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Mail-in-rebate and coordination strategies for brand competition
Abstract
This research investigates the strategic value of combining mail-in-rebate (MIR) and branding coordination strategies in the context of a supply chain composed of a national brand's manufacturer and a traditional retailer. The retailer offers two competing brands: the national brand and his own store brand. As a first step, we examine which party should bear the cost of the MIR promotional strategy and its role as a coordination mechanism to alleviate the brand competition. When there is close positioning of NB and SB's quality and a decent ratio of MIR redemption, our results show that both parties prefer the total control of the retailer over managing the national brand in his store by supporting all the costs of the promotional strategy. As a second step, we examine the role of various structures of coordination mechanisms, and we found that the “combined branding-promotion coordination” is the best option to boost the performance of all supply chain parties at the highest levels.
... Other studies have examined the choice between direct selling and consignment for manufacturers , pricing and quality competition in brand-differentiated supply chains (Li and Chen, 2018), and the impact of customer value and power structure on retail supply chain product choice and pricing decisions (Luo et al., 2018). Furthermore, studies have investigated the impact of recommender systems and pricing strategies on brand competition and consumer search (Zhou et al., 2022), and the mail-in-rebate and coordination strategies for brand competition (Amrouche et al., 2022). Overall, the existing literature provides a theoretical basis for e-commerce platforms and brand manufacturers to make more informed decisions about channel structure and business mode selection. ...
... This implies that merchants ought to comprehensively assess the advantages and disadvantages of both direct sales and consignment prior to arriving at an informed decision. (Amrouche et al., 2022) analyzed coordination strategies such as mail-in rebates and their impact on sales and profitability. The outcomes of their investigation propose that retailers ought to meticulously assess the upsides and downsides of different channel determination and contracting choices, just as the potential advantages of utilizing hybrid models to amplify their strategic advantages. ...
... The customization of items might enable producers to distinguish their wares from their rivals, improve customer gratification, and cultivate brand devotion. As argued by (Amrouche et al., 2022), effective regulation of disputes and motivations among diverse entities in the supply chain can be achieved through the implementation of coordination tactics, including mail-in refunds. Mail-in rebates can encourage consumers to purchase certain products, increase sales and revenue for retailers, and promote the products of manufacturers. ...
The ascending tendency of clients choosing to buy a broader range of goods and services via internet channels has contributed to the increasing significance of electronic commerce as a mechanism of vending in recent times. The online marketplace plays a crucial role in this commerce industry by connecting manufacturers and consumers. The e-commerce platform, when providing services to producers, may function as an online retailer or as a direct-sales
marketplace. This study examines the strategic interactions between an e-commerce platform and two brand manufacturers, using a game-theoretic model in four different business modes. The results imply that the e-commerce platform earns more profit when both brand manufacturers sell their products directly through the online marketplace. Using the electroniccommerce platform as a reseller instead of selling directly could prove to be a more profitable
strategy for brand manufacturers, regardless of the business model. The study also finds that competition between brand manufacturers is beneficial to the e-commerce platform. The findings of this study provide a theoretical foundation for brand manufacturers and e-commerce platforms to make more informed decisions and update existing knowledge on brand competition and ecommerce platform business mode choices in the current scenario.
Keywords: E-commerce platforms, Two-sided network effects, Agency selling, Reselling, Information sharing, online shopping, Hybrid models, Direct sales, E-business.
... In contrast, new brands are those who enter the market shortly and have not been highly recognized by consumers. These brands face many risks and challenges in entering the market, such as high capital investment and low market demand in the early stage, but the new brands are bound to grab the existing market share of the existing brands [13]. For example, Xiaomi is a new brand that has just launched in recent years. ...
... [24] use game theory to analyze the competition between manufacturer encroachment and the launch of a premium store brand or a store brand by retailers. Amrouche et al. (2022) [13] investigate the strategic value of combining mail-in rebates and brand coordination strategies in the context of a supply chain consisting of national brand manufacturers and traditional retailers. ...
