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.     

Does manufacturer advertising suppress or stimulate retail price promotions? Analytical model and empirical analysis

Does manufacturer advertising for a brand stimulate or suppress retail price promotions? This study addresses this controversial issue. The authors develop an analytical model that shows that the relationship between manufacturer advertising and retail price promotion depends on the role of advertising. If advertising differentiates brands and suppresses consumer response to retail promotion, then the relationship is negative. But, if advertising is informative enough to increase consumer response to retail promotions, then the relationship is positive. A follow-up empirical analysis shows a strong positive relationship between category advertising expenditure and size of retail price discount, and between advertising and discount frequency. The finding supports the informative role of advertising in the context of retail price promotions. The implications of these findings and directions for future research are discussed.     

Retail environment and manufacturer competitive intensity

We study how the intensity of competition and the degree to which manufacturers enjoy market power depends on the retail environment in a given market. Past research has discussed the growing importance of retailers and the power they enjoy over manufacturers. Yet, the empirical literature to date has not determined which retail characteristics have the largest impact on competitive behavior.Our starting point is the estimation of a structural demand-and-supply model, where both consumers’ decisions and the strategic interactions between manufacturers and retailers are explicitly modeled. We identify the type of competitive behavior of manufacturers by measuring the deviation from a Bertrand-Nash equilibrium. This measure of competitive conduct is expressed as a function of key retail characteristics such as size of the retailer, its assortment depth, and category expertise.We illustrate the proposed approach using data for the ground coffee category in Germany. Our findings indicate that retail characteristics have indeed a significant effect on competitive intensity among upstream firms and on their ability to exercise market power. Hence, a manufacturer considering entry into a new market should not only take into account its competitors but also the specifics of the retail environment in this market.     

Determinants of switching intention from web-based stores to retail apps: Habit as a moderator

Online retailers seek to motivate their customers to switch from web-based stores to retail apps as using the latter as a shopping channel has many benefits for retailers compared to web-based stores. This study aims to examine the drivers of customers' intention to switch from web-based stores to retail apps by applying the Stimulus-Organism-Response (S–O-R) model. The moderating role of habit was investigated. Data were collected from 389 Malaysian individuals through an online survey and analysed using the partial least squares technique. The results indicated that performance expectancy has a significant influence on switching intention and is driven by mobile characteristics. Furthermore, effort expectancy has a positive effect on both performance expectancy and switching intention and is triggered by visual complexity and aesthetic quality. The moderating effects of habit on the associations between performance expectancy, effort expectancy and switching intention were not supported. The findings extend the literature on retail apps by exploring the switching intention drivers and testing the moderating effect of culture, which have received less attention. The results enable retail apps' developers and marketers to strategise retail apps development and marketing activities in a way that encourages current web-based stores’ customers to use retail apps as a better alternative.     

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.     

Price–Quality and Market Share of Consumer Goods in Spain: Retail Brands and Manufacturer Brands1

The development of retail brands has been favoured by the creation of large chains and by the high level of business concentration in the retail sector. It has been supported by an increasing number of consumers who are aware of value and consider that retail brand is the best alternative, with quality levels similar to those of leading manufacturer brands but with lower prices. In this survey, we analyse the price differentials between manufacturer brands and retail brands in several categories of widely consumed products. We study the relationship between the price differential and the mean category price with the market share of retail brands, for foodstuff, perfumes and cleaning materials categories. Finally, we determine the possible connection between the price of a consumer good brand and its real quality.     

The impact of customer awareness of manufacturer name disclosure on retail brand attitudes and loyalty in Korea

This paper explores the impact of exposing the name of the manufacturer on a retail brand product upon national brand loyalty, retail brand loyalty and store loyalty, It does so by exploring customer attitudes towards retail brands in South Korea, where there is a legal requirement for retail brands to portray the manufacturer׳s name. For international retailers entering markets where such disclosure is a legal requirement an understanding of the implications of this for retail brand management is essential. The findings suggest that in the Korean case revealing the name of the manufacturer who supplies the retail brand on the product packaging has a positive influence on attitudes towards retail brands, although it did not mitigate the perceived risks held by customers towards retail brand products in general.     

