Why Product Reviews Can Drive Group Buying Success for Retailers

In the competitive business environment of today, social media have become the center of attention offering to businesses expanding customer base and higher profitability. Even more than that, social media have become a powerful marketing tool to influence a larger number of consumers through discounted group buying sites.

Group buying sites are the latest trend in social media. Introducing a model in which multiple buyers cooperate to buy particular goods and/or services at discounted prices, group buying has rapidly become a promising field in marketing. By providing businesses with consumer preferences, group buying sites allow organizations to drive purchase behavior. The business model of one of the most popular group buying sites, Groupon.com, is based on the idea of establishing partnerships with local businesses in major cities and offering discounted goods or services. Groupon collects the money from consumers who express interest for a particular deal, gives them the group coupon and send the equivalent check to the local business, after deducting the transaction fees. In doing so, the business advertises its products and/or services basically for free because if there is no interest from consumers, there won't be any transaction fee. However, the ad will be on.

On the other hand, consumers have to compromise their preferences in regards to product or service quality in order to buy at a discount price, which means that consumer preferences are not accurately reflected on a group buying model. For the group buying model to be effective, buyers need to cooperate so that goods or services are sold at a discount rate. For instance, if 1 good is sold for $40, 2 goods should be sold for $35 (1 good for $17.5), three goods for $33 (1 good for $11) and so on. If buyers cooperate effective the price of a good or a service is lower than the price paid by an individual customer.

When advertising on Groupon businesses can offer multiple discounts to consumers. For some businesses this is an effective marketing strategy not only to attract more customers and build a profitable customer base, but also to sustain profitable sales from returning customers. However, considering that consumers have to cooperate effectively to achieve the discount rate it is not certain that there will be returning customers for the business that advertises on Groupon or in any other similar discounted group buying site such as LivingSocial, Dealster or SocialBuy, among others. Therefore, the contribution of customer reviews to organizational excellence becomes increasingly significant.

Customer feedback can provide a business with the benefit of knowing beyond any doubt if customers are satisfied by using its products and/or services. Particularly, in the context of social media, by actively listening to their customers, businesses can transform their offerings and adapt them to meet customer preferences. Considering that customers enter a relationship with a business hoping to meet their needs after using a particular product, businesses can base their marketing strategies on customer reviews in order to turn customer satisfaction into customer loyalty.

Statistics show that well-structured content and product reviews are the two key factors that drive traffic in discounted group buying sites. "More than 140 billion impression on reviews" for Groupon over the last 5 years has resulted in "more than 950 retail sites" being advertised on the site. From these retailers, more than 50% have realized the added value of customer reviews on their products, while nearly 83% of consumers are influenced by product reviews.

Besides, the increasing interest of customers for product reviews has forced businesses to include customer feedback forms in their social media groups. The impact of customer feedback on other customer is significant considering that similar groups of customers are more likely to buy similar products. At the same time, businesses use product reviews as a tool to decide what products to advertise in order to attract more customers. In this context, products reviews create a win-win situation for retailers and consumers and act as a direct source for product decision-making.

Without any doubt, discounted group buying sites are working. And not only are working, but are being fueled by the increasing use of social media around the globe. Besides uniting millions of consumers to achieve higher discount rates by bulk buying on local businesses, discounted group buying sites offer the opportunity to consumers to share their views on particular products or services, thus driving sales and improving products.

Sources:

http://www.simplyzesty.com/social-media/rise-group-buying-sites-social-crucial-success/

http://bits.blogs.nytimes.com/2009/09/16/start-up-tries-to-revive-online-group-buying/

http://tomuse.com/group-buying-sites-coupon-deals-discount-savings/

http://mashable.com/2010/10/01/group-buying-product-reviews/