IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v244y2016i2d10.1007_s10479-015-1982-6.html
   My bibliography  Save this article

A manufacturer distribution issue: how to manage an online and a traditional retailer

Author

Listed:
  • Nawel Amrouche

    (Long Island University)

  • Ruiliang Yan

    (Texas A&M University)

Abstract

The Internet’s popularity and success have shaped new relationships in B2B market. The use of dual channels becomes a widespread practice and new challenges face channel members. We assess the benefit of two coordinating mechanisms namely the whole-channel price and the quantity discount when a manufacturer sells his product through a traditional and an online store and uses a single wholesale price for both retailers. Then, we extend the analysis to two-wholesale pricing scenario. Our model suggests that product compatibility to the web is a key factor impacting the decision to coordinate the channel or not and which coordination mechanism to use. We found also that the whole channel is always better-off when coordination is implemented though channel members have different positions with regards to such decision. Hence, a profit-sharing mechanism is required to satisfy all members. Finally, we analyze the effect of varying channel substitutability on channel members’ profitability.

Suggested Citation

  • Nawel Amrouche & Ruiliang Yan, 2016. "A manufacturer distribution issue: how to manage an online and a traditional retailer," Annals of Operations Research, Springer, vol. 244(2), pages 257-294, September.
    • Handle: RePEc:spr:annopr:v:244:y:2016:i:2:d:10.1007_s10479-015-1982-6
    DOI: 10.1007/s10479-015-1982-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-015-1982-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-015-1982-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jagmohan S. Raju & Abhik Roy, 2000. "Market Information and Firm Performance," Management Science, INFORMS, vol. 46(8), pages 1075-1084, August.
    2. Cai, Gangshu (George), 2010. "Channel Selection and Coordination in Dual-Channel Supply Chains," Journal of Retailing, Elsevier, vol. 86(1), pages 22-36.
    3. Wei-yu Kevin Chiang & Dilip Chhajed & James D. Hess, 2003. "Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design," Management Science, INFORMS, vol. 49(1), pages 1-20, January.
    4. Eitan Gerstner & James D. Hess, 1995. "Pull Promotions and Channel Coordination," Marketing Science, INFORMS, vol. 14(1), pages 43-60.
    5. Almehdawe, Eman & Mantin, Benny, 2010. "Vendor managed inventory with a capacitated manufacturer and multiple retailers: Retailer versus manufacturer leadership," International Journal of Production Economics, Elsevier, vol. 128(1), pages 292-302, November.
    6. Jagmohan Raju & Z. John Zhang, 2005. "Channel Coordination in the Presence of a Dominant Retailer," Marketing Science, INFORMS, vol. 24(2), pages 254-262, February.
    7. Chiang, Wei-yu Kevin, 2010. "Product availability in competitive and cooperative dual-channel distribution with stock-out based substitution," European Journal of Operational Research, Elsevier, vol. 200(1), pages 111-126, January.
    8. Roth, Kendall & Nigh, Douglas, 1992. "The effectiveness of headquarters-subsidiary relationships: The role of coordination, control, and conflict," Journal of Business Research, Elsevier, vol. 25(4), pages 277-301, December.
    9. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
    10. Charles A. Ingene & Mark E. Parry, 1995. "Channel Coordination When Retailers Compete," Marketing Science, INFORMS, vol. 14(4), pages 360-377.
    11. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    12. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
    13. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    14. Ganesh Iyer, 1998. "Coordinating Channels Under Price and Nonprice Competition," Marketing Science, INFORMS, vol. 17(4), pages 338-355.
    15. Yan, Ruiliang & Pei, Zhi, 2009. "Retail services and firm profit in a dual-channel market," Journal of Retailing and Consumer Services, Elsevier, vol. 16(4), pages 306-314.
