Enhancing the online buyer perception of consumer experience products in a dual-channel supply chain: A new role of free-riding

Abstract

Asymmetries in consumer perceptions about the quality of a consumer experience product are prevalent between online (direct) and offline (brick-and-mortar) retail channels of a manufacturer. Often, online customers underrate product quality due to a lack of firsthand (touch-and-feel) experience, while retail (offline) customers not only experience the product at the stores but also enjoy retail services. In a dual-channel supply chain, we investigate a new role of free-riding under which online customers improve their perception of product quality and explore its effect on product quality and retail service level decisions. We analytically derive equilibrium product quality, retail service level, and pricing strategies in both the centralized and decentralized supply chains. Free-riding not only improves online customers’ perception of product quality but could also induce the manufacturer to improve product quality in both centralized and decentralized models. Although free-riding can lower the level of retail services in the decentralized model, it can produce higher retail services in the centralized model when the degree of free-riding is higher. We develop an effective contract to coordinate the decentralized supply chain, which allows the manufacturer and retailer to share not only the profits from both channels but also the costs of product quality and retail services. Additionally, we extend the study to incorporate demand disruptions into the model and examine their impact.