Manufacturer Strategy on Service Provision in Competitive Channels

Abstract

A manufacturer commonly distributes through a set of retailers who are authorized to sell its product; demand‐enhancing services may also be provided by the manufacturer. These services may be granted to all authorized retailers ( uniform service provision) or to a favored few authorized retailers ( differential service provision). To determine when a manufacturer does—or does not—bestow equal service levels, we develop a model of one manufacturer selling through two competing retailers. We find manufacturer optimality to entail uniform service at some parametric values, while differential service is optimal at other values. Counterintuitively, with differential service, the recipient of lower service may be better off than it would be with higher service. Equally surprisingly, there are conditions for which the high‐service retailer prefers its rival to also receive a high level of service—but only if its rival is sufficiently small. While the three channel members often have different service‐provision preferences, there are also parametric values that place them in harmony with either differential or uniform service provision. Retailers sharing the cost of manufacturer‐provided service need not lessen firms’ preference confliction over the preferred service provision but can improve channel efficiency when the cost‐sharing rate is relatively low. We also investigate the effect of retailer‐provided services and the impact of service asymmetry level.