Hybrid channel structure and product quality distribution strategy for online retail platform

Abstract

Currently, platforms (such as Amazon.com and JD.com) are gradually transitioning from pure resellers to platforms providing hybrid channel structures. In a hybrid channel, the reselling channel and the agency channel on the platform are simultaneously used. Therefore, according to the agent who sells through the agency channel (manufacturer or third-party retailer), two kinds of hybrid channel structurers can be selected by the platform. At the same time, due to the intense competition caused by the hybrid channel structure, platforms take the initiative to implement the product quality distribution strategy in which different quality products are sold through various retailing channels. Thus, from the perspective of platforms, how to coordinate the selection of hybrid channel structures and the implementation of the product quality distribution strategy is a significant issue that has been overlooked in existing literature. This paper proposes game-theoretic models to investigate whether a platform should choose “which” hybrid channel structure to use and decide “whether” to adopt the product quality distribution strategy. Our analysis shows that the game equilibrium is affected by the commission rate, the product differentiation level, and the production cost. More specifically, first, it is interestingly found that if the product differentiation level exceeds a particular threshold, the product quality distribution strategy can negatively influence the retailer to abandon the hybrid retailing mode. In contrast, the manufacturer continues to sell through the agency channel as a part of the product distribution plan. Second, regardless of the channel configuration, we find that the platform chooses to increase the order quantity with the help of the product distribution plan. Third, contrary to popular belief, the product quality distribution strategy can only benefit the platform when the third-party retailer participates in hybrid retailing with a suitable commission rate and product differentiation level. Fourth, the platform should make decisions on the above two strategies concurrently; otherwise, agency sellers (manufacturer or third-party retailer) will oppose the product quality distribution strategy. Our key findings can assist stakeholders in making strategic decisions about hybrid retailing modes and product distribution.