Selling Channel Research Articles

Retail channel management decisions under collusion

In unprofitable business circumstances, collusion may work to save investment and operations costs, which could fight off fierce business competition. However, collusive behavior may incur adverse impacts on consumers and multi-channel decisions in a supply chain. A common approach to deterring collusive behavior involves setting financial penalties. However, severe punishment could limit economic activities. To align with regulations and boost market vitality, in this paper, we investigate how the manufacturer chooses a competitive selling channel in a complex environment, and how it can design a compensation plan that can effectively mitigate such unethical behavior and coordinate the whole supply chain (channel). We find that collusion is an ‘unstable equilibrium’ and only works when both retailers are comparable. That is, when the retail market is extremely dominated by a stronger retailer, the profit of a smaller retailer would be gobbled up by the stronger one. Retailers’ collusion against the manufacturer seems like an advantageous strategy to maximize their profits, but we find that the retailers’ profits may be reduced because of collusion unless they are facing a greater market base. We then show that the profit margins of the manufacturer and the whole supply chain are squeezed; thus, introducing the online platform is one essential way for the manufacturer to address such collusion. We further propose a compensation and incentive contract with effective penalties through differentiating wholesale prices for retailers, which benefits the whole supply chain in terms of high profits. The key findings can provide useful decision support and operational guidelines for manufacturers with respect to making strategic retail channel management decisions.

Revenue management in a multi-level multi-channel supply chain considering pricing, greening, and advertising decisions

This paper explores coordinated decisions regarding a multi-level multi-channel supply chain considering the price of sale channels, the advertisement level, and the green policy of the products. The main objective is to maximize the total profit of the Supply Chain (SC) by considering the profitability of entities. In this regard, two kinds of selling channels (i.e. online and in-person) are extended to enable all the entities to sell the product through their own channels. Demands in both types of channels depend on price, greenness, and advertisement. In the studied SC, the manufacturer not only produces the products and sells them to the distributor and the customer but it also decides on the greening and advertising levels. As a contribution, the demand functions simultaneously consider environmental and financial issues. Besides, since each member has its own selling channel, it should determine the price based on three criteria: advertising costs, greening costs, and other members' pricing decisions. For this purpose, three models including Centralized Supply Chain (CSC), Decentralized Supply Chain (DCSC), and Modified Centralized Supply Chain (MCSC) are developed and then solved to cope with various real-world situations. Based on the findings, although the SC gains the most profitability under the CSC model, the manufacturer faces a considerable loss. To overcome this issue, the MCSC model ensures the manufacturer's profit while keeping the price, greenness, and advertisement competitive. Also, the profitability of the MCSC model is more than that of under the DCSC model. The proposed models' performance for different situations is corroborated using several examples and various analyses, along with a real case study. The results acknowledge the applicability of the models and give practical insights for experts.

Cross-market selling channel strategies in an international luxury brand's supply chain with gray markets

When a luxury brand manufacturer sells its product in two separate markets with price discrimination, it may face gray marketers, who purchase the product in the lower-price market and resell it in the higher-price market. To mitigate the effects of the gray market, a luxury brand manufacturer may strategically select its sales channels to sell the product in both markets simultaneously, in both markets sequentially, or exclusively in the high price market. We derive the equilibria for each strategy, and demonstrate that selling strategy can mitigate the negative the impact of gray market. The results further show that gray market is active only if the customer’s valuation discount for gray products is moderate and the gap between the customer’s perceived status valuation of the two markets is relatively large. As compared to the case without the gray market, we find an interesting and counter-intuitive result, that gray market activity can mitigate the double marginalization effect and lead to a Pareto improvement for both the manufacturer and its retailer. Our research enriches the literature on gray markets by offering new insights and implications, and our results provide international luxury brand manufacturers with guidelines for efficiently managing cross-market sales channels.

Retailer Voluntary Investment Against a Threat of Manufacturer Encroachment

To elucidate supply chain cooperation between a manufacturer and a retailer, this study examines a model in which the retailer makes voluntary investments to reduce the marginal production cost of the manufacturer. The manufacturer is allowed to introduce a direct selling channel in addition to the indirect channel through the retailer (i.e., manufacturer encroachment), which however dampens the retailer's investment incentives. The retailer can leverage its voluntary investments as a means of deterring manufacturer encroachment. We demonstrate that manufacturer encroachment is strategically deterred when the retailer's cost-reduction technology is sufficiently effective. This strategic encroachment deterrence encourages the retailer to invest more, but it narrows the variety of channels from which consumers can select. When the latter effect dominates the former effect, consumer surplus declines with strategic encroachment deterrence.

