Marketing-driven channel coordination with revenue-sharing contracts under price promotion to end-customers

Abstract

This paper explores the equilibrium behavior of a basic supplier-retailer distribution channel with and without revenue-sharing contracts under price promotion to end-customers. Three types of promotional demand patterns characterized by different features of dynamic price sensitivity are considered to rationalize price promotional effects on end-customer demands. Under such a retail price promotion scheme, this work develops a basic model to investigate decentralized channel members' equilibrium decisions in pricing and logistics operations using a two-stage Stackelberg game approach. Extending from the basic model, this work further derives the equilibrium solutions of the dyadic members under channel coordination with revenue-sharing contracts. Analytical results show that under certain conditions both the supplier and retailer can gain more profits through revenue-sharing contracts by means of appropriate promotional pricing strategies. Moreover, the supplier should provide additional economic incentives to the retailer. Furthermore, a counter-profit revenue-sharing chain effect is found in the illustrative examples. Such a phenomenon infers that the more the retailer requests to share from a unit of sale the more it may lose under the revenue-sharing supply chain coordination scheme. (C) 2011 Elsevier B.V. All rights reserved.