Retail services and firm profit in a dual-channel market

With the rapid development of the Internet, many manufacturers nowadays use online technology to engage in direct sales. The mix of retailing with a direct channel adds a new dimension of competition and complementarity to a product's distribution channels. Our model focuses on the strategic role played by the retail services in a dual-channel competitive market. The manufacturer uses a direct channel as an effective tool to motivate the retailer to improve its retail services and profits from it. While operated by the manufacturer to motivate retailer to perform more effectively from the manufacturer's perspective, the direct channel may not always be detrimental to the retailer because the retailer can obtain a lower wholesale price from the manufacturer and a higher sales volume from the improved retail services. In our research, our results suggest that the improved retail services effectively alleviate the channel competition and conflict and improve the supply chain performance in a competitive market.     

On manufacturers complementing the traditional retail channel with a direct online channel

With the explosion of the Internet and the reach that it affords, many manufacturers have complemented their existing retail channels with an online channel, which allows them to sell directly to their consumers. Interestingly, there is a significant variation within product categories in manufacturer's use of the Internet as a direct distribution channel. The main objective of this study is to examine the strategic forces that may influence the manufacturer's decision to complement the retail channel with a direct online channel. In particular, we are interested in answering the following questions:

1. Why is it that in some markets only a few firms find it optimal to complement their retail channels with a direct Internet channel while other firms do not?
2. What strategic role (if any), does the direct Internet channel serve and how do market characteristics impact this role?

To address these issues we develop a model with a single strategic manufacturer serving a market through a single strategic retailer. In addition to the focal manufacturer's product the retailer carries products of competing manufacturers. Consumers in this market are one of two types. They are either brand loyal or store loyal. The retailer sets the retail price and the level of retail support, which impact the demand for the manufacturer's product. The retailer's decisions in turn depend on the wholesale price as well as the Internet price of the product if the manufacturer decides to complement the retail channel with an online channel. Our analysis reveals that the optimality of complementing the retail channel with an online channel and the role served by the latter depends critically upon the level of support that the retailer allocates to the manufacturer's product in the absence of the online channel. The level of support allocated by the retailer, in the absence of the online channel, depends upon the retail margins on the manufacturer's product relative to that on rival products in the product category. When the size of the brand loyal segment is small relative to the size of the store loyal segment then in the absence of the online channel, the manufacturer can lower wholesale price and enhance retail support, especially when the retail margins on the rival products are low. In contrast, when the size of the loyal segment is large and the retail margins on rival products are high the manufacturer will find it more profitable to charge a high wholesale price even if that induces the retailer to extend low levels of support. If the manufacturer decides to complement the retail channel with an online channel, some consumers who would have purchased from the retailer might prefer to purchase online. Our analysis reveals that when consumers' sensitivity to price differences across the competing channels exceeds a certain threshold it is not optimal for the manufacturer to complement the retail channel with an online channel. However, this price sensitivity threshold itself depends upon product/market characteristics, suggesting that manufacturers seeking to complement their retail channels with an online channel should look beyond the nature of threat the online channel poses to the retail channel in devising their optimal distribution strategies. When the retail margins on rival products are sufficiently small, complementing the retail channel with an online channel when optimal allows the manufacturer to price discriminate and enhance profits. In contrast when retail margins on rival products are sufficiently high, complementing the retail channel with an online channel serves to enhance retail support. We also identify market conditions under which profits of both the manufacturer and the retailer are greater with the online channel than that without it. This is particularly interesting since the online channel competes with the retail channel.     

National advertising,dual-channel coordination and firm performance

With the rapid development of e-commerce, many manufacturers nowadays opt to open an online channel to engage in direct online sales. The mix of retailing with an online channel adds a new dimension of competition and complementarity to a product's distribution channels. Our model focuses on the strategic effect of the manufacturer's national advertising on alleviating the channel competition. We use a game-theoretical model to show that opening an online channel with the added national advertising effectively alleviates the channel conflict and thus helps improve the whole channel and each channel member performance. Depending on the different product categories and the degree of channel substitutability, the manufacturer's investment in the national advertising also will be different. The value of national advertising increases as product is more compatible with online sales and channel substitutability increases.     

