By Steve Kelman

Blog archive

Government should take a cue from consumers

The Financial Times recently ran an intriguing article titled “Collective Buying Takes Off,” which profiles a startup company called Groupon with a fascinating business model. Groupon negotiates quantity discounts with service providers in 40 different cities. For example, the company negotiated with a dealer in San Francisco to provide a luxury car wash that retails for $70 at a price of only $30.

There's a catch, though. The offer, in this case, doesn't kick in unless 20 people sign up. As the article puts it, "For the car wash to offer such a steep discount, it had to be assured it would receive an influx of new customers." In other words, the dealer will offer quantity discounts, but needs to get a certain quantity of buyers. Groupon publicizes the offers over the Internet.

The spread of this idea illustrates the power of leveraged buying. People can get better prices when they pool their buying power.

Needless to say, when I read this article, I thought of the government. To arrange for these quantity discounts, Groupon -- which makes its money by taking a cut from the service provider -- needs to go through a pretty convoluted exercise of negotiating and then publicizing these deals on the Internet, in the hope enough buyers will show up.

Clearly, this process is too kludgey for the government. Still, it’s all the more a shame when the government doesn't take advantage of leveraged buying power in the way a company like Groupon (there are apparently other companies with a similar business model in the U.K.) is doing with individual consumers. What makes this especially interesting is that Groupon is leveraging buying power for purchasing services, an area in which the government has made far too little progress.

If individual consumers can do this with Groupon, surely the government can do something similar, right?

P.S. I blogged recently about a Facebook scam where attractive women made friend requests to me -- the scammers hoped to get people to accept the request and then get access to their Facebook information. I deleted the first request, but saved the second one (from "Ferri Armani," the requester's "name") to show people about the scam. Well, I recently received a followup Facebook message from "Ferri." It read as follows:

"hello, i am realy sorry about i disturb you. i was just see you on facebook and want like make you friend if you also like add me as a friend please.. i am from designer eyewear group to ca."

To judge by the poor English, it seems as if these scammers, like their Nigerian oil deal brethren, are coming from outside the U.S.

Posted by Steve Kelman on Feb 18, 2010 at 12:08 PM


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