The impact of online referral on brand market strategies with consumer search and spillover effect

Abstract

This paper studies how online referral affects the brand market management and investigates the spillover conditions from national brand to store brand market. We develop the game models without and with online referral, and derive the equilibrium strategies under the uniform pricing strategy and the differential pricing strategy. The results show that as the brand awareness increases, the presence of online referral would reduce the national brand’s selling price, market demand and profit, and raise the store brand’s selling price and market demand. Moreover, the differential pricing strategy could be better for the store brand than the uniform pricing strategy. Under the differential pricing strategy, the infomediary decides a higher referral commission only when the brand awareness is lower. In addition, the results also demonstrate that as the brand awareness increases, the spillover condition would be reduced under the differential pricing strategy and show a first declining and then rising trend under the uniform pricing strategy. To mitigate the spillover effect, the national brand should reduce the consumer’s search cost in the national brand market.