考虑零售商销售努力的双渠道供应链定价策略研究

随着电子商务市场的日益成熟,制造商建设线上直销渠道来适应新的商品销售环境成为趋势。制造商线上直销渠道的建立占领了部分原本属于线下零售渠道的市场份额,对线下零售渠道造成冲击。针对双渠道供应链中的竞争,将零售商销售努力行为考虑在内,通过构建博弈模型分别研究了在集中决策模式和分散决策模式下,制造商与零售商的定价策略。研究发现,在集中决策模式下,线下零售渠道与线上直销渠道之间的价格差异随着两个渠道潜在需求量之间差异的增大而增大,并且两个渠道的最优价格分别与其市场潜在需求成正比。在分散决策模式下,两个渠道的最优价格亦与潜在需求成正比,并且线下零售渠道的最优价格随零售商销售努力程度的增加而增加,线上直销渠道的最优价格随着零售商销售努力程度的增加而减少。     

Export Involvement and Channel Conflict in a Manufacturer-Intermediary Relationship

Numerous articles have been published regarding the strained relationships between highly involved export manufacturers and their international intermediaries. While channel conflict is frequently cited as a major reason for such strained trade relationships, few research studies examine the relationship between a manufacturer's export involvement and channel conflict. In this paper, we develop hypotheses linking the three major domains of export involvement to the initial stages of channel conflict. The results indicate that a manufacturer's conflict with its principal international intermediary decreases with greater manufacturer dependence on the principal intermediary, increases as resources are committed to exporting, and decreases with the manufacturer's foreign market knowledge.     

The Impact of Category Captainship on the Breadth and Appeal of a Retailer's Assortment

Category captainship is a collaborative channel arrangement wherein a retailer cedes control of category management decisions, such as developing a marketing strategy to grow the category and assortment selection, to one of the category's leading manufacturers. This paper studies the consequences of captainship practices on the breadth and appeal of a retailer's assortment. We consider a model where multiple manufacturers sell a product to consumers through a common retailer. In the benchmark, the retailer decides on effort to drive traffic into the category and assortment. Under captainship, the retailer delegates both of these decisions to a captain in return for target sales. The capability of the captain to stimulate demand is unknown to the retailer. We find that the breadth and/or appeal of the assortment at the retailer can increase or decrease under captainship relative to the benchmark. We identify three factors that play a role on the impact of captainship on the breadth and appeal of retailer's assortment: (i) the retailer's beliefs about the captain's capability, (ii) the captain's true capability, and (iii) product set heterogeneity. We find that the benefit to the captain sometimes comes at the expense of the non-captain manufacturers, but we also identify conditions where captainship can be beneficial for not only the retailer and the captain but also the non-captain manufacturers.     

Cross-channel effects of omnichannel retail marketing strategies: A review of extant data-driven research

The authors review 50 empirical retailing research papers that have appeared over the last 20 years to take stock of what we know, need to know better, and do not know yet about within-retailer cross-channel effects of omnichannel retail marketing strategies on (a) consumer responses over their purchase journeys, i.e., online and/or offline search, purchase intention, frequency, amount, returns, loyalty, and (b) the retail firm's aggregate outcomes (e.g., sales, costs, profits, product returns) by channel and overall. Specifically, the authors focus on five strategies: (1) the addition of online channel by an offline retailer; (2) the addition (or subtraction) of offline channels by an online retailer; (3) addition of mobile shopping channel (website and/or app) by offline and/or online retailer; (4) cross-channel integration strategies; and (5) retail marketing mix strategies. The author/s integrate findings from empirical research on these strategies into a number of ‘insights’ about ‘what we know’. Prominent among these are the following: Adding a transactional online channel to an offline channel improves the retailer's overall sales even though offline channel sales can be cannibalized to some degree. Adding an offline channel by an online retailer, however, boosts online channel sales as well as overall sales of the retailer. Similarly, adding a mobile shopping channel usually increases customer purchase frequency and amount and overall sales of the retailer in the long-term. Strategies for greater cross-channel integration generally have a positive effect on a retailer's overall performance while online advertising has positive effects on offline channel consideration and sales as well as overall sales of a multichannel retailer. Other insights or findings that need further study or open questions are also identified. The paper closes with managerial implications of the derived empirical insights, and suggestions for future research.     

