Valuable strategy and firm performance in the O2O competition

Abstract

When the manufacturer opens an online channel to compete with its traditional retailer, what valuable strategy can be utilized to alleviate the O2O (online to offline) competition and conflict and improve the performances of all channel members? Our research addresses this important question by initiating an innovative strategy considering the retailer's sales effort and the manufacturer's support in local advertising simultaneously in a manufacturer – retailer O2O supply chain. Our results show that although the retailer's sales effort helps improve the channel coordination and leads to a win-win solution for both the manufacturer and the retailer, investing in both the retailer's sales effort and manufacturer's support in local advertising is a more effective strategy to be employed to coordinate the O2O distribution and achieve higher profits for all parties in the manufacturer - retailer supply chain. In addition, our results also show that compared to the simultaneous mode, the Stackelberg leader-follower mode provides no competitive advantage to the manufacturer or the retailer when the retailer's sales effort and manufacturer's support in local advertising strategy is implemented to coordinate the O2O distributions.