Channel and pricing decisions in a supply chain with advance selling of gift cards

Abstract

Abstract Many service providers, such as restaurants, are selling their gift cards through independent retailers. We analyze a supply chain of a service provider who sells products and gift cards at face value at its locations. The service provider also sells its gift cards through a retailer. Consumers may buy gift cards from the service provider or the retailer for their own use and/or to use as gifts. Consumers may be customers of both the service provider and retailer (Dual), only the service provide (SP-only), or only the retailer (retailer-only). We find that under a large enough gift cards’ redemption rate and no gift-givers, it is sub-optimal for a service provider to sell gift cards through a retailer. When there are some Retailer-only gift-givers, it is optimal for the service provider to sell gift cards through a retailer. We identify threshold redemption rates at which it is optimal for a service provider to sell gift cards through an independent retailer to different consumer segments. We also find that the SP may not always prefer a low redemption rate and for some service providers with large additional spending rates above redeemed gift cards’ value, profit may increase with the redemption rate. Also, centralization in the SP–retailer supply chain in this paper may lead to only a small increase in profits. Numerical analysis indicate that the redemption rate needed to make it optimal for the service provider to sell gift cards to all consumers through a retailer is unlikely to occur in practice.