Manufacturer Support for a Partially Integrated Channel in South Korea: Power‐dependence vs. Marketing Effectiveness Perspective

This article introduces the unique context of a partially‐integrated channel (PIC) that incorporates both market and hierarchical governance forms. In so doing, it examines determinants of the manufacturer's support for a PIC. Using power‐dependence and marketing effectiveness theories, we collected data from 172 marketing managers in charge of PICs in 15 companies in South Korea. The results showed that from the power‐dependence perspective, demand volatility, manufacturer's competitive intensity, and channel concentration are positively related to a manufacturer's dependence on the retailer, which is positively related to the manufacturer's support for the PIC with a retailer. From a marketing effectiveness perspective, channel bonding and customer linking are positively associated with manufacturer marketing effectiveness, which is an antecedent to PIC support for a retailer. Copyright © 2013 ASAC. Published by John Wiley & Sons, Ltd.     

THE IMPACT OF ORDER FULFILLMENT SERVICE ON RETAILER MERCHANDISING DECISIONS IN THE CONSUMER DURABLES INDUSTRY

Historically, manufacturers held the upper hand in consumer goods supply chain relationships. There has been a pervasive shift of power to retailers over the past 20 years, however, ushering in an era of waning consumer loyalty to manufacturers' brands and increasing loyalty to retailers. While there is extensive research focusing on the manufacturer‐consumer relationship, retailers' increased ability to influence consumer purchases suggests that manufacturers should understand not only consumer perceptions of delivery service, but also retailer perceptions. We incorporate social network theory to examine the manufacturer‐retailer‐consumer linkages in the consumer durables industry, with the emphasis on the retailer in the role of the “broker” (Burt 1992). Specifically, we examine whether retailer perceptions of a manufacturer's order fulfillment service (OFS) positively impacts retailer perceptions of the manufacturer's brand, the importance of the product, and the likelihood of the retailers' salespeople to recommend the product to consumers. The research bridges OFS and retailer purchase behavior in a consumer durables industry characterized by high levels of consumer involvement, brand presence, and personal selling.     

Marketplace,reseller, or web-store channel: The impact of return policy and cross-channel spillover from marketplace to web-store

With the advent of e-commerce, new platform sales have been created in the online retailing industry, and choosing the best platform has become a challenge for manufacturers. For instance, marketplace and web-store are two e-channels for selling goods directly to end customers. In the marketplace, manufacturers sell their products directly to online customers through e-tailers' platforms and share revenue with e-tailers. In the web-store channel, manufacturers sell their products directly to end customers through their platforms and do not need to e-tailers' platforms. However, some manufacturers and e-tailers continue with reseller channel yet. Reseller channel is another conventional channel in which manufacturers distribute their products to e-tailers, then e-tailers choose retail prices and sell them to consumers. Therefore, with these three different channels, the key question is when and under what conditions manufacturers can choose marketplace or reseller channel in addition to their web-store channels to grow their market share. In this paper, we analyze these three different e-channels and the conditions that manufacturers adopt the marketplace or reseller channel. For this purpose, we consider a model with two manufacturers and one e-tailer in which the manufacturers have their web-store channels, and they are willing to adopt another channelـ reseller or marketplace. The manufacturers offer a return policy in their web-store channels as a competitive strategy for attracting more customers. We find that offering return policy in web-store channels has no effect on the choice between the marketplace and reseller channel, but it has an impact on the amount of manufacturers' profits in each channel. Also, we demonstrate that regardless of offering return policy, as the coefficient of cross-channel effect increases, the manufacturers' profits, whether they choose reseller channel or marketplace channel, increase. But, as the coefficient of cross-channel effect increases, the e-tailer's profit increases when both manufacturers choose reseller channel, otherwise decreases. If manufacturers offer a return policy, the e-tailer's profit is highest when both manufacturers choose reseller channel, and if they do not offer a return policy, the e-tailer's profit is highest when both manufacturers choose marketplace channel.     

