Universal point scheme with a platform and multiple retailers

Abstract

This paper studies the universal point scheme with multiple retailers and a platform that implements the points within a channel. First, we analysed the equilibriums of the channel under the decentralised control and the mode of lateral cost-sharing among retailers. We found that retailers are willing to set the lowest point conversion ratios under the lateral cost-sharing mode compared with the decentralised and centralised control modes. The optimal conversion ratio of a retailer under the decentralised control is greater than the one under the centralised control when the cost spillover and double marginalisation are not significant. Next, we extended the model by considering the participation of new retailer. In this dynamic channel, the impact of the cost spillover phenomenon on the channel members’ preferences is discussed. Third, we showed that the wholesale price contract for point management used in the real world has a limitation in terms of profit split. Following this, we proposed a buyback contract and showed the optimal contract parameters under which the channel’s profit could be maximised and arbitrarily split. The managerial insights we obtained shed light on how to design a universal point scheme and select channel members to achieve an all-win scenario.