    16. Nanda Kumar & Ranran Ruan, 2006. "On manufacturers complementing the traditional retail channel with a direct online channel," Quantitative Marketing and Economics (QME), Springer, vol. 4(3), pages 289-323, September.
    17. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    18. Wujin Chu & Preyas S. Desai, 1995. "Channel Coordination Mechanisms for Customer Satisfaction," Marketing Science, INFORMS, vol. 14(4), pages 343-359.
    19. Mukhopadhyay, Samar K. & Yao, Dong-Qing & Yue, Xiaohang, 2008. "Information sharing of value-adding retailer in a mixed channel hi-tech supply chain," Journal of Business Research, Elsevier, vol. 61(9), pages 950-958, September.
    20. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
    21. Eunkyu Lee & Richard Staelin, 1997. "Vertical Strategic Interaction: Implications for Channel Pricing Strategy," Marketing Science, INFORMS, vol. 16(3), pages 185-207.
    22. Chen, Kebing & Xiao, Tiaojun, 2009. "Demand disruption and coordination of the supply chain with a dominant retailer," European Journal of Operational Research, Elsevier, vol. 197(1), pages 225-234, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ata Allah Taleizadeh & Zahedeh Cheraghi & Leopoldo Eduardo Cárdenas-Barrón & Mahsa Noori-Daryan, 2021. "Studying the Effect of Noise on Pricing and Marketing Decisions of New Products under Co-op Advertising Strategy in Supply Chains: Game Theoretical Approaches," Mathematics, MDPI, vol. 9(11), pages 1-26, May.
    2. Perlman, Yael, 2022. "Pricing decisions of online and offline retailers, each offering a competing benefit," Operations Research Perspectives, Elsevier, vol. 9(C).
    3. Rofin T.M. & Umakanta Mishra & Jei-Zheng Wu, 2022. "Performance of Channel Members under Emission-Sensitive Demand for Green Supply Chain Management: A Game Theory Approach," Mathematics, MDPI, vol. 10(11), pages 1-23, May.
    4. Hui Yuan & Wei Xu & Qian Li & Raymond Lau, 2018. "Topic sentiment mining for sales performance prediction in e-commerce," Annals of Operations Research, Springer, vol. 270(1), pages 553-576, November.
    5. Yan, Ruiliang & Pei, Zhi, 2019. "Return policies and O2O coordination in the e-tailing age," Journal of Retailing and Consumer Services, Elsevier, vol. 50(C), pages 314-321.
    6. Ata Allah Taleizadeh & Kannan Govindan & Nasim Ebrahimi, 2020. "The effect of promotional cost sharing on the decisions of two-level supply chain with uncertain demand," Annals of Operations Research, Springer, vol. 290(1), pages 747-781, July.
    7. Pei, Zhi & Wooldridge, Barbara Ross & Swimberghe, Krist R., 2021. "Manufacturer rebate and channel coordination in O2O retailing," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    8. Xuan Wang & Chi To Ng, 2020. "New retail versus traditional retail in e-commerce: channel establishment, price competition, and consumer recognition," Annals of Operations Research, Springer, vol. 291(1), pages 921-937, August.
    9. Essam Kaoud & Mohammad A. M. Abdel-Aal & Tatsuhiko Sakaguchi & Naoki Uchiyama, 2020. "Design and Optimization of the Dual-Channel Closed Loop Supply Chain with E-Commerce," Sustainability, MDPI, vol. 12(23), pages 1-21, December.
    10. Ata Allah Taleizadeh & Mahsa Noori-daryan & Mohammad Reza Soltani & Reza Askari, 2022. "Optimal pricing and ordering digital goods under piracy using game theory," Annals of Operations Research, Springer, vol. 315(2), pages 931-968, August.
    11. Yan, Ruiliang & Pei, Zhi & Ghose, Sanjoy, 2019. "Reward points, profit sharing, and valuable coordination mechanism in the O2O era," International Journal of Production Economics, Elsevier, vol. 215(C), pages 34-47.
    12. Huang, Yeu-Shiang & Huang, Wei-Jeh & Fang, Chih-Chiang, 2018. "Coordination for distribution of motion pictures in the context of piracy," Journal of Business Research, Elsevier, vol. 85(C), pages 209-225.
