Promotion Decisions Under Asymmetric Demand-Generation Information: Self-Operated, Online-Platform and Offline-Outlet Strategies

The recent growth of specialized promotion groups has encouraged many firms to shift from self-operated promotion to third-party promotion, including offline-outlet and online-platform promotion. Compared to self-operated promotion, firms adopting third-party promotion can often generate more demand but incur screening costs stemming from the third party's uncertain ability to generate demand. Furthermore, firms applying offline-outlet promotion can benefit from the additional demand created by service effort at physical outlets while simultaneously being affected by another uncertain factor, namely effort level. By capturing these fundamental differences, we develop a specific multistage decision-making model to answer a key question: Which strategy should firms adopt: A self-operated online-platform, or an offline-outlet promotion? We find that a firm's preferences shift from self-operated promotion to offline-outlet promotion and then to online-platform promotion as production quantity increases. Furthermore, decreases in promotional prices make firms more willing to adopt self-operated and online-platform promotion but less willing to adopt offline-outlet promotion. Moreover, we present an interesting insight: The promotion quantity allocated to a low-type third party under online-platform promotion is downward distorted to avoid mimicking the high type, whereas under offline-outlet promotion, the promotion quantity is upward distorted due to the impact of service effort and its incentive mechanism.