Managing Sales via Livestream Commerce: Implications of Price Negotiation and Consumer Price Search

Abstract

Livestream commerce has become an important sales channel with billions of revenue potential. A major challenge that brands often face in managing livestream sales in practice is negotiating sales prices and commission rates with key opinion leaders (KOLs) who promote products in such sales. On the one hand, KOLs can increase consumer reach, enhance consumer valuation of a product, and improve profitability of a sale. On the other hand, KOLs—who typically promise low sales prices in livestream sales—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 brands’ profit margins. In this article, we examine this tradeoff based on a Nash bargaining game framework. We show that price reduction may not be the brand’s optimal negotiation strategy to mitigate the KOL’s reputation concern. Instead, increasing the commission rate to the KOL may be more effective especially when product availability in the livestream sale is low. We further show that the presence of consumer price search can either improve or undermine the profitability of a livestream sale depending on the competitive features of the sale. Our study indicates that the negotiation dynamics in livestream sales can have significant profit impact for the brand, and the brand should be mindful about the operational features of livestream sales and stakeholder incentives such as KOLs’ reputation concerns and consumer price search when developing the optimal negotiation strategy.