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.     

Shopping in the omnichannel supply chain under price competition and product return

In recent years, omnichannel retailing has created value for prospective consumers. The rise of omnichannel retailing has changed consumers' buying habits, and manufacturers are facing stiff competition from retailers. To reduce this competition effect, manufacturers and retailers often work together to reduce showroom display costs. Despite this practice, there is little understanding of how omnichannel retailing impacts supply chain (SC) profit under competitive conditions. We investigate the test-in-store-and-buy-online (TSBO) retailing strategy and its impact on SC profit and price competition between manufacturers. The retailer sells products of both manufacturers through its website but displays products of only one manufacturer in the showroom, which bears the displaying cost. The retailer adopts a return policy for the other manufacturer. Stackelberg game was used to examine how members of the chain interact, and Nash equilibrium was used to find optimal strategies for players under decentralized and integrated channels. The results show that the TSBO strategy in retailing benefits all supply chain players under the integrated channel. A further interesting finding is that omnichannel SC profits are highest when retailers adopt a return policy. When two manufacturers compete and adopt different sales models, the manufacturer who uses the TSBO retail model reaps the most profit. Several other managerial insights are drawn from sensitivity analyses.     

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。     

Managerial Incentives and Durable Goods Monopoly

In many cases durable goods monopolists who sell out output do not appear to act in the competitive fashion suggested by Coase (1972). This indicates the firm‘s owners mitigate their commitment problem with buyers in some manner. This paper shows that managerial incentives provide a natural mechanism for the owner to mitigate its commitment problem without explicitly contracting with buyers. Owners will optimally shift their managers from the singular goal of profit maximization by penalizing them for sales. Additionally, the paper demonstrates that the degree to which managerial incentives and compensation diverge from pure profit maximization is in large part a function of the durability or quality of the product.     

Do channel members value the multiple-cooperation strategy?

When the manufacturer distributes his products through online and traditional channels, what type of innovative marketing strategy can be utilized to solve the channel conflict and improve the performances of all channel members? Our research addresses this important question by initiating a triple cooperative strategy for channel members to employ in a manufacturer – retailer dual-channel supply chain. Our results show that when the product is less compatible with online channel than with traditional channel, channel members can utilize a triple cooperative strategy to improve channel coordination and their individual performances effectively and efficiently. First, the manufacturer can utilize supportive retail sales effort as a valuable coordination mechanism to improve the performances of all channel members in the dual-channel distribution. Second, a channel coordinative price strategy can be utilized to further improve the performance of whole channel. Finally, a profit sharing mechanism is needed to create a Pareto result for both the manufacturer and the retailer. Furthermore, we extend our model to study the value of triple cooperative strategy in a manufacturer – two competitive retailers supply chain and derive the optimum marketing strategy.     

Efficient replenishment in the distribution channel

Efficient replenishment (ER), a business process that involves the reduction of order cost to facilitate deliveries of goods from the manufacturer to the retailer, is becoming increasingly important in distribution channel management. While a well-executed ER program is expected to lower total channel costs and increase channel profit, very little is known about how this incremental channel profit is distributed between the manufacturer and the retailer and how it varies across the two common channel relationship structures, retailer price leadership and manufacturer price leadership.In this paper, we develop the conditions under which the manufacturer and the retailer gain more or less from the adoption of ER based on a game theoretic channel model of bilateral monopoly under the two channel relationship structures. We develop analytic results on the impact of ER on purchase quantity, price and the distribution of profits in three cases, namely, (1) when only the retailer adopts ER, (2) when both the manufacturer and the retailer adopt ER, and (3) when the manufacturer and the retailer are vertically integrated in the distribution channel, which adopts ER.The results, which can be generalized for all demand functions, show that the manufacturer benefits from the retailer's adoption of ER only when the manufacturer's holding cost relative to the retailer's is sufficiently large, relative to its order cost relative to the retailer's. By adopting ER, the retailer gains more than what the manufacturer gains even if the manufacturer is the price leader. Both the parties are likely to gain more if they both adopt ER than if only the retailer adopts ER. The incremental channel profit due to the retailer's ER adoption is highest in a vertically integrated distribution channel and is greater in a retailer-led channel relationship than in a manufacturer-led relationship.     

