‘No (wo)man is an island’ – the old saying goes. This is particularly true in a digital society. The Internet has not only transformed the way we interact but also the way we make purchasing decisions. Increasingly, consumers are collaborating to gain better collective bargaining power in retail. This phenomenon is known as collective buying decisions.
“Collective buying power is when a group of consumers come together and use the old rule of thumb, there’s power in numbers, to leverage the group size in exchange for discounts”
Increasingly, consumers are collaborating to gain better collective bargaining power in retail. This phenomenon is known as collective buying decisions. The objective of this article is to discuss the rise of collective buying decisions an d its implications on retailers. A case study is presented at the end to illustrate how Influencer marketing enables B2C organisations to harness the power of social influence and leverage on this rising phenomenon of collective buying decisions.
The evolution of collective buying decisions
Historically, collective decision making was made primarily involving household members. Today, the Internet has enabled consumers to rely on each other as a trusted and credible source for decision making.
“The phenomenon where a group of web users collaborate via the internet to approach retailers together to negotiate a discount is known as Tuangou, ‘Swapping’ is where consumers barter goods and services, thereby eliminating the retailer altogether.”
The idea that anyone would reach out (effectively) to strangers and seek advice was difficult to imagine a decade ago vet online reviews are one of the key influences in today’s purchasing decision. The rise of the web 2.0 digital consumer society had caused a panic attack amongst retailers. Over the past couple of years, we have seen retailers across the spectrum (from global brands to ‘mom and pop’ shops) furiously drawing out social media strategies. Tactics include web trawling to monitor online feedback (including real time tweets), employing professional bloggers/online ambassadors to promote products and services as well as creating corporate or sponsored online communities. There have been many case studies to highlight the success of some of these aggressive social media strategies yet the ROI is debatable.
The Internet has not only enabled consumers to be heard individually, but also to collaborate and gain better bargaining power, The phenomenon where a group of web users collaborate via the internet to approach retailers together to negotiate a discount is known as Tuangou. A further extension of this approach is another growing phenomenon called ‘swapping’ where consumers barter goods and services, thereby eliminating the retailer altogether, Rachel Botsman discusses this phenomenon in a book she recently co-published, ‘What is Mine is Yours – The Rise of Collaborative Consumption’ (www.collaborativeconsumption.com).
Implications of collective bargaining power
“Influencers represent 5 to 10% of a typical consumer base. In the case of group buying decisions, targeting Influencers enables retailers to amplify the virality of the offer/promotion and attract a greater number of consumers.”
So what does the evolution mean and how does it change the value chain? One of the most notable cases is a website called Groupon which actually sees retailers benefiting from collective buying decisions. Consumers are required to collectively bid for discounted products and services. The business model is very lucrative as the consumer needs to earn (pay for) the right to bid and the retailer too has to pay a fee to promote its products and services. Groupon is reputed to be worth over $1billion dollars today.
Underlying Groupons success is a strong element of virality. This brings us back to the main premise of this article in that consumers are ultimately influenced by others. There are two types of influence that take place in a social network: outbound and inbound influence. The former is the influence created by an Influencer while the latter relates to peer/group pressure.
“The collective/group offer had a social component in it meaning the more friends you bring, the more your “tribe” enjoys.”
Pursways analysis of over 500 million subscriber records globally across retail, telco and finance has revealed that Influencers represent 5 to 10% of a typical consumer base. Our analysis also shows that there are different types of Influencers and varying viral speeds. In the case of group buying decisions, targeting Influencers enables retailers to amplify the virality of the offer/promotion and attract a greater number of consumers.
In a recent referral member-get-member (MGM) campaign which targeted Influencers, a retailer was able to attract two additional customers per one converted Influencer (through word of mouth). In a second attempt, the retailer combined Influencer targeting with a collective/group offer which proved to be more successful; each Influencer convincing four other customers to subscribe to the offer. The collective/group offer had a social component in it meaning the more friends you bring, the more your “tribe” enjoys.
In the case study below, the top half shows the collective/group offer resulting in a factor of 2 (from 2 to 4 new customers) in terms of referral impact.
The lower half of the diagram shows the same campaign approach based on a BAU (Business as Usual) selection and although BAU referrals were not as strong as targeting Influencers, the collective/group offer still managed to amplify the referral effect by a factor of 1.6.
The success of such campaigns can be further improved through inbound influence i.e. peer pressure. By leveraging on the dynamic power of social networks and understanding the nature of collective buying decisions, we have helped companies improve marketing effectiveness by 3 to 5 times. To learn more about our solution, please visit our websitewww.pursway.com or contact Info@pursway.com.