Inventory competition and quality improvement decisions in dual-channel supply chains with data-driven marketing

Abstract

The digital dual-channel supply chain (DSC) is getting more and more difficult to ignore. This study develops a data-driven DSC, including an online manufacturer and an offline retailer with stochastic demand. Then it discusses the effects of the selling price, wholesale price, stock-out-based substitution rate, Data-Driven Marketing (DDM), and two channels’ sensitivity of product quality on the optimal decisions (quality improvement effort, online inventory level, and offline order quantity), and the optimal expected profits. It also analyzes the coordination of the manufacturer’s buyback contract. This work is mainly concluded as follows: (1) Increases in DDM quality can increase inventory levels in both channels and efforts to enhance quality, but they can also lower customer return rates, which makes sense. However, it is not always true that DDM quality positively affects the total supply chain expected profit. (2) The decline of one channel’s stock-out-based substitution rate can raise its inventory level but decrease the inventory level of the competitive channel. Contrarily, the selling price of one channel is adversely connected with the inventory level of the competitive channel, which extends some existing studies under a decentralized decision. (3) The increase of sensitivity of product quality can lead to the growth of quality improvement efforts (consistent with previous literature) and the reduction of consumer return rate. (4) The manufacturer’s buyback contract can well coordinate both members under stochastic demand for Pareto-optimality. Finally, this study proposes some managerial implications and further research directions.