Advertising games on national brand and store brand in a dual-channel supply chain

Lei Yang,Kebing Chen,Jingna Ji

doi:10.3934/jimo.2017039

Abstract

This paper investigates a dual-channel supply chain, where one national brand manufacturer has both online and retail channels. The retailer is assumed to sell the national brand as well as his store brand to customers. The following five scenarios are considered: Centralized case, Stackelberg-manufacturer (SM) game, Stackelberg-retailer (SR) game, Nash-manufacturer (NM) game and Nash-retailer (NR) game. The paper derives the conditions under which the supply chain members would like to participate in cooperative advertising. The results show that in the Stackelberg games, the leader in Stackelberg game will reduce its investment in cooperative advertising when it gets a lower marginal profit from the cooperative advertising; In addition, the dual-channel supply chain can get a higher profit if it is dominated by the member whose marginal profit from cooperative advertising is higher. In the Nash games, in order to increase the whole supply chain's profit, the member who has a higher marginal profit in the cooperative advertising should give up the decision power on cost-sharing rate voluntarily. In addition, if there exists a leader in the supply chain, the cooperative advertising will be higher. Furthermore, the introduction of store brand will trigger the manufacturer's antipathy for the low profit.

Highlights

In order to enhance competitiveness in today’s business world, retailers start to pay attention to their own brand product distributed through exclusive channel [17]
It is presented that the dual-channel supply chain can get a higher profit if it is dominated by the member whose marginal profit from cooperative advertising is higher
Proposition 6(2) presents that when the total marginal profit of national brand in the retail channel is less than the marginal profit of store brand, the cooperative advertising expenditure will decrease with respect to γ in two Stackelberg games; otherwise, if there is fiercer competition between cooperative advertising and local advertising, the supply chain members will improve the cooperative advertising expenditure

Summary

Introduction

In order to enhance competitiveness in today’s business world, retailers start to pay attention to their own brand product (called store brand or private label) distributed through exclusive channel [17]. Retailer’s local advertising expenditure on store brand in the centralized case is lower than that in the decentralized cases It means that if the supply chain members are integrated as a whole system to make decisions, both the manufacturer and the retailer will devote attention to the promotion of national brand. Proposition 6(2) presents that when the total marginal profit of national brand in the retail channel is less than the marginal profit of store brand, the cooperative advertising expenditure will decrease with respect to γ in two Stackelberg games; otherwise, if there is fiercer competition between cooperative advertising and local advertising, the supply chain members will improve the cooperative advertising expenditure. In order to motivate the manufacturer to jointly control the cross-channel free-riding phenomenon in SR and NR cases, Profit of the supply chain ( π* )

Conclusions

Proof of Corollary 1

Findings

Proof of Proposition 5