Supply chain channel strategies with quality and marketing effort-dependent demand

Abstract

We investigate the equilibrium behaviors of a two-stage supply chain (SC) under three supply chain structures: (i) manufacturer Stackelberg (MS), (ii) retailer Stackelberg (RS) and (iii) vertical Nash (VN). Given quality and marketing effort-dependent demand, we develop models to optimize the retailer's and the manufacturer's effort levels and profits using different channel strategies. We find that the retailer's profit and marketing effort level are most sensitive to the marketing cost coefficient in the MS model. The manufacturer's profit and quality-improvement effort level are most sensitive to the quality cost coefficient in the RS model. Numerical examples are provided to illustrate the efficiency and effectiveness of the proposed models. Finally, we find that if the retailer does not exert marketing effort, the manufacturer will commit much less quality-improvement effort. Similarly, if the manufacturer does not make any commitment to quality-improvement effort, then the retailer will exert less marketing effort. In general, investing in marketing efforts is most profitable to the retailer under RS, while investing in quality efforts is most profitable to the manufacturer under MS.