Optimal distribution strategy of coupons on e-commerce platforms: Sufficient or scarce?

Abstract

With the growth of the digital economy, platform-led coupons are becoming an increasingly popular marketing approach. How to optimally design coupon strategies to achieve the coordination between the product merchant and platform has become critical in platform supply chain management. This paper studies a platform-led coupon distribution problem and analyzes the optimal strategies of the platform and merchant: who bears the coupon cost and how many coupons should be offered. We propose a Stackelberg game in which the platform acts as the leader and decides the coupon denomination. Then, the merchant, as the follower, decides the product's selling price. Consumers are divided into high-frequency and low-frequency consumers according to their heterogeneity in consumption frequency. Our analysis shows that when the platform bears the cost, under the combined effect of the highest denomination and the highest product selling price, the platform and the merchant can realize coupon cooperation under the supply-adequate strategy, which means the number of coupons can satisfy the shopping frequency of all consumers. When the merchant bears the cost, the platform still tends to distribute more coupons. However, the merchant will suffer due to the losses caused by the coupon costs. To reach coupon cooperation, the platform can give up the excessive exploitation of the merchant by adjusting the coupon denomination.