Manufacturer’s optimal distribution strategy in the platform supply chain: Bundling or add-on?

Abstract

AbstractThis study delves into the realm of distribution strategies employed in retail markets, particularly focusing on the widely utilized bundle-and-add-on strategy. Three distinct distribution strategies are examined: bundled-by-the-base-manufacturer (BBBM), bundled-by-the-platform, and the add-on approach within a platform supply chain context. Through comprehensive analysis, this paper investigates the optimal distribution strategy for manufacturers. Significantly, our research reveals that in cases where only bundling is feasible, base manufacturers can reap benefits from a self-bundling strategy when both the platform’s commission rate and the marginal cost of the bundled product are low. Additionally, the platform stands to gain from this approach when the commission rate is low, and the marginal cost of the bundled product is either moderate or very high. Notably, win–win scenarios can emerge for both manufacturers and platforms through specific bundling or platform bundling strategies under specific conditions. Furthermore, the study demonstrates that the price of bundles under the add-on strategy will be lower, attracting more consumers, especially when the commission rate is low. Intriguingly, when the marginal cost of the base product is low, the add-on strategy consistently emerges as the optimal choice; as costs escalate, BBBM might be optimal, especially when the commission rate is low, showcasing a nuanced understanding of the interplay between costs and strategic choices in distribution. The major contribution of this paper lies in its nuanced analysis of these strategies and their implications for both manufacturers and platforms in the retail landscape.