Retailers’ Differentiation Strategy and Pricing in the Rental Market of Digital Content: A Case of E-Textbooks

Offering digital content for renting has become popular among online retailers. Following the trend, textbook retailers have introduced e-textbook rental programs which satisfy students’ needs to reduce the cost of textbooks. Under the e-textbook rental model, retailers have homogeneous digital products and delivery channel. Therefore, they need specific differentiation strategies to distinguish themselves in the competition. In this study we aim to investigate the key factors of retailers’ differentiation strategy and their impact on retailers’ price advantage in the market. Our horizontal model shows that factors such as service quality are essential for the leading retailer to maintain price advantage in the competition. We also carry out an empirical study on service design and consumers’ input by analyzing a unique data set of 151 e-textbooks from two major textbook rental retailers Amazon and Chegg. Our results show that factors including service flexibility, earliest return time, consumers’ rating, and e-textbook selling price play a significant role in retailers’ pricing differentiation strategy. Overall, our research provides useful managerial insights and operational policies for online textbook rental retailers.