Managing Sales via Livestream Commerce
40 Pages Posted: 27 Apr 2022
Date Written: April 16, 2022
Livestream commerce has become an important sales channel with billions of revenue potential. However, practice has shown that livestream sales present unique challenges that may hurt brands’ profits if not addressed properly. In particular, brands often need to negotiate sales price and commission rate with key opinion leaders (KOLs) who promote products in livestream sales. On the one hand, KOLs can increase consumer reach, enhance consumer valuation of the product, and improve profitability of the sale. On the other hand, KOLs—who typically promise low sales prices in their shows—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 the brand's profit margin. In this paper, we focus on this tradeoff and examine how it is moderated by the negotiation between the brand and the KOL through a Nash bargaining game model. We show that a livestream sale—even one featuring a top KOL with a large fanbase and strong influence over consumers—may be less profitable for the brand than a traditional sale that does not involve a KOL. Moreover, to mitigate the KOL’s reputation damage concern in a livestream sale, price reduction may not always be the optimal negotiation outcome. In particular, when product availability in the livestream sale is low, the brand should not rely on price reduction but offer a higher commission rate to the KOL. We further incorporate consumer search into the analysis, and show that the presence of consumer search can either improve or undermine profitability of a livestream sale, depending on the operational features of the sale such as the success rate of purchase and the decrease of that rate as the deadline of the shopping window approaches. Our study indicates that it is important for brands to take into account hidden cost of livestream sales (i.e., reputation damage concern of KOLs) and consumer search when making channel choices and pricing decisions for their sales events.
Keywords: Livestream sales, key opinion leader, Nash bargaining, pricing, consumer search
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