A Model of Livestream Selling with Online Influencers

Abstract

Problem Definition: As the usage of livestreaming as a shopping channel skyrocketed during Covid-19 lockdowns (especially in China), numerous brands started to leverage livestream selling to drive sales. This paper investigates a firm’s optimal livestream adoption strategies and implementation tactics and the implications of livestream adoption for influencers and consumers. Methodology/Results: We develop a game-theoretic model to understand the strategic interactions between the firm, influencer, and consumers. Our analysis yields several interesting and nontrivial insights. First, we find that livestream selling should only be adopted when the influencer can attract a considerable number of viewers (i.e., the social influence is large) and this requirement diminishes as the influencer becomes more capable of identifying the product quality accurately (i.e., the endorsement reliability is high). Second, we assert that livestream adoption needs to be accompanied by appropriate selections of both influencer and product. While a larger social influence is always preferred by the firm when selecting an influencer, a higher endorsement reliability may not be favorable. Furthermore, featuring products with a mediocre, rather than top-notch, quality can help exploit more value from livestream selling. Third, our analysis of commission fee design indicates that the influencer should be granted a reasonable revenue share because the influencer’s substantial “skin in the game” would reward the firm with more pricing flexibility. We further caution that introducing a slotting fee never benefits the firm and might even lead to a “lose-lose” outcome. Lastly, in search of good deals, it does not work for consumers to blindly follow influencers with a larger social influence or a higher endorsement reliability. Surprisingly, an increase in the influencer’s endorsement reliability can even lead to a “triple-worse” outcome for the firm, influencer, and consumers. Managerial Implications: Our paper lays out several important operational strategies firms have at their disposal to better experiment and invest in livestream selling, including pricing policy, influencer selection, product selection, and commission fee design.

Keywords: Livestream selling, online influencer, social influence, endorsement reliability, reputation loss, influencer selection, commission fee design