A Strategic Analysis of Mixed Channel Structure: Retail Store Ownership

A Strategic Analysis of Mixed Channel Structure: Retail Store Ownership

Xiaowei Linda Zhu (Department of Management, West Chester University of Pennsylvania, West Chester, PA, USA), Xingxing Zu (Department of Information Science and Systems, Morgan State University, Baltimore, MD, USA), Lei Zhu (Department of Economics and Finance, West Chester University of Pennsylvania, West Chester, PA, USA) and Huafan Ma (School of Management, Marketing and International Business, Kean University, Union, NJ, USA)
Copyright: © 2015 |Pages: 21
DOI: 10.4018/ijban.2015010103
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Abstract

In order to meet the needs of different customer segments, manufacturers use multiple distribution channels. This paper will examine two of the most common types of multi-channel structures. Under Structure 1, a supply chain includes a manufacturer, its online store and its own retail store, like GAP's business model. A profit maximization model is used to obtain optimal strategies in terms of optimal retail price and level of value-added services provided by manufacturer-owned retailer. Under Structure 2, a supply chain includes a manufacturer, its online store and an independent retail store, like Dell's business model. Stackelberg game is applied to obtain the optimal retail price, wholesale price, and level of value-added services provided by an independent retailer. Furthermore, comparisons between these two business structures are discussed and managerial guidelines are proposed. Finally, numerical examples are provided and real business examples are discussed to illustrate and justify the theoretical results.
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2. Literature Survey

There are several research studies related to strategic multi-channel structure. Balasubramanian (1998) models the competition in the multiple-channel environment from a strategic viewpoint and also study the role of information in multiple-channel markets. Chiang, Chhajed, & Hess (2003) state that the direct marketing could be used for strategic channel control purposes. They find that the manufacturer is more profitable even if no sales occur in the direct channel. Yao & Liu (2003) study diffusion of customers between two channels and find that, under certain conditions, both channels would enjoy stable demand. Tsay & Agrawal (2004) provide an extensive review of quantitative approaches to model the multi-channel structures, with particular emphasis on the implications of the Internet for distribution strategy.

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