Abstract: As online-to-offline (O2O) commerce becomes one of the main shopping ways for consumers, increasing offline service providers begin to sell service through online platform to attract consumers to purchase the service online and consume offline. In the cooperation between offline service providers and online platform, online platform often exerts marketing effort to spur demand. Meanwhile, offline service providers often provide add-on service as well as basic service to satisfy consumers’ heterogeneous demands. However, the existence of add-on service makes the cooperation problem between offline service providers and online platform more difficult. Based on the background above, we consider an O2O supply chain consisting of an offline service provider and an online platform. The offline service provider sells a basic service through the online platform while sells an add-on service directly through its physical store. Considering the impact of marketing effort of the online platform on consumers’ demand, we build multi-stage game models under wholesale mode and agency mode, respectively. Then we analyze the optimal decisions of supply chain members between the two modes. Further, we study the optimal selection of cooperation strategy of the offline service provider. The results show that the optimal selection of cooperation strategy for the offline service provider is jointly affected by many factors. When the commission rate is high and the proportion of consumers who purchase the add-on service is low, or when the commission rate and the proportion of consumers who purchase the add-on service are both high and the online platform’s marketing effect is low, the offline service provider will choose the wholesale mode. Otherwise, the offline service provider will prefer to cooperate with the online platform through the agency mode. When the optimal cooperation strategy is the agency mode, the existence of add-on service will weaken the willingness of the online platform to increase the optimal marketing effort, and the service provider may obtain more profit from add-on service than that from basic service. The above results have important implications for the cooperation between the offline service provider and the online platform. Under the agency mode, the online platform should consider the impact of retail price of basic service besides commission rate when making decisions on marketing effort. Although the relatively high commission rate can make sure the online platform to keep more profit obtained from basic service, the offline service provider may cut retail price of basic service to boost sales of add-on service. Then the online platform may suffer profit loss if increasing marketing effort blindly. When the commission rate is high, the offline service provider is not always to choose wholesale mode. On the contrary, if the proportion of consumers who purchase the add-on service is high, the offline service provider can obtain more profits from add-on service by choosing agency mode and sacrificing part profit obtained by basic service.

Key words: O2O supply chain, add-on service, marketing effort, wholesale mode, agency mode