Optimal distribution channel strategy for new and remanufactured products

Abstract

The market for remanufactured products is large and growing rapidly, accelerated by the widespread popularity of internet sales and online auctions. Whereas extant remanufacturing research focuses primarily on such operations management issues in collecting of end-of-life products, remanufacturing technologies, production planning, and inventory control, we consider an operations-marketing interaction issue by identifying the optimal channel structures for marketing new and remanufactured products. Specifically, based on observations from current practice, we consider three channel strategies a dominant manufacturer can adopt: (1) marketing both new and remanufactured products through an independent retailer; (2) marketing the remanufactured products through the independent retailer, while controlling the new product sales by using its own online channel; (3) marketing the remanufactured products through the manufacturer-owned online channel, while selling new products through the independent retailer. Our results show that the manufacturer prefers to differentiate new and remanufactured products by opening a direct online channel, no matter how the system parameters change. However, which type of products (new or remanufactured) the manufacturer should sell through the online channel depends on the cost saving from remanufacturing, the customer's acceptance of remanufactured products and the online inconvenience cost. Furthermore, this paper shows that, compared with channel strategy I where the manufacturer sells both new and remanufactured products through an independent retailer, this dual channel strategy benefits the end consumers, but might do harm to the retailer and the total supply chain in some situations.