Live streaming commerce from the sellers’ perspective: implications for online relationship marketing

ABSTRACTLive streaming has recently become a popular direct selling channel which offers small, self-employed sellers unseen levels of consumer interaction and engagement. While the extant research focused on consumer motivation and intention to shop via live streaming, little is known from the seller’s perspective. Indeed, the potential advantages of live streaming commerce are accessible to everyone, but sellers experience different levels of success with this medium. Using a mixed quantitative and qualitative approach, this study analyses Facebook data of live streaming sellers to assess the nature and extent of engagement metrics, and delineate the dynamic, interactive live streaming sales process. We identify four sales approaches and twelve strategies adopted in acquiring and retaining customers. This typology of sales approach representing seller-focused antecedents is mapped against the relationship process and outcomes to provide a framework for understanding relationship mechanisms in live streaming commerce.

Game theoretical approach to price a product under two-echelon supply chain containing e-tail selling channel

In this study, pricing decisions are investigated on a dual-channel supply chain including one manufacturer and multiple retailers. The manufacturer sells a product through the internet and through the retail channel, simultaneously. It is assumed that the market is controlled by the manufacturer. Thus, the manufacturer becomes leader and the retailers perform as followers. In this setting, the Bertrand and collusion game-theoretic models are developed to analyse the pricing strategies among the retailers. Then, the equilibrium decisions are compared and some managerial insights are presented. It is found that the manufacturer's profit and the profit of the whole system given by the Bertrand game are higher than by the collusion, while this inference is reversed for the retailers' profits. Moreover, larger the number of the retailers in the retail channel leads to lower retailers' profits, whereas the manufacturer's profit and the profit of the whole system increase.

Game theoretical approach to price a product under two-echelon supply chain containing e-tail selling channel

Game theoretical approach to price a product under two-echelon supply chain containing e-tail selling channel

Inroad into omni-channel retailing: Physical showroom deployment of an online retailer

The advent of mobile E-commerce and omni-channel consumers has powered the pure-play online retailer's expansion towards omni-channel operations. In conjunction with the online selling channel, our research explores the retailer's deployment of physical showrooms which mitigates consumer fit uncertainty. Beyond asking whether the deployment of physical showrooms can improve the retailer's profit and which assortment strategy is more profitable for the retailer, our analysis also addresses the questions of how the showroom deployment strategy impacts the product prices and the information service provision. The main findings are threefold. First, the effect of physical showroom deployment on retailer's performance is determined by the showroom feasibility. A high level of showroom feasibility (i.e., relatively low setup cost and high proportion of local consumers) is more likely to increase the profit of the retailer who establishes physical showrooms, and vice versa. Second, the profitability of different assortment strategies is closely related to consumers’ showrooming behaviors (i.e., intra-product showrooming and inter-product showrooming). Whether or not the partial assortment strategy is more profitable than the full assortment strategy is determined by the intensity of consumer inter-product showrooming (or the weight of consumers’ valuation on the common attribute of different products). Third, our findings reveal that the expected return cost of pure-online shopping is critical to the retailer's omni-channel pricing and information service decisions. Our research provides implications for online retailers on how to benefit from offline information delivery and consumer showrooming behavior.

Capacity Allocation and Compensation in a Dual-Channel Supply Chain under Uncertain Environment

