A Model of Livestream Selling with Online Influencers

Abstract

As the usage of livestreaming as a shopping channel skyrocketed during Covid-19 lockdowns (especially in China), numerous brands started to leverage livestream selling to drive sales. One core challenge for companies is to identify when to join the tide of livestream selling and how to select a right online influencer to cooperate with. This paper develops a model of livestream selling that incorporates influencer’s main characteristics and different levels of consumer sophistication in product quality perception to investigate a firm’s optimal livestream adoption strategy. Our research yields the following main insights. First, livestream selling should only be adopted when the influencer can attract a considerable number of viewers (i.e., social influence is relatively large) and can accurately identify the product quality (i.e., endorsement reliability is high), but requires low price discounts from the firm (i.e., bargaining power is relatively small). Depending on the influencers’ characteristics, two pricing strategies can be adopted: the exclusive-discounting strategy (i.e., deep price discount with the guaranteed influencer’s cooperation) and the selective-discounting strategy (i.e., moderate price discount with the influencer’s rejection risk). Second, the livestream adoption always increases the firm’s quality investment level but may decrease the quality-price ratio and consequently lead to lower consumer surplus and even social welfare. Third, while influencers with a larger social influence are always preferred by the firm, the preferences over endorsement reliability and bargaining power are more nuanced. Counter to intuition, a lower endorsement reliability or a larger bargaining power of the influencer may benefit the firm. Lastly, as more consumers become sophisticated (being able to infer the product quality based on the influencer’s endorsement), it always hurts the product quality and the firm’s profit, and somewhat surprisingly, may even lower consumer surplus, leading to a “lose-lose” outcome.