The impact of firms’ social ties with customers on dual-channel supply chains

Abstract

Purpose More and more firms are utilizing social media as a distribution channel to sell products. By establishing business accounts on social media firms provide information service to strengthen their relationship with customers and boost sales. The purpose of this paper is to investigate the pricing, information service provision and channel strategies of firms who sell products through social media. Design/methodology/approach The authors use a game theoretical model to study a dual-channel supply chain consisting of one manufacturer and one retailer. Two scenarios are considered – under one scenario the manufacturer and under the other the retailer, respectively, solely provides information service. Both firms’ pricing decisions and profits are compared. Findings The authors find that in the dual-channel model with either the manufacturer or the retailer providing information service to enhance the demand: a firm that has stronger social ties with customers is willing to provide more information services; when the manufacturer provides information service, it charges a direct price higher than the wholesale price, and whether the direct-channel price exceeds the retail price depends on the strength of the manufacturer’s social ties with customers; when the retailer provides information service, the direct price is equal to the wholesale price, both lower than the retail price; and a firm always prefers itself rather than the other firm to provide information service. However, the whole supply chain is better off if the manufacturer rather than the retailer provides information service. Research limitations/implications Besides the relationship between firms and customers, the peer relationship among customers also impacts the supply chain performance, which might be studied in the future. Originality/value The study is novel in theoretically exploring the influence of firms’ social relationship with customers on firms’ pricing and channel strategies.