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

Pages366-387
DOIhttps://doi.org/10.1108/IMDS-03-2019-0183
Date19 November 2019
Published date19 November 2019
AuthorYuan Shi,Luying Zhou,Ting Qu,Qian Qi
Subject MatterInformation & knowledge management
Introducing the marketplace or
not? Risk analysis of channel
strategy for online retailers
Yuan Shi and Luying Zhou
School of Economics and Commerce,
South China University of Technology, Guangzhou, China
Ting Qu
School of Intelligent Systems Science and Engineering,
Jinan University (Zhuhai Campus), Zhuhai, China, and
Qian Qi
School of Economics and Commerce,
South China University of Technology, Guangzhou, China
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 RetailerStackelberg pricing model. Products are divided into two categories according to
different fulfilment costvalue 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 costvalue 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 Mostprior research is unaware of the risk of introducinga new channel, which also rarely
considers how to manage it. This research points out that the effectiveness of this channelstrategy differs in
different categories. Moreover, retailers can benefit from managing the marketplaces service output.
Keywords Online marketplace, Category strategies, Channel competition, Dual-channel retailing,
Risk analysis
Paper type Research paper
1. Introduction
Online retailing is booming around the world. According to a recent survey, US online retail sales
were reported to be $453.46bn in 2017, a rise of 16 percent on the previous year (199IT, 2018). In
the same year, Chinese sales were $1042.54bn, a 39.17 percent increase (CECC, 2018). Retailers
have made efforts to give online consumers access to a wide selection of goods, hoping to provide
a one-stop shop. For example, Amazon and dangdang.com first sell books, and JD.com originally
Industrial Management & Data
Systems
Vol. 120 No. 2, 2020
pp. 366-387
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-03-2019-0183
Received 28 March 2019
Revised 1 July 2019
6 September 2019
Accepted 7 September 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
This research was supported by MOE (Ministry of Education in China) Youth Project of Humanities
and Social Sciences (15YJC630109), Fundamental Research Funds for the Central Universities
(2018MSXM05), Innovation Project of SCUT Graduate Education (Y2181371), and National Nature
Science Foundation of China (51875251).
366
IMDS
120,2
sells electronic products, now both turning to a multi-category. In that case, more varied modes
besides the reselling channel mode are available for online shopping. Most of the giant retailers
introduce the marketplace channel mode, in which suppliers sell directly to consumers by paying
the online retailer a different proportional fee. The marketplace channel enriches the product
categories on the online shopping platform and also helps the online retailer to reduce the
operation cost, which has been successfully used by many online retailers. However,
conventional wisdom has it that retailers may reject the marketplace channel in order to avoid
risk. Although Amazon holds the viewpoint that the reselling channel and the marketplace
channel can complement each other, for the majority of products, the marketplace offers
substitutes (Mantin et al., 2014). In July 2019, Amazon withdrew its marketplace service in China
while its reselling channel will still operate (CNN Business, 2019). The interplay of competition
and cooperation makes retailers confused about whether the introduction of the marketplace is a
successful platform strategy. Such perplexity motivated us to examine the economics of strategic
introduction of the marketplace channel.
From an operations management perspective, delivering physical goods to the customer
is commonly cited as one of the most expensive and critical operations of online retail
(Agatz etal., 2008; Chen and Chen, 2017).The costs of delivery relatedto inventory, packaging,
and transportation refer to fulfilmentcosts(Tian et al., 2018). According to the data fromLi
(2012), the total fulfilment costs account for 6.619.89 percent of the transaction amounts, for
Chinese online retail leaders. The number might be higher for small and mediumbusinesses.
As will be readilyseen, there are different requirements in deliveryfor differing products. For
example, for the perishable item (e.g. fruits and vegetables) and the heavy item (e.g. the
refrigerator),the online retailers have to spend moremoney on temperaturehumidity control
and well-craftedpackages. The risk of high fulfilment costbothers online retailers and affects
the availability of the channel strategy. In other words, online retailers should attach great
importance to distinguish products with different fulfilment costwhen making their channel
strategy (Hu and Zhai, 2013). By following these clear ideas, this paper studies whether a
certain type of product should be allowed for the marketplace channel or not, which is
significant for retailers trying to enrich their product.
Besides the operation process, this paper also observes the difference in the service output
between online channels. Consumers are convenient to compare different channels. From a
marketing perspective, different channels differ in their abilities to perform various service
output (Agatz et al., 2008). In fact, add-value services chang e the perceived value of the product
so that the same product or substitutes are differentiated from the angle of consumers
(Abhishek et al., 2016). In general, online retailers have an advantage in services (Yan et al.,
2018). For instance, Amazon, JD.com, and many other online retailers are sought-after due to
their guarantees, quality management, and return services. Moreover, in the marketplace
channel as the supplier-dominated channel, the suppliers offer before- and after-sales services,
which is akin to retailersright in the rese lling channel. However, the difference is that suppliers
have to obey the rules set by the retailers. For example, JD.com asks suppliers paying the
proportional fee on time, providing essential services of different product categories,
undergoing a regular product quality test from JD.com. It is worthy to note that the online
retailer plays an important role in the marketplace channels service level. We wonder if
retailers are able to benefit in a dual-channel environment from managing the marketplaces
service level. It is significant and helpful for retailers to select the right supplier to be their
marketplace partner and well manage the marketplace channel.
The product diversification and services have a combined effect, making the
introduction and management of marketplace channel becoming a more challenging job
for online retailers. According to the observations above, the research motivation of this
paper is proposed as the following: should online retailers introduce the marketplace
channel with an existing reselling channel, and which product should be allowed for the
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Introducing
the
marketplace
or not?

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