Manufacturer encroachment with competing dual-purpose online retail platforms

This study investigates the manufacturer encroachment strategy within a supply chain composed of a manufacturer and multiple competing dual-purpose online retail platforms who value profit and consumer surplus. We examine the strategic interactions among manufacturer encroachment, platform dual-purpose concern, and retail competition. Some interesting results are obtained. First, with a single platform, the manufacturer's encroachment incentive exhibits a non-monotonic relationship with respect to the platforms' concern of consumer surplus. However, with multiple competing platforms, the increased concern of consumer surplus and retail competition intensity dampen the manufacturer's encroachment incentive. Second, manufacturer encroachment benefits platforms (supply chain) only when the platform's concern of consumer surplus is low and commission fee is moderate (low enough). Moreover, the increased retail competition intensity and the platform's concern of consumer surplus further aggravate the detrimental effect of manufacturer encroachment on the platforms and supply chain. Third, the dual-purpose concern of the platforms may hurt consumer surplus, whereas the increased retail competition intensity may contrarily alleviate this adverse effect to some extent. Finally, the profits for the platform and supply chain and consumer surplus are non-monotonic with respect to the platform's concern of consumer surplus.     

Investigating a three-way interaction of manufacturer control,retail control and dependence on salesforce performance. Does the role of frontline employees matters ?

Dependence and retailer control on manufacturer's salesforce imply several challenges in retail channels. This research addresses how they affect the relationship between manufacturer control and salesforce performance due to the high level of salesforce investment. We conduct a moderated-moderation analysis.We investigate the moderating roles of retailer control and dependence on the relationship between manufacturer control and salesforce performance. To take into account the importance of the store frontline employee, we next studied the influence of his perception of the salesforce on the sales control systems in retailing. First, our results show that salesforce performance is influenced directly by manufacturer process control and, retail control and dependence moderate this relationship in two-way and three-way interactions. The salesforce subject to process control by manufacturer improves his performance under strong retailer outcome control while the manufacturer is in a low relative dependence. Second, employee perception of the salespeople mediates the link between manufacturer process and retailer outcome controls. We test our model in two studies and theoretically integrate retailer control, dependence, and employee perception of the salesforce, in the sales control literature. In the end, we provide practical implications to further improve salesforce performance and employee perception of the salespeople and future research suggestions.     

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.     

The impact of a gasoline crisis on retail sales

The gasoline crises of the 1970s demonstrated the need for including gasoline prices and gasoline shortages in models explaining retail sales. In this article, a model is constructed that incorporates the aforementioned variables, other variables, and a lagged sales figure as independent variable. The results indicate a high degree of explanatory power in predicting retail sales for a specialty store chain with a preponderance of their stores in large regional malls that sell a product which lends itself to unplanned purchase behaviour.     

Is the Retail Gasoline Market Local or National?

This paper studies the effect of station density on prices in the retail gasoline market in the Czech Republic. We estimate the impact of the number of competing stations in various driving-distance ranges around each station on prices. We find that station density has a negative effect on prices; the effect decreases with distance and is statistically significant up to six kilometers. This suggests that the retail gasoline market is local rather than national.     

Pricing Decisions in Dual-Channel Supply Chain Including Monopolistic Manufacturer and Duopolistic Retailers: A Game-Theoretic Approach

Emergence of the Internet as a new distribution channel has led to increasing attention by researchers to dual-channel supply chain in recent years. In this paper, pricing and ordering decisions are investigated on a dual-channel supply chain which consists of monopolistic manufacturer and duopolistic retailers. The market is assumed to be controlled by the manufacturer. Thus, the manufacturer becomes leader and the two retailers act as followers. Due to establishing this new structure, different game-theoretic models including Bertrand, Collusion, and Stackelberg are developed to analyze pricing strategies under the various interactions between the two retailers. Then, the equilibrium decisions are compared under the considered scenarios and valuable managerial insights are presented. We found that the various games do not have any effects on the manufacturer’s responses. The retail prices given by the Collusion game are higher than by the other games. In the Collusion model, demands in the retail channel are lower than in the other games. Moreover, the manufacturer and retailers receive respectively the lowest and the highest profits under the Collusion game.     

