Researchers from the University of Missouri and the University of North Carolina – Chapel Hill have published a new article in the Marketing Review which examines the pricing and brand equity implications of brands selling their products on individual online platforms versus third-party platforms.
The study, to be published in the marketing magazine, is titled “The Conundrum of One-Party vs. Third-Party Platform: How Can Brands Thrive?” and is written by Zhiling Bei and Katrijn Gielens.
It is estimated that by 2025, four major online platforms – Alibaba Group, Amazon, Pinduoduo and JD.com – will be among the top five retailers in the world. In the United States, Amazon currently captures 50% of online retail sales and has access to information from 43% of the country’s population. In China, Alibaba’s Tmall holds 63% of online sales and serves 64% of the population on its platforms.
Millions of brands aim to be present on these platforms; however, they fear the consequences of platforms controlling consumer access. An example of this is how online platforms tend to commoditize brands by distracting customers from brand names. A very popular brand like Nike is only allowed to feature its name, photos of the shoes and a brief description on many of these websites. You are unlikely to see any Nike logos, colors or other elements that you may encounter on the Nike website. Additionally, many consumers search for “women’s running shoes” or “men’s tennis shoes” — and compare prices, features, and reviews — rather than specifically searching for brands like Nike, Adidas, or Puma. As a result, brands fear that online platforms will diminish their brand equity.
This article examines two alternatives available to brands online:
- use the platform as a one-party (1P) marketplace, or
- use the Platform as a third-party (3P) marketplace.
While 1P platform operations involve selling directly to the online platform, 3P operations allow brands to sell directly to consumers for a fee. Brands depend on 1P platforms to store, display, market and price their products. On 3P platforms, brands retain full control over pricing, product information, presentation and assortment. As an example of the 3P model, Nike “rents” space on Tmall and controls store layout and merchandising while Tmall handles order fulfillment.
This study aims to answer the following questions:
- On online platforms, which model will benefit brands the most: 1P or 3P?
- What kind of brands have the most or least to gain from 1P or 3P deals?
- How do platform-specific factors change the impact of 1P or 3P operations?
Using China’s online B2C market as an empirical context, the researchers analyze 1,719 brands across 102 consumer product categories and determine whether they started 1P and/or 3P operations between 2008 and 2017.
Bei says that “We find that adding a 1P channel can increase unit sales, but those sales would mostly occur at a lower price, which in turn could have a detrimental effect on brand perception. 3P platforms, where products are sold directly to customers, brands retain full control over pricing, product information, presentation and assortment.However, although 3P platforms do not engage in the brand management, they often create an environment where brands and their authorized sellers must compete with unknown, potentially unauthorized sellers, also known as malicious sellers. downward pressure on prices and undermine brand value.
Gielens adds that “On average, brands experience a 0.25 percentage point decrease in market share after starting 1P operations, while brands experience a 0.42 percentage point increase after 3P operations – showing as well as not all brand aggregation platforms are created equal.” The results also show that brands on 1P platforms, where rogue sellers cannot operate, are negatively impacted by the presence of rogue dealers on other online platforms. The presence of rogue dealers does not erode the potential benefits of operating on the platform, but the potential gains are eroded when these rogue sellers offer products at significantly lower prices.
This study also sheds light on the management of luxury brands on online platforms. While platforms have courted luxury brands, many have been undecided about selling their products on Amazon and other online outlets. The results indicate that luxury brands suffer a greater decline in market share than their non-luxury counterparts after starting 1P operations, but they gain more market share than their non-luxury counterparts after starting 3P operations. . This shows the importance for the luxury industry to gain brand control (which 3P platforms provide) to succeed on online platforms.
The authors state, “The most important finding for brand managers is that different online platforms vary in the degree of brand control and therefore lead to different brand performance implications. Managers must balance the benefits and responsibilities (or risks) of brand control that come from different online platforms. »
Full article and author contact details available at: https://doi.org/10.1177/00222429221116803
About Marketing Review
The Marketing Review develops and disseminates knowledge on real-world marketing issues useful to scholars, educators, managers, policymakers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM played an important role in shaping the content and boundaries of the marketing discipline. Shrihari Sridhar (Joe Foster ’56 Chair in Business Leadership, Professor of Marketing at Mays Business School, Texas A&M University) is the current editor.
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The One-Party vs. Third-Party Conundrum: How Can Brands Thrive?
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