Online retailing with key opinion leaders and product returns

Key opinion leaders (KOLs) play a crucial role in marketing because of their potential fan market and influence. We analytically study whether a seller should cooperate with a key opinion leader (KOL) by considering the KOL's two effects: first, the KOL's existence will increase the number of consumers who are aware of the product; second, a more positive (negative) product review from the KOL will increase (decrease) consumers' prepurchase belief in product valuation. After buying the product, consumers will realize their actual product valuation, based on which they decide to return or keep the product. We find that when the product valuation posted in the KOL's product review is exogenous, a more positive review from the KOL benefits the seller but can harm the KOL. As the consumer's hassle cost of product return increases, both the seller and the KOL can be better off. If the positivity of the KOL's product review is high, the KOL's existence will benefit the seller and harm the consumers. Moreover, if the KOL can strategically make the marketing effort to increase their popularity, their marketing effort will decrease as their product review becomes more positive. If the KOL can strategically choose how they present the product, i.e., when the product valuation posted in the KOL's product review is endogenous, their product review will be less positive than the product review that maximizes the system's profit, i.e., the total profit of the KOL and the seller. The model extension shows that the result is robust.