2,395 research outputs found

    In-Store Media and Channel Management

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    In this paper, we study the interesting and complicated effects of retailer in-store media on distribution channel relationships. With the help of advanced technology, retailers can open in-store media in their stores and allow manufacturers to advertise through the instore media. We show that opening in-store media is a strategic decision for a retailer, and a retailer may strategically subsidize manufacturers on their advertising through instore media to better coordinate the channel. Even when in-store media is more effective than commercial media (i.e., radio, TV, newspaper, etc.), a retailer may still charge an advertising rate lower than commercial media does. We also show that the benefit of instore media to a retailer can be a U-shaped curve of manufacturer bargaining power, and a retailer may introduce in-store media only when manufacturer bargaining power is either very high or very low, but not intermediate. With manufacturer competition, a retailer can strategically use in-store media to ration excessive advertising between manufacturers, achieving better channel coordination. When manufacturers are asymmetric with pre-advertising brand awareness, a retailer has incentive to subsidize manufacturers whose brand awareness is higher. We also find that retailer in-store media can benefit social welfare even when in-store media is less effective than commercial media. However, if in-store media effectiveness is very low, a retailer may introduce instore media for its own benefit with the sacrifice on social welfare.in-store media; advertising; distribution channel; channel coordination; retailing

    Coordinating Channels for Durable Goods: The Impact of Competing Secondary Markets

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    A large literature in economics and marketing studies the problem of manufacturer's designing contracts that give a retailer appropriate incentives to make decisions that are optimal from the manufacturer's point of view (see, for example, Spengler 1950, Jeuland and Shugan 1983, McGuire and Staelin 1983, Lal 1990, Rao and Srinivasan 1995, Desai 1997, among others). An important result from this literature is that the manufacturer can coordinate retail price decisions by choosing a two-part tariff in which the wholesale price equals the manufacturer's marginal cost and the fixed fee extracts all the rents from the retailer. In other words, the manufacturer sells the firm to the retailer for the fixed fee and, thus, eliminates the double-marginalization problem. Although this result is well established for non-durables, researchers have not analyzed the coordination issue for durable goods manufacturers who have the added complexity of competition from used goods in secondary markets. In this paper, we show how the coordination problem for a durable goods manufacturer is fundamentally different from the traditional coordination problem of a non-durables manufacturer. In particular, the durable goods manufacturer has to solve not only the coordination problem but also the time-consistency problem (see, for example, Coase 1972, Bulow 1982, Purohit 1995). Our objectives in this paper are to investigate whether or not the insights from the channel coordination literature, that has developed principally with non-durable goods in mind, are also applicable to durable goods. In order to do this, we develop a dynamic, two-period model in which a manufacturer sells its products to a retailer who sells the product to consumers. Products sold in the first period become used goods in the second period and compete with sales of new units. Starting from consumer utilities, we derive inverse demand functions for new and used goods and consider a number of different contracts between the manufacturer and the retailer. We start with a simple contract in which the manufacturer offers a wholesale price for a period at the beginning of that period. As one would expect, this contract does not solve either the channel coordination problem or the time-consistency problem. We then consider a number of two-part tariff contracts. Given the well-established results from the existing channel coordination literature, we begin with a contract in which the manufacturer offers per-period two-part tariffs in which all wholesale prices are set at marginal cost. We find that not only does this contract fail to achieve channel coordination, but the retailer sells a higher quantity than an integrated manufacturer would sell. This is in contrast to the traditional double marginalization problem in which the retailer sells a lower quantity than an integrated manufacturer would sell. We then allow the wholesale prices to be different from marginal costs. We show that using this more general two-part tariff contract, the manufacturer can achieve channel coordination. That is, the total channel profit is the same as the profit of an integrated seller. However, the equilibrium wholesale price in the first period is strictly above the marginal cost. Next, we consider a contract in which the manufacturer uses a single fixed fee, announced at the beginning of the first period. The per-period wholesale prices are still at the marginal cost level in this contract. This contract is identical to "selling the firm to the retailer" at the price of the fixed fee. Here we find that the contract can achieve channel coordination. However, the contract is not an equilibrium solution. In particular, the manufacturer increases wholesale prices to above marginal cost levels. Although some of the contracts above solve the double marginalization problem, none of them mitigates the time consistency problem. In order to solve both these problems, the contract must yield total channel profit equal to an integrated renter's profit. Because the renter does not have a problem with time consistency, an integrated renter earns the highest profits in a durable goods channel. We derive a contract that solves both of these problems. In this contract, at the beginning of period 1, the manufacturer writes a contract with the retailer specifying a fixed fee and two per-period wholesale prices, both of which turn out to be strictly above the marginal cost. Interestingly, with this contract, the manufacturer makes more money by selling through the retailer rather than selling directly to consumers. We contribute to the coordination literature by examining coordination issues in a dynamic, durable goods context and identifying a new coordination problemunlike the traditional coordination models, a durable goods manufacturer may have to provide the retailer incentives to sell less rather than to sell more. Clearly, the traditional "selling the firm to the retailer," approach does not solve this new problem. We also contribute to the durable goods literature by showing how a durable goods manufacturer can sell its product and solve its time consistency problem. Effectively, this allows the manufacturer to earn the same profits as it would get if it could commit to prices or if it could rent its product. When committing to individual consumers or renting can only be achieved through additional costs, our solution is the optimal strategy for a durable goods manufacturer.