... [24] use game theory to analyze the competition between manufacturer encroachment and the launch of a premium store brand or a store brand by retailers. Amrouche et al. (2022) [13] investigate the strategic value of combining mail-in rebates and brand coordination strategies in the context of a supply chain consisting of national brand manufacturers and traditional retailers. ...
Relying on the rapid development of information and internet technologies, e-commerce has boomed over the past decade. As a link between manufacturers and consumers, the e-commerce platform has a crucial position in the online retailing market. The e-commerce platform not only provides an online marketplace through which the manufacturers directly sell products to consumers but also purchases and resells manufacturers’ products to consumers. Therefore, when the e-commerce platform provides services to manufacturers, it is faced with the selection of two sales methods: reselling or marketplace. Using a game theoretic model, we focus on the strategic interactions between an e-commerce platform and two brand manufacturers in four different business modes. The results show that the e-commerce platform profits more when both brand manufacturers directly sell products through the online marketplace. From the two brand manufacturers’ points of view, using the e-commerce platform as a reseller is always more profitable than directly selling, no matter which business mode they are in. The above findings have important implications for the selling decisions of the e-commerce platform and brand manufacturers. Furthermore, an interesting and counterintuitive result is that the new brand manufacturer benefits more than the existing brand manufacturer when consumers’ acceptance of the new brand products is becoming lower. When production costs are low, only the two brand manufacturers can achieve a mutually beneficial situation by selling products to the e-commerce platform. Moreover, the competition among brand manufacturers is beneficial to the e-commerce platform. Our research provides a theoretical basis for brand manufacturers and the e-commerce platform to make more rational decisions, and it updates the existing knowledge about brand competition and e-commerce platform’s business mode choices.
... Based on the manufacturer's decision, the retailer sets the retail prices (p MBB i ) to maximize her profit. Furthermore, it is not hypothetical that a manufacturer offers two products but a rebate on one of them (Avagyan et al., 2016;Amrouche et al., 2022). In particular, if the rebate is offered only on the regular product (Scenario MRB) or the upgraded product (Scenario MUB), profit functions for the members are also obtained from Equations (2) and (3) by substituting s u = 0 and s r = 0, respectively. ...
In this study, we consider a scenario where a manufacturer offers two price‐quality differentiated products, which we label “regular” and “upgraded,” through a retailer and uses direct rebates to customers to stimulate sales. Therefore, the critical question posed is: If a customer rebate is provided, should it be on the regular, upgraded, or both products? Consequently, we compare the outcomes of eight options from a manufacturer's perspective. The analysis reveals that the manufacturer's choice is not straightforward. Rebates on both products can lead to higher profit for the manufacturer if the proportion of rebate‐sensitive consumers is moderate. However, product quality becomes critical as the proportion of rebate‐sensitive consumers increases. If the quality of the regular product is too high or too low, then the manufacturer may use a rebate only on the regular product; otherwise, it should be on only an upgraded product. The rebate value on an upgraded product continuously decreases with regular product quality if a rebate is introduced only on an upgraded product, but its nature changes in other contexts. Quality improvement investment is also a critical factor that affects the manufacturer's decision. Because an analytical assessment of the effectiveness of rebate promotion under the price‐quality consideration is still missing in the literature, the decision to initiate a rebate promotion might be considered on an ad hoc basis. Therefore, the explicit thresholds identified in this study can help managers to make rebate decisions comprehensively.
... The risks in SC lead to serious repercussions like inferior product quality, loss of property and machinery, loss of a firm's brand reputation, delivery delays, conflict among various shareholders, and a sharp decline in the firm's share price (Rahimi et al., 2019;Tarei et al., 2018;Tarei et al., 2022). Nowadays, the competition between brands is becoming increasingly intensive in business markets (Amrouche et al., 2022). Accordingly, in the global marketplace, distinction between brands creates competitive advantages, since the main components of a brand, including price, quality, attractiveness, risk of selling, and lead time can be distinguished to increase the market share in the competitive environment of the global markets. ...
