Deal forums on consumer products are becoming increasingly prevalent on the Internet. On the one hand, the deal information is valuable to consumers who have a need for a product. On the other hand, the deal information gives opportunity to individuals who are interested in reselling products for a profit. They can buy a product at deeply discounted price utilizing the deal information and resell it through online auction sites. Such reselling activities, facilitated by the latest Internet technologies, pose new challenges for the sales promotion strategies of manufacturers and retailers.

Adding individual resellers as a new dimension for consideration into sales promotion analysis could possibly change some of the existing findings in the literature. Higher reselling cost and limited market reach for individual resellers has been a key to the success of sales promotions. For this reason, sales promotion literature has implicitly assumed that buyers of items under promotion are final users. Based on this, researchers have argued that sales promotion, especially price discounts, has some negative impacts such as causing stockpiling and purchase acceleration, and negatively affecting reference price and brand image. However, if buyers of the item under promotion are resellers instead of final users, these negative impacts could be somewhat mitigated. On the negative side, individual resellers could defeat some of the original objectives of sales promotion such as generating store traffic and price discrimination. Therefore, this new phenomenon is worthy of studying from the perspective of sales promotion.

In this study, we collected data from a deal forum (http://www.fatwallet.com) and eBay on various deals and corresponding online auction activities. We used a methodology similar to event study to analyze the relationship between the posting of deal information of an item on the deal forum and the fluctuation in the level of auction activities of the same item on eBay. The empirical analysis shows that there is a significant abnormal increase in the level of auction activities of an item after the deal information for this item is posted on the deal forum. This abnormal increase, which does not occur until right after the deal information is posted on the deal forum, cannot be explained by the normal fluctuation of the general market. Therefore, this is a strong indication that certain level of reselling activities of promoted items do exist and are facilitated by the deal forum and the online auction site. Furthermore, the comparison of the deal prices and the average auction prices confirms that there are enough economic incentives for individual resellers to engage in this type of reselling activities.

From the above analysis, we propose that various deal forums have created a new segment of consumers who do not buy a product for consumption but to resell for a profit, utilizing the information and liquidity provided by the Internet. As this new phenomenon begins to gain traction, it could have a profound impact on the practice of offering sales promotion. For example, marketing literature suggests that consumer reference prices are likely affected by past price promotions and, therefore, too frequent price promotions might lower consumer reference prices and hurt brand image. These negative impacts might be somewhat mitigated if final users buy from resellers at a marked-up price. Sales promotion literature also recognizes the dynamic impact of promotions on base line sales. Excessive price promotions might cause the base line sales to decrease and consumer price elasticity to increase. Again this negative impact could be partially avoided by customizing the promotions to target resellers. Lastly, shifting inventory cost from firms to consumers has been argued to be one of the motivations of sales promotions. From this point of view, the fast and timely dissemination of information by deal forums and the following reselling activities could have a positive impact on sales promotion strategies that aim at fast inventory clearance.

On the other hand, individual reselling could negatively affect sales promotion as well. For example, if a seller announces a deal to expand the customer base in one market (geographic area) but keeps the prices unchanged in other markets, deal-forums by spreading this deal information provide an information premium to its members which may defeat the seller’s objective of expanding its market base and getting new consumers. We recommend that in such scenarios, firms may benefit by devising strategies to discourage reselling by various means such as limited quantity and warranty. Reselling could also hurt retailer’s initiatives in cross-selling and target marketing. A retailer’s attempt at using a discounted product as the “loss leader” to attract consumers and create retailer brand effect may become less successful. Target marketing may be impeded by the resellers who make it more challenging to reach the right segment of consumers through promotional deals.