How to deal with consumers who group to request a discount?

Abstract

We investigate operations impacts of consumer‐initiated group buying (CGB), whereby consumers voluntarily form buying groups to negotiate bulk deals with retailers. This differs from regular purchasing whereby consumers visit retailers individually and pay posted prices. Upon the visit by group consumers, a retailer decides to forgo or satisfy their demand in its entirety. Turned down by a retailer, group consumers continue to visit other retailers. In the case where their group effort fails to conclude a deal, some group consumers switch to individual purchasing provided they receive a non‐negative utility by doing so. Even after a successful group event, the group consumers who forgo the event out of utility concern may switch to individual purchasing as well. Retailer competition, group size, and the chance that group consumers switch to individual purchasing upon unsatisfaction are crucial to how retailers adjust operations to deal with CGB. With retailer competition, the rise of CGB results in every consumer paying the same reduced price when group size is small but makes group consumers pay more than by purchasing individually when group size is large. This has mixed consequences on the profits for retailers in both absolute and relative terms.

Is group‐buying price mechanism a good choice in the business‐to‐business system?

“…For example, they focused on the inertia effect, and suggested some methods to overcome it. Recently, Qiu and Jiang (2019) investigated operations impacts of the group-buying price mechanism in the setting with competitive retailers. They found that retailer competition, group size, and the chance that group consumers switch to individual purchasing upon unsatisfaction were important to how retailers adjust operations to deal with consumer-initiated group buying.…”