A Model of Livestream Selling with Online Influencers
65 Pages Posted: 2 Aug 2021 Last revised: 31 Aug 2021
Date Written: August 26, 2021
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. One core challenge for companies is to identify when to join the tide of livestream selling and how to select a right online inﬂuencer to cooperate with. This paper develops a model of livestream selling that incorporates inﬂuencer’s main characteristics and diﬀerent levels of consumer sophistication in product quality perception to investigate a ﬁrm’s optimal livestream adoption strategy. Our research yields the following main insights. First, livestream selling should only be adopted when the inﬂuencer can attract a considerable number of viewers (i.e., social inﬂuence is relatively large) and can accurately identify the product quality (i.e., endorsement reliability is high), but requires low price discounts from the ﬁrm (i.e., bargaining power is relatively small). Depending on the inﬂuencers’ characteristics, two pricing strategies can be adopted: the exclusive-discounting strategy (i.e., deep price discount with the guaranteed inﬂuencer’s cooperation) and the selective-discounting strategy (i.e., moderate price discount with the inﬂuencer’s rejection risk). Second, the livestream adoption always increases the ﬁrm’s quality investment level but may decrease the quality-price ratio and consequently lead to lower consumer surplus and even social welfare. Third, while inﬂuencers with a larger social inﬂuence are always preferred by the ﬁrm, the preferences over endorsement reliability and bargaining power are more nuanced. Counter to intuition, a lower endorsement reliability or a larger bargaining power of the inﬂuencer may beneﬁt the ﬁrm. Lastly, as more consumers become sophisticated (being able to infer the product quality based on the inﬂuencer’s endorsement), it always hurts the product quality and the ﬁrm’s proﬁt, and somewhat surprisingly, may even lower consumer surplus, leading to a “lose-lose” outcome.
Keywords: Livestream selling, online inﬂuencer, social inﬂuence, bargaining power, endorsement reliability
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