Emerging Trends in the Food Distribution System

Abstract

Two trends, the drive for differentiation and the clamor for collaboration, are emerging from intermediaries in the food distribution system. Differentiation by large manufacturers and retailers will encourage more direct marketing by farmers. Although differentiation by manufacturers creates entry barriers for small firms, differentiation by retailers may open opportunities. Some collaboration initiatives will increase the supply chain efficiency up to the retailer, but adoption rates of collaborative technologies by stores will likely be slow. With more differentiation, consumers will have greater choice. Some technologies that could boost the efficiency of the food distribution system may be resisted by consumers.     

Brand and quality effects on introduction of store brand products

This paper considers a supply chain with a single manufacturer selling a national brand product via a single retailer. The retailer has the option to introduce a product under his own brand into the market with the same functionality as the national brand product. We simultaneously consider the consumer bases of the national brand and store brand along with consumers' willingness to pay for quality and the supply chain control (centralized vs. decentralized). By analyzing the game-theoretic models, we offer managerial insights about the influences of brands' consumer bases on the quality and pricing decisions of the retailer, and on the manufacturer's willingness-to-collaborate when the retailer introduces the store brand product. We find that, although it is usually easier for the retailer to introduce a product under a store brand with a large consumer base, doing so with manufacturers of well established national brands can be difficult, when the retailer often has to greatly mark down his store brand product's quality and price. We also find that a store brand product with a small consumer base shall be launched only when the supply chain is switched to a centralized control and when the manufacturer's national brand has a large consumer base. These important findings offer guidance to both national brand manufacturers and retail store managers regarding the launch of store brand products.     

Entry mode selection and its impact on an incumbent supply chain coordination

This paper considers a supply chain where a manufacturer sells its product through a retailer. In such a market, a potential entrant can make a substitute product by imitating the incumbent's product and then sells it to the common market with one of three alternative entry modes: (i) selling through the incumbent's retailer, (ii) selling through another independent retailer, or (iii) selling directly to consumers. Faced with the entrant's entry, the manufacturer has managed to offer a value-added service to add to its product's value at a cost. We investigate the entrant's optimal entry mode when the manufacturer offers profit-sharing contracts to the retailer and when it does not, and discuss the impact of the potential invader's entry on the incumbent firms' performances. The results show that: (1) the entrant sells directly to consumers when faced with weak value competition, and sells through another retailer against fierce value competition. (2) If the value competition is relatively fierce and the efficiency of the value-added service is relatively high as well, the incumbent firms can benefit from the new entry. (3) A profit-sharing contract, as a coordination policy, can fully coordinate the incumbent supply chain no matter whether there exists a potential entrant or not, yet the entry can affect the distribution of the profits between the incumbent manufacturer and retailer.     

Online channel strategies under different offline channel power structures

This study explores the manufacturer's marketing and pricing strategies for online channel under different offline channel power structures. Through these strategies, the manufacturer sells products through an offline retailer and an e-tailer. The manufacturer decides the cooperation mode with the e-tailer by the reselling or the agency selling mode and the pricing strategy on the basis of the power structures, i.e., vertical Nash structure (VN), manufacturer Stackelberg structure (MS), and retailer Stackelberg structure (RS). We find the manufacturer selects the online agency selling mode when the commission rate is less than the given threshold. As long as the commission rate is more than another threshold, the manufacturer selects the online reselling mode under the VN structure; however, the manufacturer selects the online agency selling mode under the other two structures. As well, the offline wholesale price is higher under the MS structure than those under the VN and RS structures. When the manufacturer selects the online agency selling mode, the offline retail price is highest under the MS structure, and the online retail price is highest under the VN structure. Meanwhile, consumers can always obtain a higher surplus in the online agency selling mode under all offline power structures.     

