Managing Sales via Livestream Commerce: Implications of Price Negotiation and Consumer Price Search

Production and Operations Management, Forthcoming, 2023

80 Pages Posted: 27 Apr 2022 Last revised: 7 Sep 2023

See all articles by Xi Lin

Xi Lin

University of California, Irvine - Paul Merage School of Business

Luyi Gui

University of California, Irvine - Paul Merage School of Business

Yixin Lu

George Washington University - School of Business

Date Written: April 16, 2022

Abstract

Livestream commerce has become an important sales channel with billions of revenue potential. A major challenge that brands often face in managing livestream sales in practice is negotiating sales prices and commission rates with key opinion leaders (KOLs) who promote products in such sales. On the one hand, KOLs can increase consumer reach, enhance consumer valuation of a product, and improve profitability of a sale. On the other hand, KOLs---who typically promise low sales prices in livestream sales---are subject to reputation damage risks if their followers find cheaper prices of the same product elsewhere. As a result, KOLs often bargain for deep discounts, which lead to price reduction in negotiation and reduce brands' profit margins. In this paper, we examine this tradeoff based on a Nash bargaining game framework. We show that price reduction may not be the brand's optimal negotiation strategy to mitigate the KOL's reputation concern. Instead, increasing the commission rate to the KOL may be more effective especially when product availability in the livestream sale is low. We further show that the presence of consumer price search can either improve or undermine the profitability of a livestream sale depending on the competitive features of the sale. Our study indicates that the negotiation dynamics in livestream sales can have significant profit impact for the brand, and the brand should be mindful about the operational features of livestream sales and stakeholder incentives such as KOLs' reputation concerns and consumer price search when developing the optimal negotiation strategy.

Keywords: Livestream sales, Key opinion leader, Nash bargaining, Pricing, Consumer search

Suggested Citation

Lin, Xi and Gui, Luyi and Lu, Yixin, Managing Sales via Livestream Commerce: Implications of Price Negotiation and Consumer Price Search (April 16, 2022). Production and Operations Management, Forthcoming, 2023, Available at SSRN: https://ssrn.com/abstract=4085225 or http://dx.doi.org/10.2139/ssrn.4085225

Xi Lin

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA
United States

Luyi Gui

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

Yixin Lu (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

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