Incentive strategies of an e-tailer considering online reviews: Rebates or services

Abstract

This paper mainly considers an e-tailer-Stackelberg supply chain and characterizes the formative processes and distinct impacts of positive reviews and negative reviews on consumer purchases. The e-tailer can adopt either a pre-sales strategy (i.e., service strategy) or an after-sales strategy (i.e., rebate strategy) to encourage consumer purchases and stimulate positive reviews. By studying the above two strategies, we show that: (1) positive reviews and negative ones will exert a synergistic adverse effect on price decisions. (2) Given the exogenous rebate and service levels, the service (rebate) strategy becomes optimal for the e-tailer if consumers are more (less) willing to leave positive reviews. Notably, the e-tailer should refrain from adopting any incentive strategy when consumers exhibit a moderate willingness to provide positive reviews. (3) When the e-tailer can determine rebate and service levels, it should adopt the service (rebate) strategy if the threshold for positive reviews is intermediate (very low or high).