Multi-manufacturer pricing and quality management strategies in the presence of brand differentiation and return policy

Abstract

In this paper, we consider a supply chain in which multiple manufacturers sell a single product through a common retail channel. The demand at the retailer’s end depends on the retail price and quality of the product. Each manufacturer customizes his/her product to differentiate it from the other manufacturers’ products. Manufacturers compete with each other over price and quality in the presence of brand differentiation. In this set up, we consider two scenarios: (i) when customers do not have the facility of return and refund, and (ii) when customers do have the facility of return and get full refund. We analyze the pricing and quality management strategies of the manufacturers and the retailer in each scenario for centralized and decentralized systems. Through our study we find that brand differentiation increases retail price and quality of the product. We also see that, to make full refund policy more profitable than no return, reservation price has to be set higher. Using revenue sharing mechanism, we coordinate the decentralized system and make it a win-win situation for each party involved. Finally, through a numerical example, we analyze the effect of various parameter-values on the decision making strategies of our model.