Manufacturer marketing initiatives and retailer information sharing

This research examines a retailer’s incentive to share information with its supplier when the supplier can also undertake initiatives to increase retail demand. It is well known that a retailer is averse to sharing market information with a manufacturer due to concern for a manufacturer’s strategic use of such information. This research shows that despite such strategic exploitation of market information, a retailer may want to establish information sharing channels with its supplier. Information sharing essentially shifts power upstream which, in turn, enhances the manufacturer’s incentive to bear costs to boost retail demand: the manufacturer is induced to invest merely by knowing that information is on its way. Hence, the retailer benefits from information sharing ex ante despite the costly ex post exploitation by the manufacturer. This finding is a stark contrast to the most of previous results which consistently point out how bad it is for the manufacturer to have the retailer’s demand information before setting prices. In fact, due to the investment effect, information sharing can lead to gains for the retailer, manufacturer, and consumers alike.     

供应链企业间委托代理及激励监督问题研究

为了研究供应链企业间由于信息不对称而引起的委托代理问题,从供应链的核心企业——制造商的角度出发,设计出两种模型:即纯激励模型和加入了监督惩罚策略的激励监督模型。通过这两种模型的分析比较,得出了这两种模型各自的适用范围,并探讨了不同因素如分销商的成本系数、风险规避系数、外界环境的不确定性及制造商的监督成本系数对最优激励强度、最优监控强度的影响,为供应链企业间解决委托代理问题提供了一种有效的分析工具。     

基于延伸责任的逆向供应链激励机制研究

逆向供应链作为生产者延伸责任制实施的载体,各企业间的组织协调性直接关系着生产商延伸责任制的实施效果。基于此,将逆向供应链抽象为一个制造商和一个回收商组成的价值链模型,应用委托代理理论,研究信息对称与不对称的情况下制造商和回收商之间的利益博弈,并分析不同因素对制造商和回收商期望收入的影响。     

基于促销投资的非对称信息供应链契约研究

利用了委托代理理论和最优控制理论,分析对称信息和不对称信息两种情况下制造商和零售商的供应链契约。零售商进行促销投资,在对称信息情况下,制造商以批发价作为线性契约来协调供应链系统,批发价是促销投资的减函数;在非对称信息情况下,制造商以批发价和补贴作为非线性契约的协调机制,而批发价和补贴都是促销投资的增函数。     

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.     

Generation Y employees' retail work experience: The mediating effect of job characteristics

This research examines Generation Y employees' retail work experience. Based upon Brown and Peterson's [Brown SP, Peterson RA, Antecedents and consequences of salesperson job satisfaction: meta-analysis and assessment of causal effects. J Mark Res 1993; 30: 63-77; Brown SP, Peterson RA, The effect of effort on sales performance and job satisfaction. J Mark 1994; 58: 70-80.] job satisfaction model, Gen Y employees work experience framework encompasses the work environment variables of role conflict, role ambiguity, supervisory support, and work involvement to predict job performance, job satisfaction, and, ultimately, retail career intention. Drawing from the job crafting perspective in management theory [Wrzesniewski and Dutton, 2001], this research tests the mediating effect of job characteristics between work environment and job outcomes using structural equation modeling. Study participants were members of a national sample of students (n = 803) from 14 universities in the United States. The findings indicate that job characteristics have a critical mediating role on the relationships for Gen Y employees, suggesting a paradigm shift from passive to active employees who craft their jobs, roles, and selves within a retail organizational context.     

Slotting Allowances in China: Perspectives of a Large Manufacturer Versus a Large Retailer in the China Grocery Market

ABSTRACT

Slotting allowances and contractual marketing agreements pervade the retail environment in the United States. They represent a profit center for large retailers who exercise market power and represent a cost center for large manufacturers. Many manufacturers have alleged that they are “held captive” to procure prime retail space. Despite the influx of retailers and manufacturers based in the United States, the deployment of slotting allowances in China is less prevalent but does pervade the grocery sector. The purpose of this study is therefore to explore the attitudes of large Western manufacturers and retailers toward the issue of slotting allowances in the China grocery market through a qualitative study. In-depth interviews were conducted with key decision-makers from Coca-Cola (manufacturer) and Carrefour (retail hypermarket) to critically explore their attitudes toward slotting allowances. The interviews reveal principal differences grounded in cultural norms.