Optimal generic and brand advertising efforts in a decentralized supply chain considering customer surplus

Abstract

While the previous researches of advertising efforts decisions focus on only the firms' profit target, no literature introduces corporation social responsibility target into advertising efforts decisions of a supply chain (SC). To fill this gap, we consider a two-stage SC with a manufacturer and a retailer where the SC members consider the customer surplus. Both the retailer and the manufacturer can invest in generic advertising efforts to influence and increase the products' sales volumes. This paper investigates the following four scenarios: (1) The retailer cares the customer surplus (Model I); (2) The manufacturer cares the customer surplus (Model II); (3) Both the retailer and the manufacturer care the customer surplus (Model III); (4) We then extend the model III to the case that the manufacturer invests in both the generic and brand advertising efforts (Model IV). The objective of this paper is to determine the optimal retail price, the optimal advertising efforts, and the optimal profits of SC members, and find the influence of customer concern level on the SC performance. Finally, numerical examples are conducted to investigate the influence of the customer concern levels of the retailer or the manufacturer on the profits of the SC members and the entire SC. We also study the joint impacts of the customer concern levels of the retailer and the manufacturer on the SC performance. We find that the SC obtains the highest profits when the retailer's customer concern level and the manufacturer's customer concern level are relatively high, and the best cooperative strategy for the retailer and the manufacturer is that they improve customer concern level simultaneously.