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.     

Variations in the contractual terms of cooperative advertising contracts: An empirical investigation

Cooperative advertising arrangements between manufacturers and resellers contain two principal components in their payment schedules: a participation rate and an accrual rate. We analyze 2,156 cooperative advertising plans to see how they vary across consumer and industrial products, as well as between convenience and nonconvenience consumer products. We also study how participation and accrual rates vary by the level of manufacturer concentration across product categories. We find that both participation and accrual rates are higher for consumer products than for industrial products and within consumer products are higher for convenience products than for nonconvenience products. We find mixed results for the effect of manufacturer concentration on these rates. We discuss how these results are consistent with existing perspectives on cooperative advertising.     

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.     

Consumer Product Failure Causing Personal Injury Under the No-Fault Accident Compensation Scheme in New Zealand—a Let-off for Manufacturers?

This article examines how the no-fault accident compensation system in New Zealand operates to relieve manufacturers from liability to consumers for product failures which cause personal injury or death. The state-run accident compensation scheme pays compensation to persons who suffer “personal injury by accident” and bars claims for compensation from the party at fault. The advantage for consumers is that they are entitled to compensation from the accident compensation scheme as of right and do not need to make claims against manufacturers of products which cause injury or death. The article outlines some limited circumstances when consumers may claim compensation from manufacturers and identifies other avenues for holding manufacturers responsible for injury or death caused by faulty products. The paper makes three recommendations to increase manufacturer responsibility: (1) allow the regulatory body which administers the Accident Compensation system to claim compensation, by way of subrogation, from manufacturers in limited circumstances; (2) require manufacturers to pay an additional “product liability” levy to the accident compensation scheme; and (3) amend the Health and Safety at Work Act 2015 to cover non-workplace accidents exposing manufacturers of unsafe products to Worksafe investigation and possible criminal liability. The article argues that imposing additional responsibility on manufacturers for product failures which cause personal injury or death is justified on the grounds of fairness. Arguments based on corrective fairness and distributive fairness can both be relevant in cases of personal injury caused to consumers by manufacturers.     

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.     

信息共享下双渠道制造商与零售商协调研究

随着internet的应用越来越广泛,许多制造商不仅使用传统的销售商渠道销售产品,而且通过网上直销的方式进行产品销售,双渠道增加了渠道之间的竞争。零售商为了在渠道竞争中获得优势,可以通过花费一定的成本增加零售产品价值。通过建立博弈模型分析强势制造商在对零售商信息完全、信息不完全情况下的定价策略,分析得出制造商获得零售商信息的价值,以及零售商愿意向制造商分享成本信息时的临界收益,旨在提出参考建议。     

The effect of default options on choice—Evidence from online product configurators

Many firms use product configurators to enable customers to specify their desired products online. In such systems, defaults are pre-specified for levels of product features by the manufacturer or dealer. For example, when configuring a racing bike online, a default is predefined (e.g., the Shimano Ultegra model) for all required features (e.g., the gearshift levers). Such defaults, which may even adapt to previous choices, ensure that a functional and fully defined product emerges at the end of the configuration process. However, when designing sales systems, companies often fail to realize that these defaults also affect customer decision-making. We demonstrate the effect by a study that makes use of a fully simulated racing bike configurator. We find the following results: Moving the default of one feature (e.g. wheels) from the lowest to the highest level results in an increase in sales. In addition, the feature level defined as the default also acts as a reference point by increasing the sales of levels near to it. In order to maximize sales, the default should be set at the level of a feature that is between the medium and the highest price level. To conclude we discuss how manufacturers and dealers subtly yet powerfully influence the decision-making process with their sales systems.     

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.     

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。     

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.     

The Effect of Product Innovation,Promotion, and Price on Consumer Switching to Private Labels

The channel conflict that exists between retailers and manufacturers of branded products has dynamically shifted as large retailers have expanded their offerings of private label products. This study investigates the ability of consumer packaged goods companies to exert influence in the channel by testing which marketing initiatives implemented by manufacturer brands are more efficient in preventing consumer switching to private labels. We use a hazard model to simultaneously measure the effects due to product innovation, promotion, and price on consumer switching and how strong those effects are. We find that as expected product innovation, promotion, and price exert a negative effect on the consumer likelihood of switching to private labels. However, we find the strongest effect on promotion suggesting the importance of understanding how consumers perceive value in the national brands offer.     

Optimal Returns Policy under Demand Uncertainty

Multiple categories of retail products suffer limited shelf life, demand uncertainty, and, in some cases, long lead times. To provide retailers with an incentive to increase the stocking quantity of such products, manufacturers may offer an option to return unsold items at wholesale or less than wholesale prices. This article extends the additive price-dependent demand model in three ways. First, partial returns are optimal for the manufacturer but do not induce higher stocking quantities compared with when the manufacturer offers no returns. Second, in terms of the effect of investment in demand-enhancing activities, when retailers invest, they set higher resale prices, but an optimal partial returns policy still does not induce higher stocking quantity, whereas when manufacturers invest, the optimal returns policy induces higher stocking quantity. Third, when the manufacturer and retailer have different expectations of demand uncertainty, the retailer's estimate influences the expected profits for both, whereas the manufacturer's estimate has a major impact on its profits only.     

Why Do Local South Korean Market Leaders Supply Retailer Grocery Brands?

