The Dark Side of Promotions and Deal Collectives

Thursday, October 3, 2019TOPICS: Research

Headshot of Professor Colin Campbell

Research by Colin Campbell, assistant professor of marketing at the University of San Diego School of Business, illustrating the potential liability companies face regarding deal collectives in response to company promotions has been published in the Journal of Marketing and featured by the American Marketing Association.

Let's Make a Deal: When Consumers Exploit Loopholes that Punish Profits

Consumers love deals, and companies offer them to drive business. What could go wrong? Plenty, finds a new study in the Journal of Marketing, which studies the rise of deal collectives that exploit ill-designed deals that give away more than companies intended.

The media is full of examples of deals that went south. The Visa Signature Luxury Hotel Collection offered a “buy one, get one” deal at high-end hotels, with other perks, that was pulled quickly when consumers piled on.  A university student used a Royal Canadian Mint program to buy coins on a credit card, collect airline points, and travel around the world first-class. And United had to deal with individuals who bought refundable tickets for lounge access—and then canceled the tickets.

In our study, we find that consumers are becoming better at identifying and reacting to deals. We examine two of the largest U.S. forums that consumers use to look for deals. One of the sites attracts over 10 million monthly users. Consumers use these sites to construct “deals,” or opportunities to purchase products or services below their listed retail prices.

Deals begin with a single user posting a deal that he/she believes has potential unintended value. Unintended value is present when promotional mistakes and loopholes in a deal unlock more value than a company anticipated. The collective then enhances the value of deals by adding additional information to each deal thread. The crowdsourced nature of online deal forums makes them especially adept at identifying, refining, and vetting deals through pooled knowledge and shared trust.

The most desired deals are based on companies’ unintended pricing mistakes or loopholes in promotions. Three broad types of these mistakes or loopholes are: errors in targeting; errors in pricing or promotional terms; and loopholes that allow combining or “stacking” multiple promotional offers together.

We identify a new form of consumer collective operating in deal collectives, called a micro-resistance network, with a core user base centered on antagonistic discovery of promotions that provide users with short-term power in the marketplace. In deal collectives, market power imbalance is a primary motivator for seeking deals that provide unintended value. Deal collectives often reveal intense antagonism toward companies, but do not seek to permanently alter the market. Instead, they seek fleeting power by extracting every possible source of savings or benefit from a transaction—especially value unintended by market-dominant companies. Our findings suggest a dark side to promotions, co-production, and consumer collaboration.

Deal collectives represent millions of consumers who are motivated to swiftly purchase and share deals. For some users, deals are a means of temporarily co-opting market power against powerful companies by purposefully hurting firm profits. Such behavior is clearly concerning. For many other users, deals represent a way to save extra money and feel smarter than fellow less-informed consumers. This mixed nature of deal collectives makes them a fragile entity, sometimes beneficial to companies and sometimes damaging...

Contact:

Renata Ramirez
renataramirez@sandiego.edu
(619) 260-4658