The dual-channel supply chain is widely adopted by main manufacturers, potentially incurring channel conflicts between the traditional retail channel which is owned by the independent retailer and the online channel which is directly managed by the manufacturer. The purpose of this paper is to deal with the scenario where channel conflicts may arise under production capacity uncertainty, when the manufacturer tends to privilege the direct selling channel over the retail selling channel. To achieve the goal, this paper establishes a Stackelberg game model consisting of a manufacturer and a retailer, studies the scenario where the manufacturer satisfies the direct selling channel first in the presence of capacity uncertainty, employs the decision optimization and the backward induction method to find the optimal inventory decision in the direct selling channel and the optimal order quantity decision making in the retail selling channel, and designs a compensation mechanism aiming to coordinate the channel conflict in the decentralized decision-making process. Results show that the optimal decisions aiming to maximize the expected profit of each supply chain member are not able to maximize the expected profit of entire dual-channel supply chain. However, when the manufacturer compensates the retailer’s profit loss based on the unsatisfied order and, in the meantime, adjusts the wholesale price to prevent the retailer which obtains the compensation from increasing order significantly, the compensation mechanism can coordinate the decision of each supply chain member, mitigate the channel conflict, maximize the expected profit of entire dual-channel supply chain, and achieve the Pareto improvement of supply chain members’ expected profit in the decentralized decision-making process.

Strategic Inventory and Supplier Encroachment

Problem definition: In a two-period model of a dyadic supply chain, we study the interaction between the use of strategic inventory withholding by the buyer and the use of a direct selling channel (encroachment) by the supplier in the second period. Academic/practical relevance: While the extant OM literature has individually examined the two strategies, the system-wide combined effect of these strategies has not been studied. Methodology: We fill the gap by building and analyzing two decentralized models of vertical competition. The main model focuses on sequential quantity decisions where the buyer decides on its order quantity and sets its selling quantity, with a first-mover advantage, before the supplier decides on its direct selling quantity. In an extension, we also consider an alternative timing structure of simultaneous quantity competition. Results: For the sequential model, we find that for any finite holding cost, the buyer may withhold strategic inventory in certain cases. This makes the supplier less aggressive in using its direct selling strategy compared to the case when strategic inventory is not an option. Moreover, there exist situations where both the supplier and the buyer make higher profits from the combined use of their respective strategies at the same time. For the simultaneous model, the buyer can achieve higher profit than in the sequential model in certain scenarios. However, the supplier’s profit may drop below the benchmark case (when neither strategic inventory nor direct selling is present), which is not seen in the sequential model. As such, the buyer can benefit from losing its first-mover advantage, whereas the supplier may be worse off. Managerial implications: Our study provides useful managerial insights into the strategic (joint) moves of the players in a supply chain. We show that both the supplier and the buyer can benefit from vertical competition. Moreover, the first-mover advantage may not always increase profits for the players.

Manufacturer encroachment with production cost reduction under asymmetric information

This paper considers manufacturer encroachment with the cost reduction decision under either asymmetric or symmetric demand information. By solving a signaling game, we find that encroachment motivates the manufacturer to invest more in cost reduction if and only if the direct selling channel is relatively efficient. Furthermore, both members benefit from the cost reduction action without encroachment, while encroachment allows the manufacturer to monopolize all of the benefit. In addition, encroachment benefits the manufacturer when the direct selling cost is sufficiently low, while it benefits the retailer when this cost is sufficiently high. Finally, we obtain some insights into information management.

Traci Lynn Jewelry: an entrepreneur maximizing shining opportunities

Theoretical basis The central issue in the case is opportunity identification and decision making. While the literature on direct selling is limited, much has been written about ideation, effectuation, causality and opportunity identification and assessment. Scholars of entrepreneurship debate whether entrepreneurial opportunities are identified and assessed primarily through effectuation or causation. Research methodology This case is based upon a combination of interviews with the protagonist, her staff and secondary research. Case overview/synopsis This case explores the opportunity identification, assessment and decision making of an energetic, African American, female founder and CEO in the rarely-researched direct selling channel. Dr Traci Lynn Burton founded her company at 24 with an investment of $200. In 2008, in its second incarnation, Traci Lynn Jewelry became a direct selling company and has taken bold steps. By 2018, the company was a direct selling leader and was preparing to launch a new product line. The case supports undergraduate students in understanding effectuation and causation, opportunity identification and assessment, and direct selling. Complexity academic level This case is primarily for upper division undergraduates. It is suitable for courses in entrepreneurial strategy, entrepreneurial marketing, general entrepreneurship emphasizing opportunity identification, opportunity assessment and/or effectuation.

