The impact of customers’ channel preference on pricing decisions in a dual channel supply chain with a dominant retailer

ABSTRACT

Today, many manufacturers are opening their own online store to neutralize power of dominant retailers. In a dual-channel supply chain, the manufacturer sells his product through a physical retailer as well as an online channel. It is assumed that a dominant physical retailer acts as a leader and proposes his dollar-markup policy and the manufacturer, as a follower, will decide on the wholesale price and online price based on the retailer’s agreed markup. We employ a game-theoretical analysis between the manufacturer and physical retailer, and derive a subgame perfect equilibrium. The results show that customers’ channel preference has a significant impact on the manufacturer decision on adopting an online channel. Contrary to the traditional perception, we show that there exists a Pareto-zone for customers’ channel preference in which both the manufacturer and retailer benefit from a dual-channel supply chain.

KEYWORDS:

• Dual channel
• customers’ channel preference
• online channel
• pricing
• stackelberg-game

Disclosure statement

No potential conflict of interest was reported by the author(s).