Competitive Strategy of Cash-back Website Platform Based on Referral Reward Program

In this paper, we set up a two-echelon supply chain model with one product or service supplier and two competing cash-back website (CW) platforms to investigate how the price, rebate rate and the market structure affect the equilibrium solution. We segment the consumers into loyal users and normal shoppers. The normal shoppers are further divided into full-informed shoppers, partial informed shoppers and non-informed shoppers. We find that the equilibrium solution has a great relation with the market structure. The two competing CW platforms will come to an equilibrium mode with the same price and rebate rate. When a CW platform has a certain loyal user base and there is enough exclusive market, adopting Referral reward program (RRP) will make the platform better off. The rebate rate should be set within a reasonable range to guarantee a normal operation of the platform. We also find that when the two platforms use different rebate rate, it is not necessary that the one with referral reward would be better off. An inappropriate rebate rate would help the opponent taking a free ride.