Should manufacturers open live streaming shopping channels?

Live streaming shopping, as a novel sales channel, has caught much attention from researchers and practitioners. Its unique features, such as the commission rate, fixed fee and number of followers of the live streamer, appear different from traditional wholesale-contract sales channels. But few studies have examined the impact of these factors on manufacturers’ opening live streaming shopping channel decisions. To address this gap, we develop game theoretic models to examine whether a manufacturer should hire a live streamer to open a live streaming shopping channel on an e-commerce platform where the manufacturer's direct channel and third-party e-retailer co-exist. We consider the impact of the commission rate, fixed fee and number of followers of the live streamer on the operating decisions and profits of the manufacturer and e-retailer. Then we identify the threshold-conditions where the manufacturer and e-retailer are better off or worse off by opening a live streaming shopping channel. We show that opening a live streaming shopping channel may hurt or harm the manufacturer's profit, depending on the interaction of above three factors. The manufacturer may be willing to open a live streaming shopping channel when the commission rate and fixed fee are both small, or when the commission rate and number of followers are both large and the fixed fee is small. The e-retailer could also benefit from opening a live streaming shopping channel. These insights appear novel in the literature. We further show that opening a live streaming shopping channel could improve the consumer surplus. We extend our model to price competition to verify our main conclusions. These insights may help manufacturers decide whether or not to open live streaming shopping channels and help manufacturers and extant retailers develop optimal operating decisions and improve profits when participating in live streaming shopping.     

The Impact of Brand Delisting on Store Switching and Brand Switching Intentions

A tool retailers often use to improve their negotiating position with brand manufacturers is to delist - or threaten to delist - the manufacturers’ brand. Because brand manufacturers rely mainly on retailers to sell their products to consumers, a brand delisting will cause a sales loss for the brand manufacturer. Therefore, many brand manufacturers feel enormous pressure to give in and improve buying conditions to favor the retailer. The question thus emerges: Can a brand manufacturer resist a retailer's threat to delist its brand(s)? If a brand delisting severely hurts retail sales, it is easier for a brand manufacturer to resist. The authors study the impact of brand delistings on store switching and brand switching using a controlled online experiment and in-store shopper survey. They develop and test a conceptual model with several antecedents of consumers’ reactions to a brand delisting and conclude that brand equity, market share, and the products’ hedonic level drive store and brand switching.     

Financial consequences of adding bricks to clicks

Many e-commerce retailers are adding “bricks to clicks” – that is, opening an offline channel in addition to their digital sales channel(s). Taking the perspective of such an online pure player, this research assesses the effects of offline channel additions on the financial performance (e.g., sales, profits) and customer behavior (e.g., basket size, return rate) in the extended channel network as well as the initial online channel of the retailer. Across two studies, one at the zip code level and the other at the customer level, we find that the channel addition of a fashion and lifestyle retailer is synergistic in terms of increasing not only overall sales but also profits. At the same time, the new offline channel does not significantly cannibalize the existing online shop, as new customers are attracted through the channel addition. The effects of channel additions, however, are influenced by characteristics of customers gained before the channel addition and of the trade area around the newly opened stores: among existing customers, those who bought more in the online channel do not react as positively to the addition of an offline channel, and trade areas with socioeconomic characteristics that are often viewed as disadvantageous for digital retailing (e.g., an older population, lower average income) show a stronger positive sales effect of a brick-and-mortar addition. The attractiveness of the offline channel for these customer segments highlights that adding bricks to clicks might be most attractive for those customers who were previously unwilling to purchase from an online-only retailer.     

Why would a big retailer refuse to collaborate on manufacturer SPIFF programs?

