Dual-channel supply chain coordination with online reviews

Abstract

The strategic interactions of consumers and supply chain (SC) players are significantly influenced by online reviews. This study develops centralized and decentralized dual-channel SC game models with one manufacturer and one retailer, and explores the impacts of online reviews on the manufacturer’s channel strategies and SC coordination. The following conclusions were drawn: First, when online reviews are sufficiently favorable, the manufacturer chooses a dual-channel strategy under a centralized model. In the decentralized model, the manufacturer’s optimal channel strategy depends on the joint effects of online reviews and customers’ channel preference. As more consumers prefer the direct channel with online reviews, the dominance interval of the dual channel strategy widens. A higher review accuracy, on the other hand, may not be enough to incentivize a manufacturer to choose the dual channel strategy. Second, the dual channel mode can effectively improve SC efficiency only when online reviews are sufficiently favorable to the manufacturer and consumers’ acceptance of the direct channel is low. Third, we propose a revenue-sharing contract with a fixed transfer payment that can fully coordinate a dual-channel SC in the presence of online reviews. Our findings not only complement the dual-channel SC literature but also provide insights into how manufacturers can use online reviews to drive marketing strategies and design dual-channel SC coordinating contracts.