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Cooperative promotions in the distribution channel

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  • Karray, Salma

Abstract

This paper investigates equilibrium strategies for both horizontal (HJP) and vertical (VJP) joint promotions (cooperative advertising) in the supply chain. A game theoretic model is solved for two setups: a centralized channel competing with a decentralized one (DC), and two competing decentralized channels (DD). Retailers decide of HJP and regular promotional efforts, as well as of prices. Manufacturers choose their transfer prices and VJP support rates offered to the retailer. For each setup, we solve for equilibrium strategies in two games: when retailers invest in HJP, and when they do not. Comparison of equilibrium solutions shows that, for both DC and DD settings, the manufacturer׳s VJP support to the retailer would be affected differently by HJP depending on the levels of both price and promotional competition. In particular, manufacturers should offer a lower VJP rate when price competition is lower than promotional competition, and higher VJP rates otherwise. The effects of HJP on equilibrium profits depend on the channel structure. When a decentralized channel is competing with a centralized one, we find that HJP is beneficial to the manufacturer. However, it can be detrimental to the decentralized retailer׳s profits, especially when products are closely competing both on prices and promotions but HJP is not highly effective. It can also harm the centralized channel if it has the highest baseline demands in the market. This result is not supported in case of similar competing decentralized channels, for which HJP leads to higher equilibrium profits earned by each retailer and manufacturer.

Suggested Citation

  • Karray, Salma, 2015. "Cooperative promotions in the distribution channel," Omega, Elsevier, vol. 51(C), pages 49-58.
    • Handle: RePEc:eee:jomega:v:51:y:2015:i:c:p:49-58
    DOI: 10.1016/j.omega.2014.07.009
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    5. Karray, Salma & Martín-Herrán, Guiomar & Zaccour, Georges, 2017. "Assessing the profitability of cooperative advertising programs in competing channels," International Journal of Production Economics, Elsevier, vol. 187(C), pages 142-158.
    6. Martín-Herrán, Guiomar & Sigué, Simon P., 2017. "An integrative framework of cooperative advertising: Should manufacturers continuously support retailer advertising?," Journal of Business Research, Elsevier, vol. 70(C), pages 67-73.
    7. Martín-Herrán, Guiomar & Sigué, Simon Pierre, 2023. "An integrative framework of cooperative advertising with reference price effects," Journal of Retailing and Consumer Services, Elsevier, vol. 70(C).
    8. Buratto, Alessandra & Cesaretto, Rudy & De Giovanni, Pietro, 2019. "Consignment contracts with cooperative programs and price discount mechanisms in a dynamic supply chain," International Journal of Production Economics, Elsevier, vol. 218(C), pages 72-82.
    9. Qi Chen & Qi Xu & Cui Wu, 2019. "Dynamic Matching in Cloud Manufacturing considering Matching Costs," Complexity, Hindawi, vol. 2019, pages 1-16, July.
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    12. Ke Yan & Guowei Hua & T.C.E. Cheng, 2021. "Green Supply Chain Management with Cooperative Promotion," Sustainability, MDPI, vol. 13(6), pages 1-20, March.
    13. Nita H. Shah & Urmila Chaudhari & Mrudul Y. Jani, 2019. "Effect of manufacturer’s innovation and retailer’s promotion under trapezoidal demand with centralized and decentralized options," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 27(1), pages 55-69, April.
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    17. Karray, Salma & Sigue, Simon P., 2016. "Should companies jointly promote their complementary products when they compete in other product categories?," European Journal of Operational Research, Elsevier, vol. 255(2), pages 620-630.
    18. Karray, Salma & Sigué, Simon Pierre, 2015. "A game-theoretic model for co-promotions: Choosing a complementary versus an independent product ally," Omega, Elsevier, vol. 54(C), pages 84-100.
    19. De Giovanni, Pietro & Karray, Salma & Martín-Herrán, Guiomar, 2019. "Vendor Management Inventory with consignment contracts and the benefits of cooperative advertising," European Journal of Operational Research, Elsevier, vol. 272(2), pages 465-480.
    20. Chutani, Anshuman & Sethi, Suresh P., 2018. "Dynamic cooperative advertising under manufacturer and retailer level competition," European Journal of Operational Research, Elsevier, vol. 268(2), pages 635-652.
    21. Hou, Pengwen & Wang, Jun & Zhang, Qian & Zhang, Shuhua, 2023. "Implications of risk aversion behavior on the green product promotion strategy under manufacturer encroachment," Applied Mathematics and Computation, Elsevier, vol. 447(C).
    22. Qiao Zhang & Jianxiong Zhang & Wansheng Tang, 2017. "Coordinating a supply chain with green innovation in a dynamic setting," 4OR, Springer, vol. 15(2), pages 133-162, June.
    23. Gusev, Vasily V., 2020. "The vertex cover game: Application to transport networks," Omega, Elsevier, vol. 97(C).
    24. Wang, Charles X. & Qian, Zhuang & Zhao, Yabing, 2018. "Impact of manufacturer and retailer's market pricing power on customer satisfaction incentives in supply chains," International Journal of Production Economics, Elsevier, vol. 205(C), pages 98-112.
    25. Bin Cao & Qingyu Zhang & Mei Cao, 2022. "Optimizing Hybrid-Channel Supply Chains with Promotional Effort and Differential Product Quality: A Game-Theoretic Analysis," Mathematics, MDPI, vol. 10(11), pages 1-21, May.

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