This article examines why many of the leading South Korean brand manufacturers produce retailer brand products within their major product categories. The reasons identified include pressure from retailers, protection of other national brand product ranges, maintenance or improvements in working relationships, protection of other distribution channels, savings in marketing budgets, diversification of product lines, and changing competitive structures. Evidence is also provided of the dynamic nature of decision making relating to retail brand supply across the whole portfolio of brands which the manufacturer offers, rather than in respect of individual product brands or markets, the focus of much existing work.     

Managing Channel Profits: The Role of Managerial Incentives

The existing literature has examined how manufacturers can enhance profits by employing specific channel structures and channel coordination mechanisms. In this paper, we examine the implications of strategically designed managerial incentives for channel performance in a duopoly. We first analyze how equilibrium outcomes (especially manufacturer profits) are altered when the manufacturers provide their channel managers with strategically designed incentives. Following that, we examine how optimal channel structure decisions are altered when manufacturers provide their managers with strategic incentives, i.e., we examine how strategic incentives moderate optimal channel structure decisions. In contrast with the existing literature, we find that an asymmetric channel structure with one manufacturer employing a profit-maximizing retailer and the other integrated manufacturer providing strategic incentives for the channel manager in charge of pricing, is an equilibrium outcome under certain conditions. We then compare how the implications of strategic incentives differ from those of channel structure decisions and channel coordination initiatives, and discuss when and why strategic incentives yield superior outcomes from the manufacturer’s perspective. Our results shed light on the sparsely researched role of managerial incentives in the channel context.     

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.     

Coupon Trading and its Impacts on Consumer Purchase and Firm Profits

When a retailer distributes manufacturer coupons to consumers without perfectly identifying their product valuations, consumers may have incentives to trade coupons. We develop a model to capture the coupon trading phenomenon and compare three scenarios: (I) no coupon, (II) coupon without trading, and (III) coupon with trading. We find that coupon trading can increase the profits of either the retailer or the manufacturers, but not at the same time. The retailer benefits from coupon trading when the coupon market is competitive and consumer hassle cost is low, while the manufacturers benefit from coupon trading when the coupon market is uncompetitive and consumer hassle cost is high. In addition, coupon trading does not always increase total demand. Firms benefit from coupon trading by charging higher prices, which leads to a decreased total demand. As a result, consumers end up with a higher average cost under coupon trading. We also compare coupon trading with improved coupon targeting, and find that coupon trading may allow firms to gain higher profits than improved coupon targeting. Further, we extend the main model to a competitive setting where the products are substitutable, and find that the main results still hold. Finally, we employ numerical analysis to identify the optimal coupon face values in different scenarios, and the results suggest that coupon trading combined with incentive mechanisms may lead to Pareto improvement for the channel as a whole.     

Service bundling and strategic equilibrium in the information services industry

The information service industry is characterized by successive levels of access; e.g., network service and data base service. Within this structure firms may have incentives to bundle services and exclude independent service providers from media access. This multilevel structure is incorporated into mathematical models that can be used to characterize interactions between unregulated firms in a variety of industries, including switched network services, software, and television.Incentives for vertical merger between complementary service providers are evaluated for several cases. We show that cross subsidy occurs under vertical merger, and that the likelihood of merger is greatest when one of the firms can unilaterally exclude other complementary firms from media access. In this case the access controlling firm is in a position to enforce bundled pricing and limit the availability of independently supplied services. This ability to bundle services leads to cross subsidy and merger, even in the absence of economies of scale or scope.     

The process of internationalization: how Swedish food retailers perceive their domestic supplier relationships

This paper focuses on how retailer–manufacturer relationships are influenced by the process of internationalization. Empirically, we study the Swedish food sector. It has previously been domestically oriented and concentrated. As Sweden joined the EU in 1995, however, a lot of entry barriers have disappeared and Swedish food retailers have been given new purchasing opportunities. We investigate how these changes have affected the retailers' relationships with their suppliers.Theoretically the paper is based on a network perspective and resource dependence theory.It develops and tests a set of hypotheses on howa retailer's relationships to its domestic suppliers will change when it gets a greater access to foreign products and suppliers, using a survey of 621 Swedish food retailers. Among other things, the study reveals that while being prepared to buy fewer products from Swedish manufacturers, the retailers still consider it very important to co-operate on a long-term basis with domestic suppliers.     

Why parallel trade may raise producers' profits

This paper shows that a manufacturer may benefit from parallel trade. In addition to an intuitive condition about the effect of demand shocks, this occurs when competitive retailers must order inventories before they know the realization of demand and for products whose sale value drops at the end of the demand period. For these types of products, letting retailers trade unsold inventories generally results in larger orders placed with the manufacturer and higher manufacturer profit. The model provides a simple explanation as to why the volume of parallel trade is now very large and accepted by manufacturers for some products such as automobiles, clothes, toys, consumer electronics, musical recordings, cosmetics and perfumes.     

Performance in Product versus Service Supplier Relationships

ABSTRACT

Today's rapidly changing and competitive marketplace has forced channel members to devote increased attention and resources to providing consumers with a seamless delivery of products and services. This seamless delivery occurs through social integrative relationships between channel members, supported by the application of information technology. Achieving integration is a difficult task that may vary based on whether a product or a service is involved. This paper proposes that manufacturer integrative relationships with product suppliers may develop with lower levels of seamless delivery when compared to manufacturer integrative relationships with service suppliers. Further, the paper discusses how the application of information technology may impact manufacturer-supplier relationships and performance.