Pricing and sales-effort investment under bi-criteria in a supply chain of virtual products involving risk

Chernonog, Tatyana; Avinadav, Tal; Ben-Zvi, Tal

doi:10.1016/j.ejor.2015.05.024

Cited by 30 publications

(10 citation statements)

References 22 publications

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“…They used three criteria to solve maximization objective and analyzed two forms of demand uncertainty. Chernonog et al (2015) used two criteria to develop and solve a stochastic model of virtual products, where demand is uncertain and depended on price and sales-effort. Avinadav et al (2015a) studied the price and quality investment decisions in a supply chain of mobile apps under uncertain demand, and analyzed three different attitudes: risk-aversion, risk-neutrality and risk-seeking.…”

Section: Literature Reviewmentioning

confidence: 99%

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Contract design on digital platform for the risk-averse retailer with moral hazard

Lan

2017

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Purpose The advent of e-commerce has prompted the proliferation of digital platforms for virtual products. This reinforces the importance of the contract design problem between the virtual product supplier (he) and the digital platform retailer (she). The purpose of this paper is to investigate a principal-agent problem in a virtual product supply chain, in which the retailer’s sales-effort investment level to sell the virtual product is unobservable to the supplier, and the market demand is unknown to both parties. Design/methodology/approach In this study, the supplier designs two kinds of contracts (wholesale price contract and two-part tariff contract) to maximize his profit, while the retailer determines her sales-effort investment level and the virtual product’s retail price. The results of two different types of contracts are compared to explore in depth the effect of contract choices on the participants’ profits. Findings The authors show that the comparative results of the optimal wholesale prices, retail prices and sales-effort investment levels between these two kinds of contracts all rely on the retailer’s risk-averse degree. Specifically, both the supplier and the whole supply chain prefer the two-part tariff contract rather than the wholesale price contract, the retailer should do opposite when she is low risk-averse, whereas there is no distinction for the retailer’s utilities between these two kinds of contracts when she is more risk-averse. Originality/value The value of the research rests on the use of principal-agent theory in the contracts of virtual products considering the retailer’s sales-effort and risk-aversion degree. The research will serve as a guide for the virtual products’ supplier and the platform retailer in decision-making processes.

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Section: Literature Reviewmentioning

confidence: 99%

“…As in the case of virtual products, its sales are characterized by a negligible unit distribution cost and ample capacity to fulfill demands. Therefore, our model does not include either holding or shortage costs (Avinadav et al , 2014; Chernonog et al , 2015).…”

Section: Problem Formulationmentioning

confidence: 99%

Contract design on digital platform for the risk-averse retailer with moral hazard

Lan

2017

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“…From the perspective of new product pricing and promotion decision-making research, domestic and foreign research mainly focuses on two aspects. First, research on the optimal pricing and promotion strategies of new products when there are different market segments [8][9][10][11] studied the decision-making of pricing and promotion efforts in a multistage supply chain. Liu et al [12] studied the impact of promotion efforts under dual channels on the profits of manufacturers and retailers and concluded that only synergy between the upstream and downstream of the supply chain can improve promotion efficiency.…”

Section: Introductionmentioning

confidence: 99%

Customer Knowledge Enabled Innovation: Analyzing Pricing‐Promotion Coordination Mechanism

et al. 2021

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Pricing and promotion are two important decisions during the market launch of new consumer electronics products. Nowadays, the pricing and promotion of consumer electronic products are often not made separately but at the same time. This study focuses on the pricing-promotion coordination mechanism of a secondary supply chain of new consumer electronics products (which consists of a manufacturer and a seller). Price and the degree of promotion together affect the demand for products. Manufacturers give sellers a sales target. Manufacturers and sellers set prices and promotions separately, introduce repurchase penalty joint contracts, and establish supply chain profit models to compare and analyze optimal pricing, promotion efforts, and maximum profit of supply chains under different decision-making situations. We prove that the repurchase penalty joint contract can coordinate the supply chain under the assumptions of a single-period game and a multiperiod repeated game. The results show that under the repurchase penalty joint contract, when manufacturers and sellers choose high prices and high promotions at the same time, the supply chain of new consumer electronics products has the largest profit. Finally, numerical experiments are conducted to study the influence of parameters on optimal decision-making and supply chain profits.

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“…As dual-channel studies in supply chain management have attracted much research attention, according to Taylor [26], quality, price and sales effort are the key dimensions for retailer's and manufacturer's marketing activities. Studies on pricing and sales effort can be referred to Chernong et al [8]), Yan and Pei [30], Gao et al [15] and Pu et al [24]. These papers only consider the marketing behavior through pricing or sales effort while they seldom consider the excessive consumption of the non-renewable resources.…”

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confidence: 99%

A dual-channel supply chain problem with resource-utilization penalty: Who can benefit from sales effort?

Zhao¹,

You²,

Fang³

2021

JIMO

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As manufacturers may engage in both direct sale and wholesale, the channel conflict between manufacturer and retailer becomes inevitable. This paper considers a dual-channel supply chain in which a retailer sells the product through store channel with sales effort while the manufacturer holds a direct channel and may provide an incentive measure to share the cost of sales effort. To meet social responsibility, a penalty on the total resource consumed is imposed on the manufacturer. We present a manufacturer-led decentralized model in which both members maximize individual profit, and then derive the corresponding optimal direct/store price and wholesale price. The dualchannel supply chain model without sales effort policy is also considered so as to explain the effects of sales effort policy and sharing cost measure on both parties. Special properties are presented to show (i) the influence of retailer's sales effort and manufacturer's sharing cost on the optimal strategies; (ii) the resource-utilized penalty on the optimal decisions. Finally, numerical experiments are conducted to highlight the influence of various parameters on optimal solutions. We find that if the market response to retailer's sales effort is strong or the manufacturer's sharing portion of sales effort cost is increased, the retailer's profit and store selling price increase while the manufacturer's profit decreases and the direct sale and wholesale prices do not change. We also show that if the consumer's value on direct channel exceeds a threshold, the manufacturer's profit will be greater than that of the retailer. Moreover, if the market response to retailer's sales effort is strong, manufacturer's profit will be lesser than retailer's profit.

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Pricing and sales-effort investment under bi-criteria in a supply chain of virtual products involving risk

Cited by 30 publications

References 22 publications

Contract design on digital platform for the risk-averse retailer with moral hazard

Contract design on digital platform for the risk-averse retailer with moral hazard

Customer Knowledge Enabled Innovation: Analyzing Pricing‐Promotion Coordination Mechanism

A dual-channel supply chain problem with resource-utilization penalty: Who can benefit from sales effort?

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