To Hinder or to Facilitate: Retailers' Strategy of Consumer Information Sharing and Target Segment

Abstract

Motivated by the phenomenon that some retailers with high-end brand images, such as Neiman Marcus and Bergdorf Goodman, prefer to hinder consumers from sharing information through online reviews, we study an online retailer's strategy of hindering or facilitating consumer information sharing in a supply chain and its dependence on the retailer's brand image and target consumer segment. To capture the dynamics of consumer information sharing, we employ a two-period model in which consumers, with heterogeneous valuation of a product, arriving in the first period make purchase decisions based on the retailer's brand image and can find out the product quality only after their purchase, and consumers arriving in the second period learn about the product quality from the first-period consumers if the online retailer's website facilitates information sharing among consumers. We find that a high-end retailer is likely to benefit from hindering information sharing among consumers because hindering information enables the high-end retailer to induce all consumers to purchase. Such a target strategy prevents the manufacturer from extracting all of the profit from the retailer, as compared to a target strategy where the retailer only sells to consumers with high levels of willingness to pay. We also show that, interestingly, the retailer's dominant consumer information sharing strategy often benefits the supply chain when the product quality is exogenously determined. However, when the product quality is endogenous, the retailer's dominant consumer information sharing strategy can hurt the supply chain. Surprisingly, deterring consumers from learning about a product's true quality may generate more consumer surplus. Our work sheds light on the retailer's information sharing strategy by taking into account the target consumer segment as well as the interaction with upstream manufacturers.