    Leader-follower Game in VMI System with Limited Production Capacity Considering Wholesale and Retail Prices

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    VMI (Vendor Managed Inventory) is a widely used cooperative inventory policy in supply chains in which each enterprise has its autonomy in pricing. This paper discusses a leader-follower Stackelberg game in a VMI supply chain where the manufacturer, as a leader, produces a single product with a limited production capacity and delivers it at a wholesale price to multiple different retailers, as the followers, who then sell the product in dispersed and independent markets at retail prices. An algorithm is then developed to determine the equilibrium of the Stackelberg game. Finally, a numerical study is conducted to understand the influence of the Stackelberg equilibrium and market related parameters on the profits of the manufacturer and its retailers. Through the numerical example, our research demonstrates that: (a) the market related parameters have significant influence on the manufacturer’ and its retailers’ profits; (b) a retailer’s profit may not be necessarily lowered when it is charged with a higher inventory cost by the manufacturer; (c) the equilibrium of the Stackelberg equilibrium benefits the manufacturer.Stackelberg Game;Supply Chain;Vendor Managed Inventory

    Coordination mechanism of dual-channel supply chains considering retailer innovation inputs

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    In response to the online channels established by manufacturers, physical retailers are starting to offer innovative services, which will intensify conflicts between manufacturers and retailers. Considering that the conflict will affect the operation efficiency and sustainable development of the supply chain, the coordination mechanism of a dual-channel supply chain has been established. In this study, we construct the Stackelberg game model based on consumer utility theory to analyze the complex mechanism of retailers' innovation input level affecting supply chain operation and design the double coordination mechanism. The results show that: (1) an optimal combination of wholesale prices, retail prices and innovation input levels can optimize the operational efficiency of the supply chain, (2) Noncooperation among channel members affects the retailer's product pricing, decreases the market share of the physical channel and increases the market demand of manufacturers, (3) The dual coordination mechanism can alleviate channel conflicts, which can improve the operational efficiency of the supply chain. This study provides several insights on the theory of organizational coordination and sustainable development in conflicts of dual-channel supply chains

    Modelling Subsidy as a Cooperative Advertising Channel Coordination Mechanism

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    This work considers the use of subsidy as channel coordination strategy in vertical cooperative advertising in which the manufacturer is the Stackelberg game leader and the retailer is the follower. While the retailer is directly involved in advertising, the manufacturer is indirectly involved through the provision of subsidy to aid the retailer in advertising the product. The work models the demand function using a multiplicative advertising-price-demand function, and obtains the players’ prices, the retail advertising effort, the manufacturer’s subsidy rate and the payoffs. The work observes that with increasing subsidy, the manufacturer’s price margin increases while that of the retailer reduces and eventual becomes zero with total subsidy. However, the manufacturer should not totally subsidise retail advertising since it would be counterproductive for him, while at the same time would lead to very large retail payoff. Thus with appropriate subsidy strategy, the prices and the payoffs, and eventually the entire channel can be coordinated. Keywords: Channel coordination, Vertical cooperative advertising, Stackelberg game, Advertising price-demand function, Subsidy rate

    Manufacturer's pricing strategies in cooperative and non-cooperative advertising supply chain under retail competition

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    This article studies the manufacturer's pricing strategy in a supply chain with a single manufacturer and two competing retailers. The manufacturer, as a Stackelberg leader specifies wholesale prices to two retailers who face advertisement dependent demand. Based on this gaming structure, two mathematical models are developed - the cooperative advertising model where manufacturer shares a fraction of retailers' advertising costs and the non-cooperative advertising model where manufacturer does not share any retailer's advertising expenses. The optimal strategies of the manufacturer and retailers are determined and a numerical example is taken to illustrate the theoretical results derived. We show that cooperative advertising policy is beneficial not only for the participating entities but also for the entire supply chain

    The effects of decision timing for pricing and marketing efforts in a supply chain with competing manufacturers

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    ProducciĂłn CientĂ­ficaThis paper investigates the impact of decision timing for pricing and marketing efforts in a supply chain led by competing manufacturers. We develop and solve six games to consider the scenarios (games) where prices and marketing efforts (ME) are decided simultaneously, and when they are not (i.e., ME is set either before or after prices). We examine these three scenarios for the benchmark case of a bilateral monopolistic channel, then extend the analysis to a supply chain with competing manufacturers. We identify the optimal decision timing by comparing equilibrium profits and strategies across games in each supply chain setup. We find that a monopolistic manufacturer always prefers that prices and ME be decided simultaneously. However, this result does not hold when product competition is taken into account. The optimal decision timing for competing manufacturers depends on the retailer's and manufacturers' ME effectiveness levels as well as on competition intensity. Specifically, when ME are not very effective, a simultaneous decision scenario is preferred because it provides the advantage of higher profit margins or sales. However, for highly effective ME, manufacturers prefer to decouple ME and pricing decisions. The retailer's optimal scenario is either to make all decisions simultaneously or to choose prices prior to ME. This means that supply chain firms can face conflict due to the decision timing for prices and ME

    Is It a Strategic Move to Subsidized Consumers Instead of the Manufacturer?

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