Reward points, profit sharing, and valuable coordination mechanism in the O2O era

When the manufacturer opens an online channel to compete with its retailer, effective mechanisms need to be utilized to coordinate the O2O (online to offline) distributions and thus higher profits can be achieved for all supply chain players. We first propose two mechanisms, which are the manufacturer's financial support in reward points to the retailer and the profit sharing, for the supply chain players to employ in order to mitigate the O2O competition and create a Pareto result. Our results show that the manufacturer's financial support in reward points to the retailer mechanism does alleviate the O2O competition and help improve the profit of each supply chain player; however, the retailer is reluctant to cooperate with the manufacturer to implement a profit sharing. We then propose a novel mechanism, which is the combination of the manufacturer's financial support in reward points to the retailer with the profit sharing, to coordinate the O2O distributions. Our results show that such a mechanism effectively solves the issue of O2O competition and creates much higher profits for supply chain players. Furthermore, our results also show that compared to the simultaneous mode, the leader-follower Stackelberg mode provides no competitive advantage to the manufacturer or the retailer when the combination of the manufacturer's financial support in reward points to the retailer with the profit sharing is utilized to coordinate the O2O distributions.