Attack and defend: the role of targeting in a distribution channel

This paper studies the role of targeting in a distribution channel composed of one manufacturer and one retailer. In channel interactions, the manufacturer can deploy targeted advertising while the retailer can initiate targeted pricing. Using a game-theoretic framework, we find the following results: (1) Targeted advertising increases the manufacturers profit at the expense of the retailer; (2) The retailer may be worse off using targeted pricing; (3) Targeted pricing discourages the manufacturer from launching targeted advertising which is a more severe threat to the retailer. Therefore, the retailer may optimally use targeted pricing, even when it hurts profit, to defend against the attack of targeted advertising by the manufacturer.     

Ownership coordination in a channel: Incentives,returns, and negotiations

In many industries firms have to make quantity decisions before knowing the exact state of demand. In such cases, channel members have to decide which firm will own the units until demand uncertainty is resolved. The decision about who should retain ownership depends on the balance of benefit and risk to each member. Ownership, after all, is costly. Whichever member owns the units accepts the risk of loss if more units are produced than can be sold. But ownership also grants firms the flexibility to respond to demand once it becomes known by adjusting price. In this study, we analyze ownership decisions in distribution channels and how those decisions are affected by demand uncertainty. We model demand based on micro-modeling of consumer utility functions and capture demand uncertainty related to market size and price sensitivity. This study shows that as long as the degree of uncertainty about market size is intermediate, the retailer and the manufacturer both benefit when the manufacturer maintains ownership of the units. But when there is substantial uncertainty about market size, the retailer and the channel are better off if the retailer takes ownership but the manufacturer still prefers to maintain ownership. Thus, there is potential for channel conflict regarding ownership under high levels of uncertainty. We show that, using product returns, the manufacturer can achieve the same outcome under retailer ownership as under manufacturer ownership. This provides an additional new rationale for the prevalence of product returns. The first-best outcome (from the perspective of total channel profit), however, is under retailer ownership without product returns when uncertainty is high (i.e., product returns reduce the total channel profit). Negotiations between the manufacturer and the retailer can lead to the first-best outcome but only under quite restrictive constraints that include direct side payments by the retailer to the manufacturer and the retailer being pessimistic about its outside option (when an agreement cannot be reached) during the negotiation.     

Durable Goods Monopoly,Buyer Uncertainty,and Concurrent Selling and Renting

Stylized durable goods monopoly models typically conclude that monopolists prefer to rent their output due to commitment problems associated with sales. However, we commonly observe monopolistic firms in durable goods industries simultaneously selling and renting output. To address this apparent discrepancy a simple two‐period asymmetric information model is constructed where buyers are uncertain of the good's durability and the firm's manufacturing costs. This is a natural asymmetric information specification since the firm typically has more precise knowledge of product durability and production costs than buyers do. The analysis indicates that a monopolist may wish to concurrently sell and rent output when buyers do not have perfect knowledge. If, for example, consumers believe that product durability and manufacturing costs are higher than they truly are, the firm may wish to simultaneously sell and rent output. Thus buyers' expectations about firm costs and product durability are of critical importance in durable goods models, particularly in terms of explaining concurrent rentals and sales.     

Information asymmetry, pricing strategy and firm's performance in the retailer- multi-channel manufacturer supply chain

In this research paper, we assume a retailer-multi-channel manufacturer (with online and traditional retail channels) supply chain where both the multi-channel manufacturer and the retailer have private information about the state of consumer demand. In this setting, we examine the effect of an information sharing strategy on both firms' performance. Our results show that the multi-channel manufacturer always benefits from an information sharing strategy. When the product is highly compatible with the online channel, information sharing becomes much more valuable to the multi-channel manufacturer. On the other hand, the retailer's performance is not impacted by an information sharing strategy. Thus, a bargaining model is utilized to implement profit sharing for the multi-channel manufacturer and retailer so that an information sharing equilibrium can be reached. Based on our results, we derive optimal market strategies and identify probable paths of future research.     

