Employing revenue sharing strategies when confronted with uncertain and promotion-sensitive demand

Abstract

Revenue sharing (RS) refers to the distribution of income among stakeholders (e.g., manufacturers and retailers) in a business-to-business environment. This method is a widely employed marketing strategy in the video rental, telecoms, computer, sports, and music industries, among others. Promotional activities are also a popular method of stimulating sales. This study considers a decentralized supply chain, in which a manufacturer sells products to a retailer under conditions of uncertain and promotion-sensitive demand, using either a manufacturer or retailer promotion. The study aims to determine how RS affects the decision making and profits of both manufacturers and retailers. It seeks to uncover whether RS benefits channel members in the cases of manufacturer and retailer promotions. The results show that when the manufacturer promotes products to end customers, RS is an effective incentive for increasing the profits of manufacturers and retailers. However, retailers may be unwilling to share revenue when they undertake their own promotional activities based on different demand function settings. The findings add novel insights to the literature of management, which can be used by business decision makers.