A Study On The Pricing Strategy Of E-shop With Cashback Website Promotion

Online shopping stimulates the prosperity of E-shop. Diversified types of sales promotion are applied including selling through the cashback website, which is a burgeoning but famous sales method favored by merchants. A cashback website(CW) is a type of reward website that pays its members a percentage of money earned when they purchase goods and services via its affiliate links. We consider the scenario that there is a monopolist E-shop in the market selling products to customers, and there is a CW in the market. The CW benefits as an introducer, that is, when the deal is done, it can get rebates from the E-shop. As a CW, it will issue back percentage of what it gets from the E-shop to consumers.Our paper develops three different rebate system models(1) vertical rebate system model(2) e-shop powered model and(3) the extension model to the scenario of slippage to explore the following questions. What is the E-shop’s optimal retail price? What’s the optimal rebate rate? Under what condition should the E-shop “cooperate” with CW? How the customer’s valuation of the website, the cost structure of the E-shop affect their optimal strategy? What are the primary drives that characterize the equilibrium structure of the E-shop and CW? What are the differences between these three different models? Which kind of mode is better for E-shop and which kind of mode is better for CW? What kind of role does slippage play?We aim to solve problems stated above and give answers to the heat debate about whether the E-shop should join the CW theoretically. Our finds will help E-shop decide whether to join the CW or not, as well as make price and rebate decisions after join it. Besides, this thesis helps us have more understanding of such a rebate form. By incorporating utility to characterize customers’ choices, we understand how consumers choose between E-shop and CW. Our finds will also help to explore the role slippage plays in rebate industry. Moreover, we also explore this new kind of price discrimination form and show how the E-shop and CW to take advantage of it to achieve a win-win outcome for the E-shop, the CW and customers.Our results show that it is always beneficial for the e-shop to offer the consumers rebate through the cashback website under both vertical rebate and E-shop powered settings, which further verifies that CWs can play the role of differential pricing. Moreover, the vertical rebate setting yields not only more consumer surplus but also more total profit of the system than the E-shop powered setting. Our finds also explain some phenomena such as the E-shop won’t change its retail price after open(join) the CW, why some CWs claims to offer 100% cash back, etc.. Our results also show that it is better not to continuously improve customers’ acceptance extent of the CW once it exceeds a threshold.