Managing a Distribution Channel Under Asymmetric Information with Performance Requirements

Desiraju, Ramarao; Moorthy, Sridhar

doi:10.1287/mnsc.43.12.1628

Cited by 158 publications

(77 citation statements)

References 21 publications

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“…They show that coordination is not always in the manufacturer's interest when retailers compete. Desiraju and Moorthy (1997) consider the channel management problem in a setting where information held by manufacturers and retailers about demand conditions are asymmetric. They argue that performance requirements on both price and service will improve channel performance.…”

Section: Literature Reviewmentioning

confidence: 99%

“…ing franchising, competition between retailers, incentive compatible contracts, implicit understandings from repeated interaction, profit sharing, quantity discounts, coupons and rebates, exchange of personnel, and arbitration (Jeuland and Shugan 1983, Shugan 1985, McGuire and Staelin 1986, Lal 1990, Couglan et al 1996, Gerstner and Hess 1995, Desiraju and Moorthy 1997. In this paper, we explore an alternative remedy: a manufacturer's direct channel.…”

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confidence: 99%

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Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design

2003

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The advent of e-commerce has prompted many manufacturers to redesign their traditional channel structures by engaging in direct sales. The model conceptualizes the impact of customer acceptance of a direct channel, the degree to which customers accept a direct channel as a substitute for shopping at a traditional store, on supply-chain design. The customer acceptance of a direct channel can be strong enough that an indepent manufacturer would open a direct channel to compete with its own retailers. Here, direct marketing is used for strategic channel control purposes even though it is inefficient on its own and, surprisingly, it can profit the manufacturer even when so direct sales occur. Specifically, we construct a price-setting game between a manufacturer and its independent retailer. Direct marketing, which indirectly increases the flow of profits through the retail channel, helps the manufacturer improve overall profitability by reducing the degree of inefficient price double marginalization. While operated by the manufacturer to constrain the retailer's pricing behavior, the direct channel may not always be detrimental to the retailer because it will be accompanied by a wholesale price reduction. This combination of manufacturer pull and push can benefit the retailer in equilibrium. Finally, we show that the mere threat of introducing the direct channel can increase the manufacturer's negotiated share of cooperative profits even if price efficiency is obtained by using other business practices.

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Section: Literature Reviewmentioning

confidence: 99%

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confidence: 99%

Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design

2003

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“…The quadratic form serves to bound system profits and suggests diminishing returns on sales effort expenditures. Its appropriateness is discussed further by Desiraju and Moorthy (1997), Tsay and Agrawal (2000), and references within. Non-negativity of sales effort levels in the multi-channel equilibrium requires the following assumption:…”

Section: Cost Structurementioning

confidence: 99%

“…For instance, a number of works have shown that schemes with quantity discount or two-part tariff structure enable coordination under a variety of settings (cf. Jeuland and Shugan 1983;Moorthy 1987;Desiraju and Moorthy 1997). We thus focus attention on system B, considering a manufacturer that has chosen to use both channels for 13 In Figures 2 and 3, this is a small but distinct segment in the upper left of the manufacturer's R-favoring region.…”

Section: Incentive Schemes For Multichannel Distributionmentioning

confidence: 99%

Channel Conflict and Coordination in the E‐Commerce Age

Tsay

Agrawal

2004

Production and Operations Management

873

486

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A number of factors, including developments in Internet-based commerce and third-party logistics, have led many companies to consider engaging in direct sales. Such a company may at once be both a supplier to and a direct competitor of any existing reseller partners (e.g., land-based retailers), which can result in "channel conflict." This can have momentous implications for distribution strategy.To generate managerial insights into this important issue, we develop a model that captures key attributes of such a setting, including various sources of inefficiency. We examine these in detail and identify a number of counterintuitive structural properties. For instance, the addition of a direct channel alongside a reseller channel is not necessarily detrimental to the reseller, given the associated adjustment in the manufacturer's pricing. In fact, both parties can benefit.Finally, we examine ways to adjust the manufacturer-reseller relationship that have been observed in industry. These include changes in wholesale pricing, paying the reseller a commission for diverting customers toward the direct channel, or conceding the demand fulfillment function entirely to the reseller. The latter two schemes could be mutually beneficial in that they achieve a division of labor according to each channel's competitive advantage.

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“…Raju and Zhang (2005) examine the relative e¤ectiveness of quantity discounts and menu of two-part tari¤s to obtain channel coordination in the presence of a dominant retailer providing demand-enhancing services. Blair and Lewis (1994) and Desiraju and Moorthy (1997) consider a market where the retailer has better information on demand conditions than the manufacturer, and examine the e¤ectiveness of various vertical restraints such as resale price maintenance to achieve channel coordination. Similarly, Perry and Porter (1990), Winter (1993) and Iyer (1998) consider the e¤ect of retailer competition in price and service on channel coordination.…”

Section: Introductionmentioning

confidence: 99%

Manufacturer-provided services vs. Retailer-provided services: Effect on product quality, channel profits and consumer welfare

Kolay

2015

International Journal of Research in Marketing

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Demand-enhancing services like automated help desks, toll-free technical support hotlines or delivery and installation services are routinely o¤ered to consumers by manufacturers or retailers or both. This paper examines how the identity of the channel member (manufacturer or retailer) providing the demand-enhancing services can have a di¤erent impact on the manufacturer's product quality decisions and resultant channel and consumer welfare. We show that when a manufacturer wishing to sell its entire product line through a retailer provides demand-enhancing services to consumers, then it chooses higher product quality levels and channel member pro…ts and consumer welfare are higher. However, when the retailer selling the manufacturer's product line is the one who provides the demand-enhancing services, then the manufacturer may choose a lower product quality level and retailer pro…t and consumer welfare may be lower. Our results therefore indicate that a manufacturer should not simply look at cost savings arising from shifting service responsibilities from itself to the retailer. Similarly, a retailer should not expect to always bene…t from situations where it has secured the ability to choose its own desired levels of services to be provided to consumers.

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Managing a Distribution Channel Under Asymmetric Information with Performance Requirements

Cited by 158 publications

References 21 publications

Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design

Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design

Channel Conflict and Coordination in the E‐Commerce Age

Manufacturer-provided services vs. Retailer-provided services: Effect on product quality, channel profits and consumer welfare

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