Decision Analysis Of Selling Format For Online Retailers To Participite In Frugal Innovation

With the rapid development of the online retailing in recent years,online retailers gradually establish good reputations among consumer groups with their respective selling format,such as JD.com's reselling mall and Tmall 's small black box optimization.Therefore,selling format becomes one of the most important decisions in the competition of online retailers.The major sources of competitive advantage for online retailers is the platform's user volume,which is determined by the platform economic characteristics of online retailing.In addition,the expansion of users in low-tier cities becomes the main driving force for the online retailing to realize continuing growth.As a result,online retailers begin to pay attention to the majority of low-and middle-income consumers in order to increase user volumes.Frugal innovation,as a new innovation paradigm developed in emerging markets,is characterized by low cost,high added value,focusing on product core functions,and commitment to meet the needs of the BOP consumer groups.In order to obtain more users,online retailers encourage manufacturers to sell frugal products on the platform.Motived by these phenomena,a supply chain game model which includes online retailers and manufacturers of frugal products is built in this paper.Considering the platform value of the online retailer,the optimal decisions of the online retailer and the manufacturer under the agency model and the reselling model are investigated,and then the optimal selling format for the online retailer and the manufacturer is analyzed.Several conclusions are obtained after analysis.First of all,under the reselling format,the bargaining revenue sharing contract between the online retailer and the manufacturer can coordinate the supply chain furthest and maximize profits of the manufacturer and the platform value of the online retailer.The increase in consumer sensitivity and platform conversion rate has a greater impact on the optimal frugal degree of development-intensive frugal product(DIFP)than the cost-intensive frugal product(MIFP).Secondly,under the agency selling format,the manufacturer 'profits decrease as the revenue sharing rate charged by the online retailer increases while the online retailers' profits increase accordingly.However,when the market 's sensitivity to frugal products is extremely high,the profits of the online retailer will decrease as the revenue share rate increases instead.Also,selling DIFP enable the online retailer to obtain more platform value than selling MIFP.Finally,comparing the agency selling format and the reselling format,several conclusions are obtained.When the potential market of frugal products is small,the retailer tends to choose the agency selling format.While when the market size is large,the retailer tends to choose the reselling format.The manufacturer's decision is opposite to the online retailer.Considering the decisions of manufacturers and retailers together,I found that when potential market is within a moderate range,and the conversion rate of the online retailer is low,both the manufacturer of MIFP and the online retailer prefer to choose the agency selling format.Instead,when the conversion rate of the online retailer platform is high,the optimal selling format for the manufacturer of MIFP and the online retailer is the reselling format.As for DIFP,the optimal selling format for the manufacturer and the online retailer is the agency selling model.The research conclusions can provide theoretical guidance for online retailers to participate in frugal innovation in selling format decisions.