Managing The Online Channel by Coordinating A Third-Party Logistics and Service Provider Along with A Dual-Channel Retailer

Abstract

This paper considers traditional and online stores under the context of a dual-channel retailing system. Fully refunded returns are permissible in both forms: same-channel and cross-channel. We examined three different coordination strategies that may form between the retailer and a third-party logistics and service provider. The provider was tasked to manage the online store’s orders through transaction-based fees, flat-based fees, and gain-sharing contracts. For each of those strategies, we found the online store’s optimal pricing policy and the seasonal fee, if applicable. The performance ratings of the partners under the different strategies were compared, and the managerial insights were provided using analytical as well as numerical analysis. It was found that the retailer is always more profitable under the flat-based fee strategy compared to the gain-sharing strategy, while the provider was almost always more profitable under the latter strategy. Moreover, a low rate of return encouraged the retailer to have more independence by implementing the transaction-based fee strategy, while a high rate pushed the retailer to have more logistical involvement and support through the implementation of either the flat-based fee or gain-sharing strategies