Big retailers that carry a large assortment of products rely on knowledgeable salespeople to provide purchase advice to customers and match customers with suitable products. Interestingly, big retailers vary in their policies regarding whether to allow their salespeople to receive manufacturer SPIFF (Sales Person Incentive Funding Formula) payments, which motivate salespeople advising at no cost of the retailer. In this study, we investigate a big retailer’s incentive to block manufacturer SPIFF programs, which has the consequence of demotivating salespeople from advising customers, from the perspective of vertical channel interactions. We scrutinize a big retailer’s decision to maximize its profit through managing its channel interactions with upstream manufacturers offering horizontally differentiated products, customers uncertain about true fits with competing products, and its salesperson who can match customers with suitable products through offering purchase advice. Our analysis shows that motivating the salesperson to advise customers is profitable for the retailer only if the such advising has moderate effectiveness in matching consumers and suitable products, and only in this case would the retailer collaborate on manufacturer SPIFF programs. Otherwise, salesperson advising hurts retailer profit and the big retailer benefits from blocking manufacturer SPIFF programs. Our study reveals the interesting theoretical insight that the incentives of a big retailer and upstream manufacturers to motivate sales advising reside in their incentives to battle for a more favorable channel status.     

Why is Price Dispersion Higher Online than Offline? The Impact of Retailer Type and Shopping Risk on Price Dispersion

When physically similar products, of similar quality, are offered by retailers both online and offline, we often observe that the dispersion in prices of these products online is greater than the price dispersion offline. This observation runs counter to early theories that suggested price dispersion online would be smaller than that offline due to the ease of search and information availability online. This paper investigates and provides an explanation for this puzzling phenomenon by examining the impact of two important drivers of price dispersion: retailer type and consumers’ shopping risk. Retailer type refers to whether a retailer is a pure offline, pure online, or dual channel retailer. Shopping risk is defined as the product of consumers’ perceived risk of shopping and the transaction uncertainty related to shopping at different types of retailers.A game-theoretic approach is adopted to model consumers’ price search and product purchase, as well as price competition within and across retailer types in online and offline markets. Equilibrium pricing strategies are derived for different retailer types competing for different consumer segments with different levels of perceived shopping risk. The impact of retailer type and shopping risk on online versus offline price dispersion are quantified, and conditions when price dispersion is greater online than offline are identified.Results indicate that price dispersion is greater online when the number of pure online retailers is sufficiently large and is increasing in the number of pure online retailers. In addition, a reduction in online shopping risk may actually increase online price dispersion. Results further suggest that even without any online sales, dual channel retailers should maintain their online presence for the purpose of information dissemination, which justifies the importance for pure offline retailer to incorporate webrooming strategies, where consumers can search for prices online but purchase offline.     

How a novel option contract helps a green product to enter a traditional product's retailing channel: A mathematical modeling approach

Multi-sourcing is a practical strategy in retail channels that allows retailers facing uncertainties to respond more effectively to consumers' needs by distributing market demand across multiple supply sources. In this respect, this research investigates a price-setting retailing channel, including two manufacturers (a traditional manufacturer and a green manufacturer) and one retailer where end-of-life products can be collected. The retailer faces an uncertain price-dependent demand and sets orders from both supply directions based on a low-cost ordering approach. The primary purpose of this study is to develop an optimal solution to allow the green product to enter the retailing channel of the non-green product. Accordingly, this research develops and compares two different contractual mechanisms from the standpoint of the green manufacturer/retailer and the supply chain (SC): (1) a penalty-based contract and (2) a modified call option contract mixed with a cost-sharing mechanism. The main contribution of the current paper is to investigate an option contract for the effective management of a closed-loop supply chain and combine it with a cost-sharing contract as a new approach. Another contribution is that the developed model considers two practical channels for collecting and returning obsolete products to the green manufacturer: (1) the retailer is responsible for collecting and returning obsolete products, and (2) collecting and returning obsolete products is outsourced to a third-party logistics provider (3PL). Eventually, the models' efficiency is verified by investigating different numerical experiments, discovering that the proposed reservation-based contract outperforms the penalty-based contract for both parties' profitability and retailing channel's improvement. Besides, the present study finds that hiring 3PL significantly increases the green manufacturer's profit compared to other scenarios.