Optimal Leasing and Selling Strategies of Durable Goods Manufacturer Considering Consumers’ Capital Constraint

Abstract In this paper, we analyze the profitability of a monopoly manufacturer that takes pure-selling, pure-leasing and hybrid strategy by considering the capital constraint of the consumers and the life span of the product in an indefinite time horizon model. We find that the increase of the consumers with capital constraint has a more significant impact on the prices when the proportion of that group is small. It will curb the development of the rental market; when the group reaches a certain scale, then it plays a leading role in the demand, which encourages more manufacturers to take leasing strategy. In the hybrid strategy, we see an explicit increase in the overall profit. We find the leasing channel dominates the markets with the help of C-type market. The suppressed selling channel has to lower the price to keep the market coverage, which is independent with the market structure. These findings provide new insights for the operation of large construction machinery manufacturing companies.

The Entropy Complexity of an Asymmetric Dual-Channel Supply Chain with Probabilistic Selling.

Considering consumers’ attitudes to risks for probabilistic products and probabilistic selling, this paper develops a dynamic Stackelberg game model of the supply chain considering the asymmetric dual-channel structure. Based on entropy theory and dynamic theory, we analyze and simulate the influences of decision variables and parameters on the stability and entropy of asymmetric dual-channel supply chain systems using bifurcation, entropy diagram, the parameter plot basin, attractor, etc. The results show that decision variables and parameters have great impacts on the stability of asymmetric dual-channel supply chains; the supply chain system will enter chaos through flip bifurcation or Neimark–Sacker bifurcation with the increase of the system entropy, and thus the system is more complex and falls into a chaotic state, with its entropy increased. The stability of the system can become robust with the increase of the probability that product becomes a probabilistic product, and it weakens with the increase of the risk preference of customers for probabilistic products and the relative bargaining power of the retailer. A manufacturer using the direct selling channel may obtain greater profit than one using traditional selling channels. Using the method of parameter adjustment and feedback control, the entropy of the supply chain system will decline, and the supply chain system will fall into a stable state. Therefore, in the actual market of probabilistic selling, the manufacturers and retailers should pay attention to the parameters and adjustment speed of prices and ensure the stability of the game process and the orderliness of the dual-channel supply chain.

Retailer Information Sharing with Supplier Encroachment

This study investigates a retailer's incentive for sharing private demand information with a supplier who may encroach the retail channel by imposing a fixed entry cost. Although conventional wisdom suggests that a retailer should withhold her private demand observations to maintain an information advantage over the supplier, we obtain a different conclusion by demonstrating that the retailer may prefer to voluntarily share the demand information in anticipation of supplier encroachment. The intuition is that in face of the threat of supplier encroachment, sharing low demand information may prevent the supplier from establishing a direct selling channel, which will reduce downstream channel competition. This strategic effect of information sharing is new and only becomes dominant when there is an intermediate entry cost for encroachment and a high channel substitution rate. In contrast, when there are deviations from these conditions, the supplier's equilibrium encroachment decision is consistent and irrespective of the retailer's decision to share information, which makes withholding the demand information more beneficial to the retailer. The change of information sharing structure in the channel also leads to some unintended payoff implications, as the supplier's and channel's payoffs exhibit non‐monotonic relations to the entry cost or channel substitution rate.

Channel configuration and pay-on-delivery service with the endogenous delivery lead time

This paper investigates the manufacturer’s optimal channel configuration strategy when it provides a pay-on-delivery service directly to consumers through its on-line selling channel. Due to the delivery lead time, we assume that consumers will discount their future utility from the online channel. In particular, the pay-on-delivery service through the direct channel can induce a retailer to lower its price (pricing induction) and/or segment consumers by regulating their valuations of buying products through different channels (consumers segmentation). Furthermore, the firms’ equilibrium strategies are determined by the consumer’s sensitivity to the delivery time, delivery cost and marginal cost of the indirect channel. When selling through an indirect channel is much more costly, the manufacturer’s encroachment on the retail market can achieve Pareto improvement. Compared with the payment scheme of pay-before-delivery, the results show that the manufacturer’s encroachment is more aggressive in the pay-on-delivery scheme. Finally, we extend the pay-on-delivery scheme to different pricing sequences and consider the case in which consumers and the manufacturer have different discount factors.

