Online bargain hunters cash in on social connection with group deals

More than 50 million people around the world look for deals on Groupon and other online platforms that offer daily discounts if a minimum number of customers sign up for the product or service on offer. A new study suggests these vendors could sell more by offering people a further discount for bringing their friends into the deal.

The study, Online Group Buying Behavior: A Study of Experiential Versus Material Purchases, published in Psychology of Marketing, also found these online consumers are more likely to tell their social networks about a deal if it’s for an experience, such as a spa treatment, rather than a product, like a coffee maker.

In a series of four experiments, the researchers used a “hybrid model” of pricing combining a flat discount with a further discount if you bring in friends, says Dr. James Agarwal, PhD, professor in the Department of Marketing at the Haskayne School of Business.

“We first give them a deal-of-the-day discount, for example, 30 per cent. It doesn’t matter whether you buy alone or in groups, everybody gets the same flat discount. However, if you bring two plus more customers from your social network, you get an additional 20 per cent discount,” he says.

Agarwal and his colleagues, Dr. Gopal Das of the Indian Institute of Management Bangalore, and Dr. Mark Spence of Australia’s Bond University, found this hybrid pricing model boosted the number of shoppers willing to reach out to friends by about a quarter. It also decreased the number of people who said they would not buy anything at all.

The study suggests online shopping platforms should adopt dynamic pricing model by incorporating flat discounts as well as an additional discount for bringing social connections to the deal.

They also found people were more likely to tell their friends about experiences on offer, rather than products. The study included deals on gym clothes versus gym memberships, cooking ware versus cooking lessons as well as a guitar versus guitar lessons.

“An experiential purchase would be where you experience some consumption which lasts for a lifetime,” says Agarwal. “You remember it looking back, like you would a vacation. It has an enduring legacy opposed to a material purchase, like buying a coffee maker, that has more of a utilitarian value.”

The researchers suggest three major psychological motivators drive customers to tell their friends about deals on experiences more than products: social connection, conversational value and anticipatory enjoyment.

“Number one is the social connection and the opportunity to bond with their peers or new customers they meet in the group buying context,” he says.

“The second motivator was conversational value: ‘Look how much I have saved. Look how smart and savvy a customer I am.’

"The third one was anticipatory enjoyment. The fact that you look forward to that occasion where you interact. You'll make friends, and there's a sense of anticipation.”

Interestingly, customers who think holistically are more likely to be motivated by social connection and anticipatory enjoyment, whereas those who think analytically are more like to be motivated by conversational value of how much they saved.

The researchers attribute social connection and anticipatory enjoyment motivators contribute up to 46 per cent and 38 per cent increase in buying, respectively, when faced with a choice: take the flat discount or take an additional discount on top of the deal by bringing two plus customers. They suggest group online platforms could reframe material products as experiences to increase the likelihood customers will talk about them with their friends and buy more.