Supplier selection with information disclosure in the presence of uninformed consumers

Abstract

This paper investigates the impact of consumer's uncertainty as to quality preference on the retailer's supplier selection decision, and on supply chain pricing decisions. When the retailer adopts a single-supplier structure, both informed (knowing quality preference) and uninformed (not knowing quality preference) consumers are in the market, and the retailer has two different market-targeting strategies. An uninformed consumer can be informed by the presentation of two quality-differentiated products supplied by two suppliers, when the retailer selects dual-supplier structure and sells both products. We show that the dual-supplier structure is not always a dominant strategy when there exists a portion of uninformed consumers in the market. The retailer will choose the dual-supplier structure if the proportion of informed consumers is either low or very high, while it will choose a single high-quality supplier to target both consumer groups if the proportion of informed consumers is moderately high. Moreover, the retailer is more likely to adopt the low-price strategy targeting both informed and uninformed consumers when the proportion of the informed consumer in the market is lower; otherwise, it adopts a high-price strategy targeting informed consumers only. The impacts of the consumer's quality preference uncertainty on the retailer's supplier selection and on suppliers under the retailer's optimal supplier selection strategy are also examined. We also include numerical studies to illustrate main results.