How to Distribute Green Products in Competition with Brown Products? Direct Selling versus Agent Selling?

Abstract

In order to respond to and take advantage of consumers’ growing interest in green products, an increasing number of firms are expanding their market share by introducing green versions of their brown products. However, firms are faced with the challenge of how to distribute green products to avoid mutual encroachment with brown products. To solve this problem, this paper constructs a Stackelberg game model consisting of a manufacturer (leader) and a retailer (follower), in which the manufacturer provides brown and green products, and then develops two channel structures for green products to be sold through the manufacturer (direct selling) and the retailer (agent selling). The results show that the manufacturer’s choice of green product distribution channels is affected by the direct selling costs and the market share of green consumers and their product preferences. When the direct selling cost is zero or consumers are green, the manufacturer always chooses direct selling. However, with an increase in the direct selling costs, if green consumers have a large difference in their preference for green and brown products, the manufacturer chooses agent selling, and vice versa. In particular, the impact of the market share of green consumers on the profits of the manufacturer is different in the two channel structures. The higher the market share of green consumers under agent selling, the more beneficial it is for the manufacturer. However, under direct selling, the profits of the manufacturer show an “inverted U” trend with the increase in the market share of green consumers. In addition, under certain conditions, the direct selling channels opened by the manufacturer are not necessarily to sell green products, but to maximize the market share of brown products. The strategy is to set high prices for green products in direct selling channels to stimulate consumers to buy brown products. These findings can provide insights for manufacturers to design appropriate green product distribution strategies.