A members-only food cooperative is an example of a group buying organization.
A group purchasing organization, or GPO, is a coalition of people or companies that combine resources to negotiate discounts from suppliers of goods and services. Although more common in the healthcare industry, group purchasing organizations cover a variety of goods and services. From food to electronics, people face lower costs when purchasing power increases.
A vertical group purchasing organization only focuses on one industry.
The simplest form of a group buying organization is known as a cooperative. The term is short for cooperative and applies to people who have come together to purchase a specific item or group of items. An example might be a group of farmers who come together to negotiate better prices for seeds or farm equipment. This concept is known as collective purchasing power.
On a large scale, companies can band together to purchase goods or services at significantly lower cost than they would on their own. For example, a small business can join a health care group purchasing organization and get better health insurance rates. This larger, more cohesive group of members can approach health care providers to negotiate better prices on health care packages. The cost of membership is paid only from the savings available to the small business. A business should weigh the costs versus benefits before joining a group buying organization.
A group buying organization can be horizontal or vertical, referring to the market segment of goods and services available for purchase. A vertical group buying organization only focuses on one industry, while a horizontal group buying organization tries to get the most discounts on most goods and services in a broad market.
The cost of running a group buying organization is collected in the form of commissions or discounts, or may be passed on to the consumer in the form of membership fees. In this way, no individual or company assumes the burden of management. For non-profit purchasing organizations, most or all discounts are passed on to the end user.
While the popularity of participating in a group buying organization is relatively new, the concept itself has been around for centuries. Throughout the 1900s, the idea of buying in volume to save money grew tremendously, and department stores made volume buying a common experience. When applied to multi-million dollar markets and multi-million dollar clients, the savings can add up quickly.