A revised sales rebate contract with effort‐dependent demand: a channel coordination approach

Abstract

AbstractIn this paper, simultaneous coordination of order quantity and sales effort (SE) decisions in a supplier/retailer system with stochastic effort‐dependent demand is investigated. The main aim of the proposed model is to attain an optimal balance that results in a Pareto‐efficient solution for both channel members. A revised sales rebate (RSR) contract is developed to achieve channel coordination. In addition to the usual incentive approach of sales rebate schemes, a punitive approach is designed for the new proposed contract as a stockout penalty. Furthermore, some numerical experiments are examined to analyze the performance of the presented model under three decision‐making scenarios (i.e., decentralized, centralized, and RSR). Additionally, some in‐depth sensitivity analyses are conducted to examine the behavior of the supply chain performance under alteration of different parameters. The results show that the proposed RSR contract leads to channel coordination, while both channel members experience a Pareto improving situation. Moreover, it is proved that the RSR contract has significant potential on neutralizing adverse impacts of demand fluctuations on channel performance indicators.