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Sales effort free riding and coordination with price match and channel rebate

  • Xing, Dahai
  • Liu, Tieming
Registered author(s):

    This paper studies sales effort coordination for a supply chain with one manufacturer and two retail channels, where an online retailer offers a lower price and free-rides a brick-and-mortar retailer’s sales effort. The free riding effect reduces brick-and-mortar retailer’s desired effort level, and thus hurts the manufacturer’s profit and the overall supply chain performance. To achieve sales effort coordination, we designed a contract with price match and selective compensation rebate. We also examined other contracts, including the target rebate contract and the wholesale price discount contract, both with price match. The numerical analysis shows that the selective rebate outperforms other contracts in coordinating the brick-and-mortar retailer’s sales effort and improving supply chain efficiency.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0377221711010381
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    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 219 (2012)
    Issue (Month): 2 ()
    Pages: 264-271

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    Handle: RePEc:eee:ejores:v:219:y:2012:i:2:p:264-271
    Contact details of provider: Web page: http://www.elsevier.com/locate/eor

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    1. Dazhong Wu & Gautam Ray & Xianjun Geng & Andrew Whinston, 2004. "Implications of Reduced Search Cost and Free Riding in E-Commerce," Marketing Science, INFORMS, vol. 23(2), pages 255-262, November.
    2. Yuxin Chen & Chakravarthi Narasimhan & Z. John Zhang, 2001. "Consumer Heterogeneity and Competitive Price-Matching Guarantees," Marketing Science, INFORMS, vol. 20(3), pages 300-314, June.
    3. Vipul Agrawal & Sridhar Seshadri, 2000. "Impact of Uncertainty and Risk Aversion on Price and Order Quantity in the Newsvendor Problem," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 410-423, July.
    4. Harish Krishnan & Roman Kapuscinski & David A. Butz, 2004. "Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort," Management Science, INFORMS, vol. 50(1), pages 48-63, January.
    5. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    6. Dennis W. Carlton & Judith A. Chevalier, 2001. "Free Riding and Sales Strategies for the Internet," NBER Working Papers 8067, National Bureau of Economic Research, Inc.
    7. Gérard P. Cachon & A. Gürhan Kök, 2007. "Implementation of the Newsvendor Model with Clearance Pricing: How to (and How Not to) Estimate a Salvage Value," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 276-290, October.
    8. Sigué, Simon Pierre & Chintagunta, Pradeep, 2009. "Advertising strategies in a franchise system," European Journal of Operational Research, Elsevier, vol. 198(2), pages 655-665, October.
    9. Jiwoong Shin, 2007. "How Does Free Riding on Customer Service Affect Competition?," Marketing Science, INFORMS, vol. 26(4), pages 488-503, 07-08.
    10. Wujin Chu & Preyas S. Desai, 1995. "Channel Coordination Mechanisms for Customer Satisfaction," Marketing Science, INFORMS, vol. 14(4), pages 343-359.
    11. Martin A. Lariviere & V. Padmanabhan, 1997. "Slotting Allowances and New Product Introductions," Marketing Science, INFORMS, vol. 16(2), pages 112-128.
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