Group buying in multiple channels with consideration of heterogeneous customers

Abstract

Group buying can create high demand for firms in a short period by offering significant price discounts to attract more consumers who are unfamiliar with the items and enhance their willingness to make purchases. However, group buying may negatively affect sales profits; thus, firms must consider the pros and cons of participating in a third-party group-buying platform. This study considers a firm that offers a new product through the direct channel, i.e., brick and mortar stores, and may also be on a third-party group-buying website; additionally, it develops a two-stage game model in which heterogeneous consumers with different perceived values for the new product are classified into strategic and group-buying consumers to investigate whether cooperating with a group-buying website would earn more profits for the firm. The contribution of this study is the proposed game model for adequately assessing both brick and mortar and group-buying sales under channel competition. The results of the investigation show that high network externalities can elevate retail prices and group-buying quantities but lower wholesale prices. If only one channel is considered, cooperating merely with the group-buying website is more profitable than cooperating with a single sales channel. In addition, third-party group-buying websites can offer appropriate promotional programs to improve demand and profit, and as a result, a win–win situation can be achieved.