Impact of manufacturer and retailer's market pricing power on customer satisfaction incentives in supply chains

Many manufacturers are offering some form of supply chain incentives to motivate their retailers to increase customer satisfaction (CS). In this paper, we focus on the manufacturer's two main CS incentives for the retailer: customer satisfaction index bonus (CSI bonus) and customer satisfaction assistance (CS assistance). When both manufacturer and retailer have strong market pricing power, prior research has shown that the manufacturer should offer both CSI bonus and CS assistance to the retailer. In contrast with prior research results, we find if the manufacturer has weak market pricing power, then she should only offer CS assistance but not CSI bonus to the retailer when the market wholesale price is relatively low. We also quantify the value of the CS incentive programs to the manufacturer's performance improvement in different supply chain settings. In general, we find the manufacturer's CS incentive program is more valuable when demand is more sensitive to the retailer's CS effort. Finally, we obtain additional insights from a few supply chain model extensions.