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Editor's Cut: Online buying pools
by Jay Conrad Levinson, Special to AdBanter.com


Editor's Note: This column, Editor's Cut, will appear monthly and will feature stories on a wide-range of topics. Think of it as a wild card, if you will. This month's piece focuses on online buying pools and was written by Jay Conrad Levinson, the author of the highly-successful "Guerrilla Marketing" series of books.


Buying pools have been around for years. For centuries, groups have banded together to increase buying power and leverage. The Internet is reviving this age-old concept, giving small and mid-sized businesses a way to level the purchasing playing field.

According to recent surveys, there are approximately 7.3 million small to medium-sized businesses in the United States. In order to compete in the new economy, these businesses will need to utilize all available e-business applications and technology to gain every competitive advantage possible, including buyer pooling, to maximize their purchasing power and reduce their overall costs. The Online Advertising industry will be chiefly affected by this trend.

It may be hard to imagine a mom-and-pop operation having the same purchasing clout as a Wal-Mart, but buying pools have the ability to do exactly that.

How? Online pooling enable groups of small businesses to join together and order items as a bulk order, giving them the discounts ordinarily available to the largest players. When a small business joins a buying pool with other businesses purchasing the same goods, every one of them gets in on the high volume discounts no matter how little they purchase.

The buyer-pooling trend is in its infancy, and today there are only a handful of firms capitalizing on the technology and applying it as the next wave of e-commerce solutions.

One of those companies is Volumebuy, Inc., which has a proprietary patent pending technology that includes multiple pooling techniques. The technology takes advantage of the Internet to simplify buying pools for small businesses of every size, shape and form.

Small or mid-sized firms in vertical industries such as pharmaceuticals, auto parts, textiles and shipping experience tremendous inequalities in the purchasing power afforded larger corporations. Technology like this allows these and other industries consisting of small purchasers to anonymously interact and create large aggregated purchases for volume discounts.

The model is relatively simple -- businesses enter buying pools for the goods and services they want to purchase in a given time frame -- five days, for example. As other companies join the pools, the prices dynamically drop until the pool closing date. When the pool closes, the supplier sends the goods to the pool participants at the lowest price based on the number of customers in the pool.

Buyer pooling in action
One illustration of this is the pharmaceutical industry. In the past 20 years, a large number of independent pharmacies have gone out of business. Buyer pooling has the potential to dramatically change the competitive landscape.

Assume for a moment that a small pharmacy buys 500 units of penicillin from its supplier for $1.00 each, while the large chains pay only $0.80 per unit based on volume orders of a 10,000 unit minimum. If the pharmacy was able to pool its purchases with other pharmacies that were also under the 10,000 minimum, then they could obtain the penicillin for close to $0.80 or possibly even less if enough buyers join the pool.

Clearly, buying pools help small businesses stay competitive by giving discounts that will enable them to entice customers back from the giants. In fact, many experts believe that online buying pools will help redress the balance of power to a more level playing field between huge chains and independents.

The future of business
The buyer pooling model differs from other e-commerce approaches in that it can take advantage of the volume and time relationship associated with orders placed online for future delivery. Suppliers, having pre-committed orders in advance, get the lead-time to schedule inventory, acquisition, production runs and fulfillment. It is these efficiencies to suppliers that will ultimately enable the lowest prices to buyers.

One thing is certain about the future of business - it will change. Navigating through the change will require keen business acumen and the ability to adapt to new strategies to minimize risk and maximize opportunities. To increase purchasing power and reduce overall costs, small and mid-sized firms will need to also adjust. E-commerce will continue to morph as technology and procedures advance, but buyer pooling certainly seems poised to be the next killer application In the Internet economy.


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