Article Preview
Top1. Introduction
Recently, greening investment by the retailing sector has grown in significance (Tang et al., 2016). Consciousness of environmental sustainability is motivating more and more retailers to join the bandwagon of green retailing. However, the retailer incurs a significant upfront greening investment cost (Hart and Ahuja, 2000), which is private retailer information. This leads to information asymmetry between the retailer and the other supply chain members. The information asymmetry can affect the chain members’ efforts to make optimal decisions (Yue et al., 2006). In this paper, we have considered a dual-channel supply chain wherein a manufacturer sells the product through a retailer and an e-channel. The retailer is assumed to be environmentally friendly and to have engaged in greening practices. In this context, we studied the impact of information asymmetry regarding a retailer’s greening cost on the profit of the supply chain members under a dual-channel supply chain (DCSC) configuration.
Our study was motivated by the retailing sector’s recent capital investments in environmental sustainability. As of April 2016, Apple powered 463 of its stores using renewable energy sources after investing $3 billion in solar facilities. By 2015, Ikea had invested $1.8 billion in renewable energy. Such examples make it evident that the upfront investment cost associated with greening is substantial (Jeong et al., 2014). However, green retailers can attract environmentally conscious customers (Deif, 2011; Gunasekaran and Spalanzani, 2012) and reduce the cost of operations (Corbett and Klassen, 2006; Sueyoshi and Goto, 2011). Thus, it can be stated that there exists a trade-off between cost and environmental performance (Zhang and Yang, 2018).
Benefits of greening depend on the kind of greening activity in which the retailer is engaged. If the objective of the retailer is to enhance its green image, the focus should be on practices that make the greening engagement visible to the customers. For instance, Starbucks’ sustainable store design, with LED lighting and water-efficient fixtures, can signal the environmental-friendliness of the firm to customers. If the retailer’s objective is to reduce operational costs, it can shift to renewable sources of energy, such as solar energy or wind energy, depending on the scale of operations. In this case, the greening commitment of the retailer will be communicated to the customers only through marketing efforts (Lavorata, 2014). Irrespective of the customer visibility of greening initiatives, retailers have identified greening as a marketing opportunity (Baker and Sinkula, 2005). The perceived greening commitment of a retailer leads to customers’ repurchase intention and store loyalty (Jang et al., 2015) and, consequently, increased market share (Baker and Sinkula, 2005). Sometimes, the marketing of greening initiatives has been criticized as a gimmick to appeal to environmentally conscious customers (Bhaskaran et al., 2006), leading to lower credibility for the retailer’s environmental marketing communications. Thus, it is difficult for upstream supply-chain members, such as manufacturers or distributors, to estimate the actual greening cost incurred by the retailer making it a private information.
In such a scenario of retailer greening, we observed that there is information asymmetry between the retailer and the manufacturer with regard to the greening investment and the benefits of green retailing. Due to proximity to the customers, the retailer has more accurate information about additional demand induced by environmentally conscious customers. In addition, the retailer has private information about greening investment cost, which is proportional to the degree of perceived green image. Retailers prefer high efficiency for their greening investments. In other words, a retailer would be interested in those greening practices for which perceived green image is maximized for minimum investment. The manufacturer is completely ignorant about the greening cost efficiency of the retailer. We examined a DCSC in which a monopolistic manufacturer is selling through an e-marketplace and an environmentally committed traditional retailer. Specifically, we investigated the following questions: