The influences of channel subsidy on consumers in a dual-channel supply chain

Abstract

This paper examines the influence of subsidies provided by traditional (e.g., a bricks-and-mortar retail mall) and electronic (e.g., Alibaba and Amazon) retail platforms to consumers. We look at the competition between traditional retailers, who sell in a shopping mall, and e-tailers, who sell on the electronic platform. Our focus is on analyzing and demonstrating how these channel subsidies influence (1) pricing behaviors for the e-tailer and the traditional retailer and (2) consumers utilities and channel choices. The main findings are as follows. Whether from the perspective of consumers utilities or from the perspective of consumer channel choice, consumers with different WTP are influenced differently by channel subsidies. While both types of subsidy help the two channels attract some low willingness to pay consumers, the electronic channel subsidy can help the electronic channel attract consumers who are willing to pay more from the traditional channel. The results can help retailers and channel subsidy providers to understand how channel subsidies work, and the differences in the WTP of consumers who purchase products before and after subsidies. This understanding informs retailers’ segmentation, targeting and pricing decisions and helps subsidy providers to make channel subsidy-related decisions.