Introducing the marketplace or not? Risk analysis of channel strategy for online retailers

Purpose The purpose of this paper is to help online retailers who have an existing reselling channel to figure out the risk of introducing an additional marketplace channel and identify the introduction threshold with an overall consideration to the fulfilment cost and services. Design/methodology/approach In order to evaluate the risk of the marketplace channel strategy, this paper develops a Retailer-Stackelberg pricing model. Products are divided into two categories according to different fulfilment cost-value ratio to get a more targeted strategy. Findings The results show that the strategy of introducing the marketplace is not always satisfying. Retailers prefer this strategy when they are the prevailing parties in service output. The overall trend is that retailers have to encourage their marketplace partners to improve services for the product with a big fulfilment cost-value ratio. Otherwise, retailers should block the marketplace from entering. Originality/value Most prior research is unaware of the risk of introducing a new channel, which also rarely considers how to manage it. This research points out that the effectiveness of this channel strategy differs in different categories. Moreover, retailers can benefit from managing the marketplace's service output.