Abstract
Rebate has long been a crucial tool that has attracted researchers from a diverse range of fields including marketing and supply chain management. When a manufacturer uses a retailer for reaching end customers, the rebate strategy undertakes an additional dimension. Here we show whether the two rebate strategies, manufacturer rebate and channel rebate, can be the optimal choice for the manufacturer and the retailer. And we aim at full coordination with rebate. Game theory is exploited to identify the equilibrium rebate decisions, which are fully characterized with two rebate strategies considering rebate sensitivity. Furthermore, we demonstrate how the decisions depend on parameters, such as market size, rebate redemption rate, and competition intensity in monopoly and duopoly supply chain systems. Our work also coordinates the supply chain with two coordination policies and examines if they can achieve full coordination. Counterintuitive findings suggest that the channel rebate with sensitivity and discrimination is not effective and the manufacturer rebate is the unique optimal option. Besides, the coordination can be realized with a centralized rebate in monopoly setting when the manufacturer forgoes her own interest. Then full coordination can be achieved in duopoly setting with a new coordination policy, rebate combination, given the redemption rate for the channel rebate is lower compared with the manufacturer rebate. Managerial insights are suggested that offering rebates with discrimination can have significant inventory and coordination policy implications and can lead to a double win under a well-controlled redemption rate.
Highlights
Rebate, admittedly, is a modern and salient type of sale promotion in the marketing mix toward consumers’ daily lives
We focus on the two most popular rebate strategies, manufacturer rebate and channel rebate. e former is the payment from the manufacturer to the end customers upon the purchase of the manufacturer’s product. e manufacturer can take full advantage of the “slippage effect” to implement rebate discrimination with less than 100% redemption rate. e latter is a rebate the manufacturer passes to the retailer on the basis of the quantity ordered
Our analysis demonstrates collusion may occur among supply chain members with the manufacturer rebate in the two systems, and it is the unique optimal choice without coordination. e manufacturer rebate can create a win-win situation where the retailer can obtain a free ride to gain the most profit, whereas in the channel rebate with customers’ sensitivity and discrimination, the profit of the overall supply chain is no better than that of the norebate strategy
Summary
Rebate is a modern and salient type of sale promotion in the marketing mix toward consumers’ daily lives. According to an industrial survey, about 50% of supply chain members utilize rebates as part of their customer loyalty and promotional mix [1]. Firms regard rebate as a useful tool or strategy [3,4,5,6,7]. Rebates will not lower the customers’ future price expectations, especially in consumer electronics, automotive, and food product industries for a few purposes. Rebates are commonly applied to increase sales, expand demands, decrease inventories, and coordinate supply chains [8, 9]
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