The influence of firms’ social relationship with customers on online retail channel

Abstract

Social media such as Facebook, Twitter, and WeChat have become a distribution channel for market campaigning. Is it a sustainable channel which could provide support for firms' marketing decisions? To boost sales, firms have begun to adopt social media to provide an information service for customers. Considering the impact of the relationships between customers, manufacturers, and retailers, it is still unclear who should offer an information service on how to make optimal marketing decisions. Using the Stackelberg game theoretical model, two scenarios are considered, in which the manufacturer and the retailer solely provide the information service. After comparing the firms’ pricing strategy and the information service provision strategy and profit of the two scenarios, the study finds: first, the better information service the firms offer, the more potential customers will be attracted; second, firms are willing to offer a better information service if the customers have a strong social relationship on social media; third, it is unnecessary for the manufacturer to raise the wholesale price if the retailer provides the information service; fourth, manufacturers or retailers would like to obtain “free riding” – the one who provides the information service will benefit less from it than the one who does not; and finally, the whole online retail channel is better off if the one with stronger social relationship offers the information service.