Direct Selling, Reselling, or Agency Selling? Manufacturer’s Online Distribution Strategies and Their Impact

ABSTRACT

We investigate a manufacturer’s three possible online strategies while the manufacturer also distributes its product through an independent retailer in a traditional channel. Under direct selling, the manufacturer sells its products to online consumers directly. Under reselling, the manufacturer sells its product through an e-tailer. Under agency selling, the manufacturer sells its products to consumers through an online agent’s website and pays the agent a commission fee. We show that it is optimal for the manufacturer to choose direct selling if the operating cost for the online channel under direct selling is sufficiently low relative to that under reselling as well as the online agent’s commission fee. Similarly, reselling through an e-tailer is optimal to the manufacturer if the operating cost for the online channel under reselling is sufficiently low. Furthermore, agency selling should be chosen if the online agent’s commission fee is sufficiently low. However, a strategy with a low online cost (including the operating costs under direct selling and reselling, and the commission fee under agency selling) may lead to a low profit for the traditional retailer, which eventually causes a low total profit for the supply chain. Nonetheless, consumers generally benefit from the manufacturer’s optimal online distribution strategy because of low prices and high quantities.

KEY WORDS AND PHRASES:

• Agency selling
• direct selling
• game theory
• online distribution strategy
• online selling
• reselling

Acknowledgments

We thank the editor-in-chief and three anonymous reviewers for their constructive comments and suggestions. This work was supported by the National Natural Science Foundation of China (grant numbers 71871105, 71671043) and the Fifth Project “333 Project” of Jiangsu Province (grant number BRA2016412), and the Six Talent Peaks Project of Jiangsu Province (grant number JY-012).

Notes

¹ Deborah, W. Alibaba’s new retail integrates e-commerce, stores, & logistics: Is this the next gen of retail? Forbes. April 14, 2017. https://www.forbes.com/sites/deborahweinswig/2017/04/14/alibabas-new-retail-integrates-e-commerce-stores-logistics-is-this-the-next-gen-of-retail/#13c09c77767c.

² The purpose of the numerical graphs is to illustrate our analytical results. We can also use other values of $\alpha \in \left(0,1\right)$ and $c_d<\alpha \left(2+\alpha \right)\left(1-\alpha \right)/\left(8-\alpha -{\alpha }^2\right)$ to obtain similar graphs.

Additional information

Notes on contributors

Xujin Pu

Xujin Pu ([email protected]) is a professor in the School of Business at Jiangnan University, China. He received his Ph.D. in management science and engineering at the University of Science and Technology of China. Dr. Pu’s research interests include e-commerce, supply chain management, game theory, and operations management. His work has been published in such journals as European Journal of Operational Research, Electronic Commerce Research and Applications, Journal of the Operational Research Society, and Journal of Intelligent Manufacturing.

Shuxing Sun

Shuxing Sun ([email protected]) is a Ph.D. candidate at Lingnan College at Sun Yat-Sen University, China. His research interests include e-commerce platforms, channel distribution strategies, and coopetition management. He has published in European Journal of Industrial Engineering.

Jing Shao

Jing Shao ([email protected]; corresponding author) is an associate professor at the University of International Business and Economics, China. She received her Ph.D. in management science at the University of British Columbia. Dr. Shao’s research interests include supply chain management, e-commerce, and transportation issues. Her work has been published in such journals as Manufacturing & Service Operations Management, Production and Operations Management, Decision Sciences, Journal of Transport, Economics and Policy, International Journal of Production Economics, Journal of the Operational Research Society, and others.