Do local consumers behave differently from visitors? An exploratory study in online group buying

Highlights

• The actual transactional data sets from one of the largest online daily deal sites in Asia is investigated.

• The actual data sets from an online daily deal site in Asia are investigated.

• The results show that local consumers tend to think high of discounts relatively while the visitors likely care more about the product category.

• The results show that local consumers tend to think high of discounts comparing with the visitors.

Abstract

With the rapid increase in Groupon-like online daily deals, the behavior of consumers within online group buying has become a popular research topic. In addition, the increase of smart phone group buying has led merchants to consider increasing numbers of visitors beyond local consumers. The effects of the period, price, discount rate, and product category on sales are examined in the context of local consumers and visitors purchasing restaurant coupons in the group-buying electronic marketplace. Using linear and non-linear regressions and conjoint analysis as method, the actual transactional data sets of Dianping.com—one of Asia’s largest online group-buying businesses—is studied. The results show that there is a clear discrepancy between the preferences of the two consumer groups. Local consumers tend to think highly of discounts, while visitors are likely to care more about the product category. In addition, the behavior of the two groups differs in terms of product attribute selections. The findings could be useful to businesses in terms of understanding consumers’ purchasing and product designs.

Introduction

Online group buying, in which consumers with the same purchase intentions unite through the Internet, enhances consumers’ bargaining power and reduces suppliers’ uncertainties. In 2008, the birth of online daily deals brought about the so-called Groupon syndrome. In the context of online daily deals, online group buying brought network group buying to a new stage. Groupon’s success has given rise to numerous copycats. Online group buying has been popular in China, where the growth of the online marketplace is outstanding. In 2010, China’s first group-buying website, manzuo.com, was launched. Soon many other Chinese online group-buying businesses were founded, such as meituan.com, nuomi.com, and lashou.com. The Statistical Report of China Group Buying Market (2014) reveals that China’s online group-buying turnover volume was 74.75 billion yuan, representing an increase of 38.87 billion yuan compared to 2013 (Tuan800, 2014). According to The 35th Statistical Report of Development Status of China's Internet, the number of Chinese group-buying users reached 173 million by December 2014—an increase of 32 million from the end of 2013. With the increased use of the Internet and the popularity of smart phones, consumers can participate at anytime from anywhere. The number of mobile phone users reached 119 million, accounting for 68.79% of the number of total users (China Internet Network Information Center, 2015).

While group buying has become an integral part of the new online consumption patterns, the popularity of smart phone deals presents regional limitations to group buying. People can also engage in group purchasing of desired products while traveling. As the group-buying market competition becomes increasingly fierce, merchants must fully understand the relevant consumer preferences and meet the needs of consumers if they want to obtain benefits and long-term development. With the increase of smart phone group buying, merchants should consider not only local consumers, but also the increasing number of area visitors in order to meet the demands of many different groups of consumers, access more consumers effectively, and win a higher market share. Research on the preferences of these two types of consumer groups is significant to help merchants design group-buying products and develop business strategies.

Previous literature suggests that distance plays an important role in determining online behavior. Balasubramanian (1998) and Zhang (2009) review the role of distance to stores in substitution between online and offline channels. Several empirical studies, including Forman and Ghose (2009), find that the online channel is more effective when consumers would have to travel farther to visit an offline store. However, the usefulness of the online channel still depends on several local factors. Blum and Goldfarb (2006) and Hampton and Wellman (2002) show that consumers’ behavior is disproportionately local, owing to local characteristics.

The emergence of smartphones and location-based services suggest that location may play a different role in mobile Internet. Location-based services typically allow for browsing the nearest services, such as commerce, local news, weather, navigation, friend-finder services, and gaming.

Consumer behavior scientifically studies behavior in the acquisition, use, and consumption of products and services as these characteristics and behavior occur in business. The objects of marketplace studies are mostly the consumer behaviors of the individual and the group, and the factors that affect consumer behavior determine its content and system structure. Hence, the purpose of the study is to explain the behavioral differences between local consumers and visitors in the context of online group buying. Overall, consumers are likely to consider a variety of product attributes during the purchase processes, and the importance of each attribute is expected to differ among various groups of consumers. The following research questions are considered:

• What are the main differences between local consumers and visitors in the context of online group buying?

• What are the attribute preferences of these different groups of consumers?

• How much do the effects of the factors influence sales across consumer groups?

To answer these questions, the effects of the period, price, discount rate, and product category on sales are examined for local consumers and visitors purchasing restaurant coupons in the group-buying electronic marketplace. Applying linear regression and conjoint analysis, the actual transactional data sets on Dianping.com, one of Asia’s largest online group-buying businesses, is studied.

This research is related to two interesting papers that study how geographic variables impact consumers’ online behavior – Sinai and Waldfogel (2004) and Forman and Ghose (2009). Sinai and Waldfogel (2004) examine the tendency of Internet connectivity and the online and offline purchase behavior of connected people. They find that larger markets are likely to have more online content for the local area and that consumers are likely to connect in markets that provide more local online content. Unlike traditional local media, such as local newspapers, the Internet provides access to a wide variety for small places. Forman and Ghose (2009) empirically study the trade-off between the benefits of buying online and buying in a local retail store. They examine how a consumer’s physical location influences the relative benefits of purchasing online, using data from Amazon.com on the best-selling books in the United States. They find that people substitute away from online purchasing when a store opens locally. Both studies motivate us to think about the different behaviors of consumers across geographic distances when they acquire new technology.

A few papers in marketing have leveraged spatial data to understand consumers’ behaviors (Bradlow et al., 2005). For example, Jank and Kannan (2005) show that including spatial dependence can help to predict whether a consumer will purchase an electronic copy or a print copy of the same book. Complementarity between online and physical channels has been observed in services as well. Hitt and Frei (2002) show that the existence of dual channels can increase the retention rate of consumers in the context of online banking. Campbell and Frei (2010) find that the introduction of online banking services leads to an increase in overall banking service consumption and an upsurge in total transaction volume. However, the addition of an online channel to a traditional channel can also lead to negative demand effects (Geyskens et al., 2002). When targeting the same consumer segment and offering similar products, online and physical stores may face cross-channel competition (Brynjolfsson et al., 2009).

Overall, this paper provides an understanding of how local consumers behave differently from visitors in the context of online group buying. Such an understanding is important, as the transaction volume of online group buying is increasing very rapidly; many consumers in group buying have come to use mobile devices for various purchasing activities, from browsing products to making payments. The paper complements previous research, and differentiates itself by analyzing micro-transaction data empirically and focusing on the behavioral differences of local consumers and visitors in the context of online group buying. By comparing the behaviors of local consumers and visitors, the paper provides insights for managers regarding the potential of mobile commerce across locations. The study will help practitioners to prepare their promotional mix based on different consumer behavior patterns across locations.

This paper is structured as follows. Section 2 introduces the related literature review and presents the research hypotheses. The data and methods used are presented in Section 3. Section 4 reports the results from the analyses. In addition, Section 5 presents the results from Heckman selection models. Finally, Section 6 discusses the findings and concludes the paper.