Markdown pricing strategy under a dual-channel supply chain with strategic consumers

Abstract

This study investigates the markdown pricing strategies for a manufacturer and a retailer in a twoperiod dual-channel supply chain, where the manufacturer sells its products via its own direct channel and an independent retail channel to strategic consumers who may wait for markdowns. A two-period game is developed to systematically study the optimal regular prices and markdown prices under four cases, i.e., no markdown in both channels, markdown only in the direct channel, markdown only in the retail channel, and markdowns in both channels. By comparing the different cases, we find that the manufacturer benefits most from the case with markdowns in both channels, where the markdown rate of the retail channel is lower than that of the direct channel. On the other hand, the results indicate that the retailer may also profit most from the case with markdowns in both channels when the consumer acceptance of the direct channel is sufficiently high; otherwise, the retailer enjoys the highest profit under the case with markdown only in the retail channel. Finally, it is found that strategic consumer behavior has a positive impact on the retailer’s profit but a negative impact on the manufacturer’s profit.

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“…Many scholars have also studied strategic consumers on the basis of a dual-channel system. Li et al [22] pointed out that with the increase in the proportion of short-sighted consumers, the price competition between a physical channel and a network channel under decentralized decision-making will become more intense, with the manufacturer dominating the competition at this time; in addition, the collusion between supply-chain members can make the prices of two channels reach high prices, with the retailer dominating the competition at this time. Cao and Huang [23] believed that if the number of strategic consumers in the market is small, and their influence on the supply chain is very small, manufacturers mainly consider the behaviours of retailers when making pricing decisions.…”

“…We also found that existing research considering both factors mentioned above is rare. Close to the research in this paper is Li et al [22] research, which considers both shortsighted and strategic consumption behaviors in the dualchannel supply chain system. They divide the whole market demand into five parts according to the balance between the utility and valuation of products by strategic consumers, and derive different demand functions.…”

“…1 below is a schematic diagram of the game model. Referring to the practices of Li et al [22], we assume that the supplier sells products to the retailer at wholesale prices, and the price is denoted by w. The retailer sells these products to the end consumer through a physical channel at a certain markup rate. More specifically, in the first period, the supplier sells these products to the retailer at the wholesale price, w, while determining the retail price 𝑝 for its network channels.…”

“…After entering the discounted sales period, the supplier and the retailer respectively make discounted sales, in which the supplier decides its own network channel price 2 e p and the retailer decides its own physical channel price 2 r p . We set the unit product cost of the supplier to a constant c (0 < c < 1) [6,16,22,33].…”

“…The retailer's physical channel price for each sales period is r i p (i = 1, 2); and the supplier's network channel price for each sales period is e i p (i = 1, 2). We assume that the utility discount of a product in the second period is δ, and the condition of 0 < δ < 1 needs to be satisfied [6,16,22]. For convenience of description, we use the subscript "M" to represent the supplier and the subscript "R" to represent the retailer.…”