Influence on Sales Channels of Supply Chain Structure under Power Balance

This paper considered a supply chain system with two manufacturers, each producing a single substitutable product. The products are sold through the common retailer or the manufacturer’s online sales channel. The purpose of this paper is to analyze the equilibrium pricing strategy and profits under different channel combinations on both sides of the manufacturer and the retailer, using the Nash power between manufacturer and retailer, and to explore the advantages and disadvantages of the manufacturers developing the online sales channel. Introduction Currently, online shopping is the second best way to buy stuff after the traditional retail channel for more and more consumers. According to the statistical report of the China Internet Network Work Information Center (CNNIAC) in 2013, the scale of users of Internet shopping in China was 3.02 hundred million, and the usage rate of Internet shopping has increased to 48.9%, which was six percentage points more than 2012. More and more tradition manufacturer companies, such as Hewlett-Packard, IBM, Eastman Kodak, Nike and Apple etc., have achieved online sales by means of online technology. But can the online structure bring excess profits to the supply chain members? In a market channel, both the manufacturer and the retailer have power, defined by EI-Ansary and Stern(1972)as the ability of one channel member to control the decision variables in the marketing strategy of another member in a given channel at a different level of distribution(Pan 2010). Different power structures appear in real market. For example, as a powerful manufacturer, Microsoft and Intel always have more dominant right than their bottom strands. On the other hand, some retailers are more powerful in cases, such as Carrefour and Wal-Mart, they are playing a more significant role than their upstream firm in some market chains, they reduce the retail price of the product, extrusion manufacturer's profits to ensure that its profits. However, with the competition in the market becoming white-hot, the ideas like “whether manufacturer is leading or retail terminal for the king” are difficult to adapt to the objective environment, so the power balance in supply chain structure has been developed. The literature refers to the study of dualchannel structure and product substitutability has been rich. On the choice of the two-channel structure, Park and Keh (2003) compared the chain profits under different rights structures show that adopting mixed channels will help manufactures to increase the products’ overall demand and their own profit, enhance the overall performance of the supply chain and social welfare. Taking into account of the degree of consumer’s acceptance in direct-marketing channels, Chiang (2003) further analyzed the impact of the profit for the supply chain members under the direct-marketing channels, pointing out that even with no sales through the online channels; the direct-marketing channels can increase the profits. Cai (2010) compared the influences of four channels--single direct-marketing channels, single retail channels, direct sales channels combined with retail channels, dual-retailer channels with manufacturer, retailers and the International Power, Electronics and Materials Engineering Conference (IPEMEC 2015) © 2015. The authors Published by Atlantis Press 23 whole supply chain and came up with the conclusion that the dual-channel combining direct-marketing channel and retailer channel gain more profit for manufactures than the single direct-marketing channel. In the research about substitutable products supply chain, most of it has focused on inventory and pricing problems. For related surveys, see Stavrulaki(2011) studied a retailer’s inventory strategy for two products, which are substitutable and have inventory dependent demand. Xia (2011) considered competition between two coexisting suppliers in a two-echelon supply chain, where each supplier offers one type of the two substitutable products to multiple buyers. Zhao (2014) analyzed the effects of the two manufacturers’ different competitive strategies and the channel members’ different power structures on the optimal pricing decisions, but it doesn’t consider the online channel. Different from the above studies, this paper focuses on the two manufacturers and a single retailer with the online sale channel, adopting the Nash power strategy and considers the effect of the products’ substitutability on the online channel. Problem Description As figure 1, we considered two types supply chain structures: the traditional model (Model A), and online model (Model B and Model C). In Model A, the products are only available to consumers by the retailer. However, in Model B or Model C, manufacturers and retailer can provide products to the consumers at the same time. Following signs need to be defined during modeling in this paper: r : the proportion of basic demand in online channel, i p : the unit retail price of product ( 1, 2 i = ), where 1 p represents the product price of manufacturer 1 M , and 2 p represents the product price of manufacturer 2 M . oi p : the unit retail price of product under online channel i w : the unit wholesale price of product ( 1, 2 i = ), where 1 w represents the wholesale price of manufacturer 1 M , and 2 w represents the wholesale price of manufacturer 2 M . i D : the demand of product ( 1, 2 i = ), where 1 D represents the product demand of manufacturer 1 M , and 2 D represents the product demand of manufacturer 2 M . oi D : the demand of product under the online channels. θ : the products substitutability,whereθ =0,the products are purely monopolistic and whereθ goes to 1, the products converge to purely substitutable. i a :is the base demand of product i . mi Π : the profits in traditional channels for manufacture i . oi Π : the profits in online channels for manufacture i . i Π : the profits in the whole supply chain for manufacture i . r Π :the profits for the retailer. Figure.1. Supply chain structures in online channels and retail channels For simplicity, we assume that the manufacturer's production costs and online channels operating