Supply chain partners' decisions with heterogeneous marketing efforts considering consumer's perception of quality

Abstract

Consumers' perceived product quality reflects their psychological estimations on product quality, which directly affected by the real product quality provided by the manufacturer and the appearance of products from the retailer. Generally, consumer's willingness-to-pay is affected by their perceived quality. This study explores how consumers' perceived quality affects supply chain decisions with different supply chain structures. To conduct this study, demand function consisted of consumers' perceived quality is built. After that, the retailer and manufacturer's revenues models are formulated. Analytical solutions of supply chain partners, i.e., optimal product quality, wholesale price, packaging investment and retail price, are obtained with Stackelberg games. Investigation on the relations between supply chain circumstances and equilibrium decisions under different supply chain power structurers suggests some novel findings and managerial insights. For example, retailer's optimal product retail price negatively affected by market demand, manufacturer's optimal product quality is proportionate to retailer's packaging investment and vice versa.