Competition between manufacturer's online customization channel and conventional retailer

Gang Li, Fengfeng Huang, Edwin Tai Chiu Cheng, Ping Ji

Research output: Journal article publicationJournal articleAcademic researchpeer-review

24 Citations (Scopus)

Abstract

Many manufacturers engaging in direct sales online face channel competition and conflict with traditional retailers. This paper studies a two-staged supply chain composed of a manufacturer, a retailer, and consumers with different aesthetic preferences. The manufacturer distributes a standard product via the conventional retailer. In addition, it offers a spectrum of customized products directly online. Modeling the firms' decisions on offering customization, we study their dependence on consumers' acceptance level of the online channel and consumers' fix cost. We obtain the following key findings. First, with the manufacturer offering customized products online, the Pareto improvement zone, in which both the manufacturer's and retailer's profits are improved because of alleviated vertical competition and an enlarged market, exists only under certain circumstances, and it depends on consumers' acceptance level of the online channel and their fit cost. Second, the manufacturer's offering customized products online does not necessarily lead to a reduction in the retail price. Third, the manufacturer is more aggressive in engaging in direct sales in a decentralized supply chain than in an integrated one, because it is less interested in alleviating horizontal competition (i.e., the competition between the standard and the customized products) in the decentralized setting.
Original languageEnglish
Article number7066882
Pages (from-to)150-157
Number of pages8
JournalIEEE Transactions on Engineering Management
Volume62
Issue number2
DOIs
Publication statusPublished - 1 May 2015

Keywords

  • Competition
  • customization level
  • mass customization
  • supply chain

ASJC Scopus subject areas

  • Strategy and Management
  • Electrical and Electronic Engineering

Cite this