Managing advertising investments in marketing channels

This paper investigates how should manufacturers optimally allocate resources to retailer-initiated (retailer) advertising through cooperative advertising programs and own (manufacturer) advertising in a bilateral monopoly. Retailer advertising stimulates immediate sales but may also harm long-term (post-advertising) demand, whereas manufacturer advertising aims at building brand equity and stimulates both immediate and long-term sales. A game-theoretic model in which a manufacturer and a retailer set pricing and advertising decisions over a two-period planning horizon is developed to account for the differences between manufacturer and retailer advertising. We characterize equilibrium solutions for four advertising scenarios for the manufacturer, ranging from no investment in any advertising activity to undertaking own advertising and supporting retailer advertising simultaneously. Comparing the two players’ equilibrium strategies and profits across these scenarios, we find that manufacturers should avoid offering exclusively cooperative advertising programs to retailers. When retailer advertising positively influences long-term sales, manufacturers should offer cooperative advertising supports to retailers in addition to undertaking their own advertising. When retailer advertising negatively affects long-term sales, manufacturers can still undertake own advertising and offer cooperative advertising under certain conditions. However, if these conditions are not met, focusing exclusively on own advertising is their best advertising strategy. Retailers also prefer scenarios in which manufacturers advertise, but may choose not to participate in manufacturers’ cooperative advertising programs. This leads to suboptimal outcomes if cooperative advertising programs are not enhanced by additional incentives (e.g., side payments or other services).     

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.     

Designing successful temporary loyalty programs: An exploratory study on retailer and country differences

Retailers increasingly adopt temporary loyalty programs (TLPs), in which consumers have limited time, often less than half a year, to save stamps and redeem highly discounted rewards. These programs often run alongside the retailers’ permanent loyalty programs in an attempt to increase customer engagement. Despite the growing popularity of TLPs, the literature on the topic remains limited. We address this gap by looking at the redemption rate, the industry’s primary success indicator, of almost 900 TLPs across a broad set of grocery retailers in 45 countries. We study the effects of four key design characteristics (the duration of the program, the discount offered, the spending requirement before an award can be redeemed, and the reward depth) on the redemption rate, and explore how these effects vary across a broad range of retailer and country characteristics. In doing so, we control for both a retailer’s potential self-selection into running a TLP and the potential endogeneity of the subsequent design choices. We derive a set of actionable results on how to design successful TLPs and show that high redemption rates are not only beneficial for the program operator and reward manufacturer, but also translate into higher sales and profit for the retailer.     

Reconciling conflict of interests in a green retailing channel with green sales effort

In this paper, we address conflicting objectives in a two-echelon retailer-manufacturer green retailing channel (GRC) with two types of substitutable green and non-green products. In the investigated model, the government pays (charges) the manufacturer a certain amount of subsidies (penalties) for producing green (non-green) products. The retailer can implement a green sales effort program to encourage customers to purchase green items instead of non-green products. In so doing, the retailer can transfer an uncertain amount of non-green demand to the green demand, while the total demand over both products remains constant. However, while producing green products is advantageous for the manufacturer due to governmental interventions, this is not the case for the retailer. To mitigate this conflict, we develop a game-theoretical model and a coordination mechanism that reconciles both members' interests. By applying the novel revenue-cost sharing along with a buyback (RCS&B) contract as an incentive mechanism, we mitigate conflicts and coordinate ordering and sales effort decisions throughout the channel. Our results show that the RCS&B contract may be quite effective in managing conflicting objectives toward aligning both GRC members’ interests. The proposed contract creates an economically viable, ambidextrous GRC by devising Pareto-improving solutions.     

基于需求与储量相关条件下的供应链协调研究

供应链模型由一个制造商和零售商组成,其中制造商向零售商供应商品,零售商面临客户的商品需求与储量相关。在该模型中,制造商欲通过批发价和储量成本补偿方式来协调分散式供应链并赢利,使供应链分散式时的系统总储量等于集中控制时的储量水平。假定商品需求是依赖储量的函数和一个储量成本补偿。在单个零售商情形下,制造商需要增大批发价及支付给零售商的储量成本补贴来协调整个渠道并盈利。当两个及多个零售商竞争时,假定市场需求依赖于总储量水平,零售商按照储量比例分割市场。     

品牌权益影响下的双渠道供应链定价决策及协调研究

针对一个制造商开通直销渠道销售产品与零售商的价格竞争问题,文章基于制造商与零售商共享品牌权益的视角,研究在制造商双渠道供应链结构中,价格和品牌权益同时作用下的双渠道供应链定价决策,分别分析在集中决策下和分散决策下,品牌权益对两种渠道价格和利润的影响。研究发现：在集中决策下,两种渠道的价格、利润与品牌权益成正相关;在分散决策下,当品牌权益超过一定临界值时,其对制造商直销渠道的价格和制造商总利润的影响大于零售商。鉴于品牌权益对供应链定价决策的重要影响,文章建立制造商和零售商之间的品牌权益成本共担机制,并通过数值仿真分析发现,当实施品牌权益成本共担机制时,制造商和零售商的销售价格和利润均是最优的。因此,零售商应加强与制造商的互动,共同创造高品牌权益的同时,也应共同分享高品牌权益。     

