To persuade or not? Equilibrium analysis of livestreaming demonstration strategy with product returns

In the rapidly evolving digital economy, livestreaming e-commerce has emerged as a key strategy for brands to manage consumer fit uncertainty and the associated consumer returns. This study investigates two prevalent livestreaming demonstration modes: (i) authentic demonstration, which helps resolve consumers fit uncertainty before purchase, reduces returns, and alleviates reverse logistics pressure, and (ii) persuasive demonstration, which amplifies consumers’ perceived value to encourage more purchases while postponing the resolution of uncertainty until after purchase, potentially increasing returns likelihood and reverse logistics burden. We employ theoretical models to analyze equilibrium pricing and brands’ choice of livestreaming demonstration modes in the presence of consumer returns. We find that product characteristics significantly influence the optimal choice of demonstration mode. Specifically, for high-fit products, brands prefer the persuasive demonstration. For low-fit products, the choice depends on the strength of the persuasion effect. If the persuasion effect is strong, brands prefer the persuasive demonstration despite higher product returns and reverse logistics costs. Otherwise, if the persuasion effect is weak, brands prefer the authentic demonstration to reduce returns. Interestingly, although the authentic demonstration enables consumers to access more transparent and comprehensive product information before purchase, it harms consumer surplus due to an indirect price effect, whereas the persuasive demonstration may improve consumer surplus. Additionally, when brands choose to switch from non-livestreaming mode to livestreaming demonstration modes, the persuasive demonstration exhibits relatively lower sensitivity to demonstration costs compared to the authentic demonstration. Specifically, if the persuasion effect is strong, brands of high-fit products are more likely to switch to persuasive demonstration even when incurring higher demonstration costs.