Introducing the marketplace or not? Risk analysis of channel strategy for online retailers

Abstract

Purpose

The purpose of this paper is to help online retailers who have an existing reselling channel to figure out the risk of introducing an additional marketplace channel and identify the introduction threshold with an overall consideration to the fulfilment cost and services.

Design/methodology/approach

In order to evaluate the risk of the marketplace channel strategy, this paper develops a Retailer–Stackelberg pricing model. Products are divided into two categories according to different fulfilment cost–value ratio to get a more targeted strategy.

Findings

The results show that the strategy of introducing the marketplace is not always satisfying. Retailers prefer this strategy when they are the prevailing parties in service output. The overall trend is that retailers have to encourage their marketplace partners to improve services for the product with a big fulfilment cost–value ratio. Otherwise, retailers should block the marketplace from entering.

Research limitations/implications

For an intuitive conclusion, this paper assumes that the operating costs (except fulfilment cost) are equal in two channels. This suggests a need to further investigate the impact of other costs. Meanwhile, it would be interesting to examine the competition among suppliers and retailers.

Practical implications

This research provides the suggestions for online retailers who want to introduce and well manage the marketplace channel.

Social implications

This research also helps both academia and industry become more intelligent about the significant influences of category management on channel strategy.

Originality/value

Most prior research is unaware of the risk of introducing a new channel, which also rarely considers how to manage it. This research points out that the effectiveness of this channel strategy differs in different categories. Moreover, retailers can benefit from managing the marketplace’s service output.

Citation

Shi, Y., Zhou, L., Qu, T. and Qi, Q. (2020), "Introducing the marketplace or not? Risk analysis of channel strategy for online retailers", Industrial Management & Data Systems, Vol. 120 No. 2, pp. 366-387. https://doi.org/10.1108/IMDS-03-2019-0183