Distributing the fashion product in direct or retail channel: The impact of fashion level and direct selling cost

Abstract

AbstractWe investigate a dual‐channel supply chain with a retailer and a manufacturer who manufactures the fashion product and the common product. The manufacturer can distribute the fashion product directly to consumers or through the retailer. By formulating a game theory model, we find that the fashion product is distributed through a direct channel if the direct selling cost is small. However, if the direct selling cost is quite small, there is no fashion product being distributed through a retail channel even though the manufacturer intends to distribute the fashion product through the retail channel. Our results further reveal that both firms benefit from distributing the fashion product of a low fashion level through a direct channel if the direct selling cost is small, and the manufacturer always hurts from it if the direct selling cost is medium. By comparing the firms' profits from distributing the fashion product through direct and retail channels, we demonstrate that the manufacturer prefers to distribute the fashion product directly to the consumers and the retailer prefers to carry the common product in most conditions. However, if the direct selling cost is quite small and the fashion level of the fashion product is quite high, or the direct selling cost is quite large and the fashion level of the fashion product is quite low, the manufacturer prefers to distribute the fashion product through the retailer and the retailer prefers to carry the fashion product.