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Optimal Distribution Strategy for Enterprise Software: Retail, SaaS, or Dual Channel?

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  • Shengli Li
  • Hsing Kenneth Cheng
  • Yong Jin

Abstract

While the optimal distribution channel strategy of physical goods has been extensively studied, there is a lack of research for that of enterprise software as a digital good. This research analyzes the optimal distribution strategy of enterprise software by taking into account the distinct features of enterprise software for both the short‐run problem, in which the software quality is fixed, and the long‐run problem, in which the software quality becomes part of the strategic decisions. Our results indicate that in the presence of high unfit cost relative to the customization cost, the dual channel strategy exists and generates the highest profit for the firm and the highest social welfare. When the unfit cost is low relative to the customization cost, the SaaS channel strategy becomes the best strategy for both the firm in terms of profitability and society in terms of social welfare. This key finding is robust in that it holds for both the short‐run problem and the long‐run problem.

Suggested Citation

  • Shengli Li & Hsing Kenneth Cheng & Yong Jin, 2018. "Optimal Distribution Strategy for Enterprise Software: Retail, SaaS, or Dual Channel?," Production and Operations Management, Production and Operations Management Society, vol. 27(11), pages 1928-1939, November.
    • Handle: RePEc:bla:popmgt:v:27:y:2018:i:11:p:1928-1939
    DOI: 10.1111/poms.12909
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    Cited by:

    1. Chunyu Li & Peng Xing & Yanting Li, 2022. "Sustainable Strategy Analysis: Platform Channel Configuration and Slotting Fee Design under Differentiated Quality Investment," Sustainability, MDPI, vol. 14(23), pages 1-28, December.
    2. Zhongdong Xiao & Wenjun Shu & Abigail Osei Owusu, 2021. "An analysis of product strategy in cloud transition considering SaaS customization," Information Systems and e-Business Management, Springer, vol. 19(1), pages 281-311, March.
    3. Bo Li & Subodha Kumar, 2022. "Managing Software‐as‐a‐Service: Pricing and operations," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2588-2608, June.
    4. 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.
    5. Shi, Siyu & Sun, Jingchun & Cheng, T.C.E., 2020. "Wholesale or drop-shipping: Contract choices of the online retailer and the manufacturer in a dual-channel supply chain," International Journal of Production Economics, Elsevier, vol. 226(C).
    6. Dan Wu & Guofang Nan & Minqiang Li, 2020. "Optimal Piracy Control: Should a Firm Implement Digital Rights Management?," Information Systems Frontiers, Springer, vol. 22(4), pages 947-960, August.
    7. Sun, Mingyao & Chai, Qiangfei & Ng, Chi To, 2023. "Managing the quality-speed tradeoff in blockchain-supported healthcare diagnostic services," Omega, Elsevier, vol. 120(C).

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