Pricing, product quality, and collection optimization in a decentralized closed-loop supply chain with different channel structures: Game theoretical approach

Abstract In recent years, recycling and remanufacturing functions have received increased attention because of strict environmental concerns and regulations. The aim of this paper is to investigate the pricing strategies as well as the quality level and effort decisions of the manufacturer, retailer, and third party operating in two types of closed-loop supply chains: (1) single-channel forward supply chain with a dual-recycling channel (SD model) and (2) dual-channel forward supply chain with a dual-recycling channel (DD model). On the basis of these different channel structures, two manufacturer Stackelberg game models are developed to explore the best values for prices, quality levels, and sales and collection efforts. In addition, to draw managerial insights, corresponding equilibrium solutions of the two model structures are determined and compared, and the channel structure that most benefits each supply chain member is examined. To reduce channel conflicts and increase each channel member’ profits, a novel coordination mechanism is introduced and discussed. Two numerical examples are presented to simulate the strategies for choosing the best channel format for a decentralized closed-loop supply chain and examine the effectiveness of the coordination contract. The results revealed that the DD model is the best for the manufacturer, and the optimal channel structure for the retailer depends on the retailer's market share. However, by applying a novel coordination mechanism, all three members of a closed-loop supply chain can benefit from the introduction of an online selling channel. Furthermore, the results showed that the quality of products in the DD model is always greater than it is for products in the SD model. Moreover, it is observed from the sensitivity analysis that the recycling channel member with a predominant market share exerts greater collections effort and offers lower buyback prices than others in the collection channel.

Use of opaque sales channels in addition to traditional channels by service providers

Motivated by the recent opaque selling trend promoted by Priceline and Hotwire, this study examines a game in which two collaborative service providers may use an opaque selling channel to satisfy demand from both leisure and business customers. Further, the service providers must make a strategic decision as to which opaque selling channel is more profitable: posted price (PP) or name your own price (NYOP). By comparing the profits from the three cases (traditional single channel, traditional and PP dual channel, and traditional and NYOP dual channel), we find some interesting results driven by the strategic interaction between two service providers and by the heterogeneity of customers. Firstly, a dual channel offers advantages over the single traditional channel, as opaque selling allows service providers to utilise customers’ heterogeneity, and thus facilitates price discrimination and customer segmentation. Secondly, choosing the traditional and NYOP mechanism enables service providers to optimise profits when the proportion and valuation of business customers, the opacity of the service, and the leisure customers’ degree of pessimism are all relatively high. Lastly, the traditional and NYOP combination outperforms the traditional and PP mechanism as a result of the relatively large pessimistic state of leisure customers.

OEM Direct Selling Channel and Product Accessibility

We study how an original equipment manufacturer's (OEM's) direct selling channel can serve as an instrument to enhance product accessibility in developing countries. With respect to global sourcing, people in developing countries play an important role as suppliers, but not necessarily as end consumers. In this paper, we consider an OEM manufacturing products for a brand buyer that operates in two markets: the domestic market in which the OEM resides, and the international market (i.e., other mature markets). The OEM can offer the brand at a discount price in exchange for using the excess capacity to produce products under the OEM's brand and also sells the product through the OEM's own selling channel. Contrary to first-order intuition of market cannibalization, we find that the OEM direct selling channel can be a win-win-win strategy for the brand (gaining higher profit premium in the international market), the OEM (gaining higher market coverage), and people in the domestic market (higher product accessibility). Such insights are generally robust, even when we consider a cost for the OEM's selling channel, as well as consider a price constraint from the brand, such that the OEM avoids selling the same product at too low a price.

Business Strategy of Cattle Farmers and Bottleneck in Production Under The Rise in Beef Price: A Case Study in Malang District

A survey of thirteen farmers using qualitative method with in-depth interview was carried out in Malang District in order to observe farmers’ constraints and the strategy taken under the rise in beef price. The result showed that during 2010-2015, Malang District farmers had faced constraints such as difficulty in accessing cattle, poor feeding behavior, and long selling channel. Most of them had joinedcattle sharing system in order to access cattle. Based on trust and kinship, cattle sharing system allowed smallholders to gain access to the cattle. On the other hand, some farmers’ showed their interest joining farmer group in order to improve their poor feeding behavior. Farmer group could be a good solution to enhance farmers’ skill in rearing cattle with good guidance. Selling carcass to the beef seller will give higher profit to the farmer, but it has some constraints such as need particular skill to be butcher, needs government license, takes time and need a market link. This new market access must be observed further to know it’s potential.