Price and lead time decisions in dual-channel supply chains

Guowei Hua, Shouyang Wang, Edwin Tai Chiu Cheng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

298 Citations (Scopus)

Abstract

Manufacturers today are increasingly adopting a dual channel to sell their products, i.e., the traditional retail channel and an online direct channel. Empirical studies have shown that service quality (we focus on the delivery lead time of the direct channel) even goes beyond product price as one of the major factors influencing consumer acceptance of the direct channel. Delivery lead time has significant effects on demand, profit, and pricing strategy. However, there is scant literature addressing the decision on the promised delivery lead time of a direct channel and its impact on the manufacturer's and retailer's pricing decisions. To fill this gap, we examine the optimal decisions of delivery lead time and prices in a centralized and a decentralized dual-channel supply chain using the two-stage optimization technique and Stackelberg game, and analyze the impacts of delivery lead time and customer acceptance of a direct channel on the manufacturer's and retailer's pricing behaviours. We analytically show that delivery lead time strongly influences the manufacturer's and the retailer's pricing strategies and profits. Our numerical studies reveal that the difference between the demand transfer ratios in the two channels with respect to delivery lead time and direct sale price, customer acceptance of the direct channel, and product type have great effects on the lead time and pricing decisions.
Original languageEnglish
Pages (from-to)113-126
Number of pages14
JournalEuropean Journal of Operational Research
Volume205
Issue number1
DOIs
Publication statusPublished - 16 Aug 2010

Keywords

  • Dual channel
  • E-commerce
  • Game theory
  • Internet/direct marketing
  • Supply chain management

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

Cite this