An Economic View on Group Buying as Marketing Approach for Commodities

With the growth of the Internet and online commerce in particular, the concept of group buying became increasingly popular on many industrial (B2B) and consumer markets (B2C). Whereas the old perspective in marketing primarily focuses on transactions with single customers, the group-buying approach switches the attention toward multiple buyers that purchase the same or different products at the same time. The concept is especially useful for the marketing of highly standardized products such as commodities (i.e., raw materials, computer parts, or overstock in the apparel industry), where mostly price-oriented sales strategies are dominating a seller’s marketing attempts to price sensitive customers. The chapter focuses on an economic view on group buying as marketing approach and discusses a two-sided benefit analysis for potential sellers and their customers in the commodity business. From the seller’s perspective increasing market share, financial benefits, the reduction of production and sales costs as well as the reduced marginal return, and the threat of a negative price spiral dominate the picture. From the customers’ perspective, the price reduction and, especially, occurring bundling costs have to be considered as main factors influencing the participation in a group purchase. Hence, the seller has to take the structure and level of the customers’ bundling costs into account when managing the modalities of a group offer.