Pricing and market segmentation coordination in a push–pull supply chain with sequentially observed demand

Abstract

This paper investigates the problem of supply chain coordination where the market is segmented by price differentiation and the demand is sequentially observed. The manufacturer sells a single product to the retailer who offers the product at differentiated prices in primary (full priced) and secondary (discounted) market segments based on customers’ willingness-to-pay (WTP). We explore two scenarios. In the first scenario, referred to as priority scenario, the demand in the primary market segment is observed prior to the secondary market segment. The retailer assigns a higher priority to this market segment and the leftover inventory is sold in the secondary market segment. In the second scenario, referred to as the reservation scenario, the demand in the discounted market segment is observed prior to the demand of the primary market segment. Therefore, the retailer enforces reservation limit to protect the stock for primary market customers with a higher WTP who arrive later. We explore the situation when the demand in primary and secondary market is simultaneously observed and also when the demand information is only partially known. The three coordination schemes, namely, decentralized channel, integrated channel, and revenue -sharing contract via bargaining solution are analyzed and coordination models are developed.