    13. Chen Wei & Sobhan Asian & Gurdal Ertek & Zhi-Hua Hu, 2020. "Location-based pricing and channel selection in a supply chain: a case study from the food retail industry," Annals of Operations Research, Springer, vol. 291(1), pages 959-984, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Amrouche, Nawel & Yan, Ruiliang, 2013. "Can a weak retailer benefit from manufacturer-dominant retailer alliance?," Journal of Retailing and Consumer Services, Elsevier, vol. 20(1), pages 34-42.
    2. Yan, Ruiliang & Pei, Zhi, 2009. "Retail services and firm profit in a dual-channel market," Journal of Retailing and Consumer Services, Elsevier, vol. 16(4), pages 306-314.
    3. Yan, Ruiliang & Pei, Zhi & Myers, Chris, 2016. "Do channel members value the multiple-cooperation strategy?," Journal of Retailing and Consumer Services, Elsevier, vol. 30(C), pages 84-95.
    4. Syed Asif Raza, 2022. "A bibliometric analysis of pricing models in supply chain," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(2), pages 228-251, April.
    5. Fabio Caldieraro, 2016. "The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions," Management Science, INFORMS, vol. 62(11), pages 3327-3350, November.
    6. 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.
    7. Roman Inderst & Greg Shaffer, 2019. "Managing Channel Profits When Retailers Have Profitable Outside Options," Management Science, INFORMS, vol. 65(2), pages 642-659, February.
    8. Chakraborty, Abhishek & Mandal, Prasenjit, 2021. "Channel efficiency and retailer tier dominance in a supply chain with a common manufacturer," European Journal of Operational Research, Elsevier, vol. 294(1), pages 100-121.
    9. Yan, Ruiliang & Guo, Peijun & Wang, John & Amrouche, Nawel, 2011. "Product distribution and coordination strategies in a multi-channel context," Journal of Retailing and Consumer Services, Elsevier, vol. 18(1), pages 19-26.
    10. Chen, Jing & Zhang, Hui & Sun, Ying, 2012. "Implementing coordination contracts in a manufacturer Stackelberg dual-channel supply chain," Omega, Elsevier, vol. 40(5), pages 571-583.
    11. Yunchuan Liu & Z. John Zhang, 2006. "Research Note—The Benefits of Personalized Pricing in a Channel," Marketing Science, INFORMS, vol. 25(1), pages 97-105, 01-02.
    12. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2007. "Fairness and Channel Coordination," Management Science, INFORMS, vol. 53(8), pages 1303-1314, August.
    13. Ghosh, Debabrata & Shah, Janat, 2012. "A comparative analysis of greening policies across supply chain structures," International Journal of Production Economics, Elsevier, vol. 135(2), pages 568-583.
    14. Ghosh, Debabrata & Shah, Janat, 2015. "Supply chain analysis under green sensitive consumer demand and cost sharing contract," International Journal of Production Economics, Elsevier, vol. 164(C), pages 319-329.
    15. Gangshu (George) Cai & Yue Dai & Sean X. Zhou, 2012. "Exclusive Channels and Revenue Sharing in a Complementary Goods Market," Marketing Science, INFORMS, vol. 31(1), pages 172-187, January.
    16. Eunkyu Lee & Richard Staelin & Weon Sang Yoo & Rex Du, 2013. "A “Meta-Analysis” of Multibrand, Multioutlet Channel Systems," Management Science, INFORMS, vol. 59(9), pages 1950-1969, September.
    17. Cai, Gangshu (George), 2010. "Channel Selection and Coordination in Dual-Channel Supply Chains," Journal of Retailing, Elsevier, vol. 86(1), pages 22-36.
    18. Chen, Xu & Wang, Xiaojun & Chan, Hing Kai, 2016. "Channel coordination through subsidy contract design in the mobile phone industry," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 97-104.
    19. Pei, Zhi & Yan, Ruiliang, 2013. "National advertising, dual-channel coordination and firm performance," Journal of Retailing and Consumer Services, Elsevier, vol. 20(2), pages 218-224.
    20. Weon Sang Yoo & Eunkyu Lee, 2011. "Internet Channel Entry: A Strategic Analysis of Mixed Channel Structures," Marketing Science, INFORMS, vol. 30(1), pages 29-41, 01-02.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:244:y:2016:i:2:d:10.1007_s10479-015-1982-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.