Designing Smart Offerings Under Privacy Costs: A Platform-Based Product Strategy

Internet of Things (IoT) platforms enhance suppliers' basic product by integrating smart features through efficient data collection and analysis. Although smart technology improves the consumer experience, it raises privacy concerns. Information asymmetry between suppliers and platforms regarding consumer privacy concerns affects decision-making of both parties. The paper proposes an analytical model in which the supplier sells the basic product directly to consumers while also providing it to the IoT platform at a wholesale price. The platform then enhances the product into smart version for resale to consumers. Two decision sequences were considered: platform-leading and supplier-leading. We find that decision timing and information structures interact significantly. Under the symmetric information about consumers' privacy concerns, both the platform and supplier are better-off for making decisions first. Interestingly, under asymmetric information, supply chain members can reach a consensus on the decision sequence if the smartness level is low and the probability of high privacy concern is moderate, or the smartness level is high and the probability of high privacy concern is low. Moreover, in platform-leading scenario, asymmetric information always benefits the supplier but harms the platform. However, in supplier-leading scenario, asymmetric information harms the supplier, while also harms the platform when the consumers' privacy concern is high level. Therefore, mastering both first-mover and information advantages simultaneously can hurt the platform.