Supplier or co-optor: Optimal channel and logistics selection problems on retail platforms

Abstract

In the platform economy, many brands have already supplied products to platforms (e.g., Amazon.com and JD.com) who operate “self-run (SR)” stores. They face the challenges of whether or not operating flagship stores on the platforms and how to determine the optimal logistics choice (provided by the platforms or 3PL providers). To address these challenges, we explore the optimal channel and logistics selection strategies for brands operating on platforms through building theoretical models. This paper considers three levels of the logistics service difference between platform logistics and 3PL. It guides brands to make operational strategies of being suppliers or co-optors and choosing different logistics services. Our results imply that the brand's optimal choice of operational strategy between being “a pure supplier” or “a co-optor with the optimal logistics service selection” is affected by the logistics service level difference between platform logistics and 3PL, platform's annual service fee, and logistics fees charged by the platform and 3PL provider. Besides, we have identified the condition which could achieve a triple-win situation for the brand, the platform and consumers when the brand determines the optimal channel strategy or logistics mode strategy, respectively. We extend the models to consider consumer return behavior, spillover effect and endogenous platform logistics fee, and find that when considering consumer return behavior and spillover effect, the main results are robust. However, when considering the endogenous platform logistics fee, the brand is extremely reluctant to become a co-optor to adopt platform logistics for its flagship store.