This article investigates the impact of demand uncertainty on online retailers' store branding partnerships with manufacturers. The study examines whether such partnerships, involving service effort to boost demand, are effective under uncertain conditions. The supply chain comprises an intermediary and a manufacturer, with the manufacturer facing a service cost disadvantage. The benchmark case is the manufacturer's sale through the agency (AG) contract with the intermediary. Using a two‐period game‐theoretic model, the study analyzes equilibrium prices, service efforts, and profits for the AG contract and two store branding contracts: original design manufacturer (ODM) and acquisition (AC). Findings show that the intermediary adopts store branding when its service cost advantage is significant. The intermediary exhibits a preference for the ODM contract when the commission fee falls within a moderate range. Conversely, when it deviates from this middle ground, the AC contract becomes more favorable. Within the AC contract framework, with low commission fees, specifically when the service cost advantage is not particularly pronounced and demand variability is high, the intermediary opts to trigger the acquisition option exclusively when the actual demand turns out to be substantial. With high commission fees, the intermediary avoids the acquisition option. These outcomes arise from balancing the double marginalization effect caused by factors like service cost advantage, service decentralization, and wholesale price. Implementing store branding through ODM or AC contracts enhances supply chain profit when it is optimal for the intermediary. We provide insights into online retailers' decision‐making regarding store branding partnerships with manufacturers under demand uncertainty. It highlights the importance of considering factors like service cost advantage, service decentralization, and wholesale prices to determine the optimal store branding strategy. The research contributes to understanding supply chain dynamics and suggests ways to enhance supply chain profit in online retail.
Purpose
This paper aims to analyze the potentials of dynamic, commitment and revenue-sharing contracts; that a nonrebate offering manufacturer can use to safeguard his profit while his competitor offers customer rebates in a supply chain consisting of two manufacturers and a common retailer.
Design/methodology/approach
We consider a two-period supply chain model to explore optimal decisions under eight possible scenarios based on the contract and rebate offering decisions. Because the manufacturers are selling substitutable products, therefore, a customer rebate on one of the products negatively impacts the selling quantity of other. Optimal price, rebate, and quantities are examined and compared to explore the strategic choice for both the rebate offering and non-rebate offering manufacturer. Comparative evaluation is conducted to pinpoint how the parameters such as contract parameters and its nature affect the members.
Findings
The results demonstrate that all these contracts instigate the rebate offering manufacturer to provide a higher rebate, but do not ensure a higher profit. If the revenue sharing contract is offered to the common retailer, the effectiveness of the rebate program might reduce significantly, and the rebate offering manufacturer might receives lower profits. A non-rebate offering manufacturer might use a commitment contract to ensure higher profits for all the members and make sure the common retailer continues the product.
Originality/value
The effect of customer rebate vs. supply chain contract under competition has not yet been explored comprehensively. Therefore, the study contributes to the literature regarding interplay among pricing decision, contract choice and rebate promotion in a two-period setting. The conceptual and managerial insights contribute to a better understanding of strategic decision-making for both competing manufacturers under consumer rebates.
The use of service strategies to lessen the competition between the manufacturer’s online store and the physical retailer is lacking seminal research studies in nowadays’ e-commerce age. To fill this gap, we investigate various service strategies and valuable coordination mechanisms in alleviating online to offline (O2O) competition. Our main results demonstrate that the retailer would not accept free monetary support from the manufacturer and would not accept sharing the cost of the offline service with the manufacturer. Instead, he always prefers to pay fully for his offline service. In addition, it is not beneficial for the manufacturer to invest in online service given that it worsens the competition between the manufacturer’s online store and the physical retailer. Compared to revenue sharing, a strategy widely used in business practices, it is beneficial for the retailer to pay fully for the cost of the offline service instead of participating in the revenue sharing. Thus, we combine the cooperation mechanism (revenue sharing) and the differentiation strategy (offline service paid by the retailer) to form a new mechanism that has a competitive advantage to coordinate the O2O competition. However, this new mechanism may not always be better than using only the service differentiation strategy. The choice of the optimal strategy to coordinate the O2O competition depends on key factors namely the service effectiveness, the shared portion of the retailer’s revenue, and the online channel preference.
