
Local businesses are always looking to expand their client base and new customers are a necessity for doing so.
Daily deals are able to attract many new clients by offering discounts that get the first-time customer in the door.

5- Return customers: 
Businesses that use group buying (Daily Deal) website for marketing their products or services are hoping that the new customers that sign up for their deal will like what the local merchant offers and become a return customer.
In the coming post I'll provide more information about:
- Types of businesses that are better suited for group based promotions.
- How to calculate a daily deal revenue?
- Group buying ( daily deals ) websites listings worldwide.