Retailer service acceptance: simply adding a service to the offer portfolio or committing to marketing it

By virtue of their significant influence on customers’ decisions, retailers’ acceptance of a service plays a significant role in the success of that service. Therefore, retailers’ acceptance of the service and commitment to selling the service must be ensured. However, this issue has attracted limited attention in acceptance research, which tends to focus on goods, technologies and consumers. Based on a survey of consumer durables retailers in three countries, this study focuses on retailer acceptance of a complimentary use-guarantee service, which is meant to maintain customer’s ability to use a semi-durable consumer product. The results of this study link retailers’ perceived usefulness, and commitment & effort to their service acceptance. Manufacturer support was found to moderate the relationship between ease of use and acceptance. Further, nationality, retailer’s own use of the service as a consumer and the importance of the manufacturer’s business for retailers were important for retailer acceptance. Thus, manufacturers need to focus as strongly on retailer acceptance as on the end customer acceptance to ensure service success. They also need to ensure the usefulness of the service for retailer, give retailers a reason to commit to the service sales and provide enough support to make retailers comfortable in selling the service.     

Optimal retail sales strategies for old and new products in monopoly and horizontal competition scenarios

Advances in technology have made product updates more frequent and allowed consumers to choose different versions of the same product based on their preferences. It is crucial for retailers to understand how to formulate optimal sales strategies based on those different consumer preferences. To this end, we develop game models that consider the heterogeneity of consumer preferences under both monopoly and horizontal competition scenarios and perform the sensitivity analysis to examine the impact of consumer proportions and consumer preferences on retailers’ sales strategies. The results show that (i) regardless of competition or monopoly status, the original retailer can always maximize profit by setting prices based on the market share of traditional consumers, as long as the retailer sells both new and old versions of the product; (ii) the greater the competitive advantage of the competitor, the more advantageous the hybrid sales mode; (iii) if the price of the old product is below a certain threshold, there will be a positive profit for the original retailer when selling both the old and new products; and (iv) when consumer acceptance of competing retailers is lower, entering the retail market is not a good choice for competing retailers.     

Empirical investigation of channel reactions to brand introductions

We investigate how incumbent manufacturers and retailers alter their pricing behavior in response to new product introduction. In performing our analysis, we need to be cognizant of the fact that the observed price changes can be due to entry-induced changes in a) demand conditions or b) costs or, on the other hand, to the competitive behavior of c) manufacturers and/or d) the retailer. In order to separate these four changes, we posit that manufacturer and retailer pricing is an outcome of maximizing a combination of shares and profits. This enhanced objective function allows us to measure competitive conduct benchmarked as less or more competitive than under the Bertrand-Nash framework. Our empirical analysis is based on the toothpaste category for the time period January 1993–February 1995. During this period, there were three brand introductions in two rounds of entry. Using the estimates from the demand and the supply model, we compute the changes in the retail and wholesale prices that are attributable to changes in demand conditions, manufacturer and retailer competitive conduct, and cost changes. These results support our conjecture that inferring the change in conduct solely based on a change in observed prices is likely to be erroneous. For the first new brand entry, we find that the brand introduction did not significantly increase competition between manufacturers. As a result, the balance of channel power between the manufacturers and the retailers remained unaltered. Both retailer and manufacturer profit margins increased after the first entry. However, subsequent to the second entry, retailer share of channel profits increased at the expense of the manufacturers; manufacturers even saw a decline in their absolute profit margins. We believe that this research will provide insight for manufacturers and retailers regarding how the various channel participants are likely to react to new product introduction. Furthermore, policymakers interested in understanding competitive reactions to new product introduction should find this research useful.     

Self-Sabotage and Durable-Goods Monopoly

We analyze a simple two-period linear demand durable-goods monopoly model with “self-sabotage.” The firm has the ability to sabotage its own production by increasing its future (period two) manufacturing costs. We find that an uncommitted monopoly seller has an incentive to engage in such self-sabotage, while a committed seller or renter has no such incentive. Unlike the previous papers on self-sabotage, we show this occurs even though the firm faces no rivals in the output market. In our durable-goods setting, the incentive for self-sabotage arises from the seller’s commitment problem with period-one buyers (the so-called Coase conjecture). Interestingly, we also find that this sort of self-sabotage can not only be profit enhancing for the uncommitted firm, but may also increase social welfare (in contrast to the earlier models on self-sabotage.)