How Do Pricing Power and Service Strategy Affect the Decisions of a Dual-Channel Supply Chain?

Abstract

With the rapid development of e-commerce, an increasing amount of manufacturers are implementing a dual-channel strategy, i.e., introducing an online direct sale channel on the existing traditional retail channel. However, it is noted that for the small and medium-sized manufacturers, they may face the resistance of the dominant retailer caused by this strategy. It is well known as channel conflict, and some challenging issues remain to be further explored, e.g., How to price and coordinate the dual-channel under different pricing power structures? And, if possible, when should the retailer offer the value-added service to enhance his competitiveness and mitigate the channel conflict? The paper compares the decision models under a different power structure (i.e., Manufacturer-Stackelberg, Retailer-Stackelberg, and Vertical Nash) and service strategy (providing the value-added service or not); the analyses show two important findings. First, for the manufacturer or the retailer, they both prefer to be the leader to enjoy the power advantage and higher profits. However, for the entire supply chain and the consumers, they prefer equal power structure to the other two power arrangements. Second, the retailer will get more profits while providingvalue-added service. Interestingly, it is also beneficial to the manufacturer.