To Have Your Cake and Eat It? A Two-Period Model for Retailers’ Mixed Bundling or Reserved Product Pricing Strategies in Response to Supplier Encroachment

Junwu Chai,Hong Chen,Enock Mintah Ampaw,Zhifeng Qian

doi:10.1109/access.2019.2923811

Abstract

In practice, many brand products retailers have adopted mixed bundling (MB) and reserved product pricing (RPP) in response to external competition, such as supplier's encroachment. There is scanty literature which addresses such flexibility among retailers and its impact on a dual-channel supply chain. To fill this void, we considered a two-period dual-channel model in which one of the two manufacturers sells a product through a direct channel; and through an independent retailer who can bundle two manufacturers' products together (Model M) and reduce their reservation prices (Model R). Our central result demonstrates that, although both MB and RPP strategies can indeed improve retailer's profitability, MB strategy creates strategic issues that are significantly different from that of RPP strategy. More specifically, relative to MB strategy, the retailer's RPP strategy is always detrimental to the manufacturer. Finally, to avoid the retailer's strategic choice for RPP, we designed a revenue sharing contract which can achieve perfect coordination of the supply chain ecosystem.

Highlights

The development of the Internet and third-party logistics platforms enable manufacturers to compete with retailers for the loyalty of consumers by selling products directly for many years
We develop a dualchannel supply chain model where one of the two suppliers encroaches into the retail market by operating a manufactured-owned channel, but the retailer is flexible to choose two differentiated response strategies (MB and/or reserved product pricing (RPP), for such supplier encroachment)
In subsections 4.2 and 4.3, our analysis revealed that, the retailer’s response strategy of mixed bundling (MB) creates better economic performance for both parties relative to Model R, this strategy is not supported by the retailer

Summary

INTRODUCTION

The development of the Internet and third-party logistics platforms enable manufacturers to compete with retailers for the loyalty of consumers by selling products directly for many years. We try to highlight the issue of how retailer’s MB and RPP strategies in the traditional retail channels affect the supply chain economic performance of the supplier’s encroachment. We develop a dualchannel supply chain model where one of the two suppliers encroaches into the retail market by operating a manufactured-owned channel, but the retailer is flexible to choose two differentiated response strategies (MB and/or RPP, for such supplier encroachment) Using these models, we sought to address the issues that a manufacturer has to focus on all the supply chain economic performance as his retailer’s strategic response to supplier encroachment as follows: how do retailers’ different response strategies to supplier encroachment affect all parties’ profitability?

RELATED WORK

A REVENUE SHARING CONTRACT

NUMERICAL ANALYSIS

CONCLUSION AND MANAGERIAL IMPLICATIONS

TECHNICAL ANALYSIS FOR BOTH MODELS

PROOFS