A common practice for brand manufacturers is to operate dual distribution channels in which they offer an online channel for direct sales to end consumers and an independently-managed retail channel for sales in physical stores. This structure enables the manufacturers to reach multiple segments of consumers with different online and offline shopping preferences, but it may create channel conflicts due to the manufacturers’ competitive position in the end market. Cooperative advertising programs can be implemented in response to the emerging competitive dynamics between the manufacturers and the retailers. We investigate the impact of the consumers’ sales channel preference (i.e., “consumer loyalty”) and the product compatibility with online shopping (i.e., “product web compatibility or web fit”) on the cooperative advertising and pricing decisions of a manufacturer and a retailer in a dual-channel supply chain. We use game-theoretical models and characterize the firms’ equilibrium behaviors under different power structures in the channel. Our results indicate that the level of the retailer’s advertising investment and the manufacturer’s reimbursement in the cooperative advertising program depend critically on consumer loyalty, product web compatibility, and the power distribution among the channel members. For example, when the channel power is symmetrically distributed or held asymmetrically by the retailer, the retailer’s local advertising level increases as the product web compatibility decreases or the proportion of store-loyal consumers increases; whereas this trend is reversed when the manufacturer is the channel leader. We examine how the introduction of the direct channel affects the profits, and we generate additional managerial insights from numerical experiments.
Keywords: Cooperative advertising, dual-channel supply chain, game theory, supply chain management
@article{RO_2022__56_4_2557_0,
author = {Chaab, Jafar and Caliskan Demirag, Ozgun},
title = {Effects of consumer loyalty and product web compatibility on cooperative advertising and pricing policies in a dual-channel supply chain},
journal = {RAIRO. Operations Research},
pages = {2557--2580},
year = {2022},
publisher = {EDP-Sciences},
volume = {56},
number = {4},
doi = {10.1051/ro/2022120},
mrnumber = {4469498},
language = {en},
url = {https://www.numdam.org/articles/10.1051/ro/2022120/}
}
TY - JOUR AU - Chaab, Jafar AU - Caliskan Demirag, Ozgun TI - Effects of consumer loyalty and product web compatibility on cooperative advertising and pricing policies in a dual-channel supply chain JO - RAIRO. Operations Research PY - 2022 SP - 2557 EP - 2580 VL - 56 IS - 4 PB - EDP-Sciences UR - https://www.numdam.org/articles/10.1051/ro/2022120/ DO - 10.1051/ro/2022120 LA - en ID - RO_2022__56_4_2557_0 ER -
%0 Journal Article %A Chaab, Jafar %A Caliskan Demirag, Ozgun %T Effects of consumer loyalty and product web compatibility on cooperative advertising and pricing policies in a dual-channel supply chain %J RAIRO. Operations Research %D 2022 %P 2557-2580 %V 56 %N 4 %I EDP-Sciences %U https://www.numdam.org/articles/10.1051/ro/2022120/ %R 10.1051/ro/2022120 %G en %F RO_2022__56_4_2557_0
Chaab, Jafar; Caliskan Demirag, Ozgun. Effects of consumer loyalty and product web compatibility on cooperative advertising and pricing policies in a dual-channel supply chain. RAIRO. Operations Research, Tome 56 (2022) no. 4, pp. 2557-2580. doi: 10.1051/ro/2022120
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