Cooperative advertising models in O2O supply chains

Abstract

This paper examines cooperative advertising strategies in O2O supply chain made of a seller and an online platform agent. The seller sells a product to end market through both offline and online channels, the latter operated by the agent. We consider cooperative advertising strategies for this O2O supply chain and investigate three models, namely, Integration Model (I-Model), Unilateral co-op advertising model (U-Model), and Bilateral co-op advertising model (B-Model). We derive the optimal decisions of advertisement levels and participation rates between the supply chain members, and explore how they are linked to the interrelationship between the O2O channels and other system parameters. In addition, we provide comparison results among the three models and find that B-model can lead to significant benefits to the seller and the entire channel compared to U-model, especially under a high online profit share for the agent. However, the agent is undermined under B-model as he is obliged to share a portion of offline advertisement expenditure without corresponding compensations, which explains the difficulty in adopting bilateral advertising cooperation in real practice.