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The one-party versus third-party question: How brands tackle the challenges of selling via online platforms

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Researchers from University of Missouri and University of North Carolina—Chapel Hill printed a brand new paper within the Journal of Advertising and marketing that examines the pricing and model fairness implications of manufacturers promoting their merchandise on one-party versus third-party on-line platforms.

The research is authored by Zhiling Bei and Katrijn Gielens.

It’s estimated that by 2025 4 main on-line platforms—Alibaba Group, Amazon, Pinduoduo, and—can be among the many high 5 retailers worldwide. Within the U.S., Amazon at present captures 50% of on-line retail gross sales and has entry to the data of 43% of the nation’s inhabitants. In China, Alibaba’s Tmall holds 63% of online sales and caters to 64% of the inhabitants throughout its platforms.

Thousands and thousands of manufacturers purpose to have a presence on these platforms; nevertheless, they concern the implications of the platforms controlling entry to customers. One instance of that is how on-line platforms are likely to commoditize manufacturers by steering prospects’ focus away from brand names. A extensively fashionable model like Nike is allowed to showcase solely its title, images of the sneakers, and a brief description on many of those web sites. You’re unlikely to see the Nike logos, colours, or different components you might encounter on the Nike web site. Moreover, many customers are looking for “running shoes for women” or “tennis shoes for men”—and evaluating value, options, and opinions—relatively than trying particularly for manufacturers like Nike, Adidas, or Puma. In consequence, manufacturers concern that on-line platforms might diminish model fairness.

This text seems at two alternate options out there for manufacturers on-line:

  • utilizing the platform as a one-party (1P) market, or
  • utilizing the platform as a third-party (3P) market.

Whereas 1P platform operations indicate promoting on to the web platform, 3P operations allow manufacturers to promote on to customers for a price. Manufacturers rely on 1P platforms to inventory, show, merchandise, and value their merchandise. On 3P platforms, manufacturers retain full management over pricing, product data, presentation, and assortment. For example of the 3P mannequin, Nike “rents” house on Tmall and controls the shop structure and merchandising at the same time as Tmall takes care of the order success.

This research goals to reply the next questions:

  1. On on-line platforms, which mannequin will profit manufacturers essentially the most: 1P or 3P?
  2. What kind of manufacturers stands to achieve kind of from both 1P or 3P operations?
  3. To what extent do platform-specific components change the affect of 1P or 3P operations?

Utilizing the Chinese language on-line B2C market because the empirical context, the researchers analyze 1,719 manufacturers in 102 shopper product classes and monitor whether or not they begin 1P and/or 3P operations between 2008 and 2017.

Bei says that “We find that adding a 1P channel may increases unit sales, but these sales would mostly occur at a lower price point, which in turn could have a detrimental effect on brand perceptions. On 3P platforms, where products are sold directly to customers, brands retain full control over pricing, product information, presentation, and assortment.” Nevertheless, though 3P platforms don’t become involved in model administration, they typically create an surroundings the place manufacturers and their licensed sellers need to compete with unknown, probably unauthorized sellers, also called rogue sellers. Rogue sellers promote items at a reduction, undercut the licensed sellers, enhance downward value stress, and compromise model worth.

Gielens provides that “On average, brands bear a decrease of .25 percentage points in market share after starting 1P operations while brands encounter an increase of .42 percentage points following 3P operations—thus showing that that all brand-aggregator platforms are not created equal.” The outcomes additionally present that manufacturers on 1P platforms, the place rogue sellers can not function, are negatively impacted by the presence of rogue resellers on different on-line platforms. On 3P platforms, then again, the mere presence of rogue resellers doesn’t erode the potential benefits of working on the platform, however potential features are eroded when these rogue sellers provide merchandise at considerably decrease costs.

This research additionally sheds gentle on luxurious model administration on on-line platforms. Whereas platforms have been wooing luxurious manufacturers, many have been indecisive about promoting their merchandise on Amazon and different on-line retailers. Outcomes point out that luxurious manufacturers bear a sharper lower in market share than their non-luxury counterparts after beginning 1P operations, however they acquire extra in market share than their non-luxury counterparts after beginning 3P operations. This exhibits the significance for the luxurious business of seizing model management (which 3P platforms present) to achieve success in on-line platforms.

The authors state that “The most important takeaway for brand managers is that different online platforms vary in the degree of brand control and therefore lead to different brand performance implications. Managers need to balance the benefits and responsibilities (or risk) of model management that come from totally different online platforms.”

Duplicating the success of platforms such as Netflix in the offline world

Extra data:
Zhiling Bei et al, EXPRESS: The One-Party Versus Third-Party Platform Conundrum: How Can Manufacturers Thrive?, Journal of Advertising and marketing (2022). DOI: 10.1177/00222429221116803

The one-party versus third-party query: How manufacturers sort out the challenges of promoting through on-line platforms (2022, August 17)
retrieved 17 August 2022

This doc is topic to copyright. Aside from any honest dealing for the aim of personal research or analysis, no
half could also be reproduced with out the written permission. The content material is offered for data functions solely.

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