Clicks and Bricks: Optimal Marketing Channels for a Durable Goods Firm

Abstract

By analyzing a two-period dual-channel supply chain composed of a manufacturer who sells a durable directly and an independent reseller channel, we investigate how product durability and the channel structure create strategic issues that are significantly different from those in managing a dual-channel for nondurables. As an extension of Arya et al.'s model [Arya, A., et al., 2007. The bright side of supplier encroachment. Marketing Science 26 (5): 651-659], our game-theoretic model captures several characteristics salient in many of today's durable goods markets. The equilibrium solutions indicate that, when the product is durable, both parties' profitability strongly depends on the product durability and direct selling cost. In particular, we find that, contrary to Arya et al.'s results, the manufacturer might become worse off after adding an e-channel. We also find that, if product durability is moderate, for any direct selling cost, manufacturer encroachment is always detrimental to the reseller, and its bright side disappears.