In the fashion industry, department stores normally trade with suppliers of national brands by markdown contract whilst developing private labels with cooperated designers by profit sharing contract. Motivated by this real industrial practice, we study a single-supplier single-retailer two-echelon fashion supply chain selling a short-life fashion product of either a national brand or a private label. The supplier refers to the national/designer brand owner and the retailer refers to the department store. We investigate the supply chain coordination issue and examine the supply chain agents’ performances under the mentioned two contracts. We find the analytical evidence that there is a similar relative risk performance but different absolute risk performances between the national brand and the private label. This finding provides an important implication in strategic interaction for the risk-averse department stores in product assortment and brand management. Furthermore, we explore the impact of sales effort on the supply chain system and find that the supply chain is able to achieve coordination if and only if the supplier (i.e., the national brand or the private label) is willing to share the cost of the sales effort.
This article empirically studies consumer choice behavior with respect to store brands in the United States, the United Kingdom, and Spain. Store-brand market shares differ by country and are usually much higher in Europe than in the United States. The authors study the notion that the differential success of store brands in the United States and Europe is the higher brand equity that store brands command in Europe than in the United States. They use a framework based on consumer brand choice under uncertainty and brands as signals of product positions to conduct their analysis. More specifically, they examine whether uncertainty about quality (or the positioning of the brand in the product space); perceived quality of store brands versus national brands; consistency in store-brand offerings over time; and consumer attitudes toward risk, quality, and price underlie the differential success of store brands at least partially in the United States and Europe. The authors' model is estimated on scanner-panel data on laundry detergent in the U.S., U.K., and Spanish markets and on toilet paper and margarine data in the U.S. and Spanish markets. The authors find that consumer learning and perceived risk (and associated brand equity), as well as consumer attitude toward risk, quality, and price, play an important role in consumers' store-brand and national-brand choices and contribute to the differences in relative success of store brands across the countries studied.
This paper uses an option-pricing model to explore the impact of various factors on whether and when a retailer will choose to introduce a private label in a product category that is currently the exclusive domain of a manufacturer. Among the factors considered are the retailer's and manufacturer's margins, the cost of introducing the private label, the shelf space to be devoted to the private label and by consequence the store-market share to be captured by it, and the quality of the private label.
We propose a game-theoretic model involving the manufacturer of a national brand and a retailer selling her private label
along with the national brand. The retailer can use either a differentiation strategy or an imitation strategy for offering
her store brand. We consider two cases: the benchmark case, where both players have symmetric information and play a Nash
game, and the incentive case, where the national brand’s manufacturer, acting as a leader, offers an incentive to the retailer
in order to benefit from a larger proportion of the shelf space, which ultimately increases her own profit. By comparing both
situations, we attempt to derive the conditions under which it is profitable for the manufacturer to implement such an incentive
strategy and investigate if the results are idiosyncratic to the PL concept. These conditions are fourfold, and include the
private label’s image, the price competition between the national brand and the private label, the transfer price level and
the shelf-space allocated to the national brand in the benchmark case.
We study manufacturer encroachment in a supply chain in which there is partial substitution between the retailer’s store brand and the manufacturer’s national brand. Manufacturer encroachment and the store brand’s substitution effect lead to several implications for the manufacturer and the retailer. We use a game-theoretic model to analyze the optimal decisions of the manufacturer and the retailer. In the absence of a store brand, it is well established that the retailer can benefit from manufacturer encroachment. However, our analysis reveals that (i) the retailer will not benefit from manufacturer encroachment when the national brand and the store brand are close substitutes, (ii) the substitution effect from the store brand can stifle the manufacturer’s direct selling quantity and can impede the manufacturer encroachment, (iii) the coexistence of manufacturer encroachment and store brands may lead to a win-win-win outcome for the manufacturer, the retailer, and the consumer.
Retailers in multiple market segments have opposing business practices regarding whether to introduce a store brand. Assuming that manufacturers and retailers have symmetric knowledge on market information, prior literature has shown that retailers have incentive to introduce a store brand in cases in which the store brand intensively competes with the national brand. Information asymmetry, however, is prevalent in supply chains. In the era of big data, the latest advances in technology intensify information asymmetry by allowing retailers to access market information with improved accuracy. To address such information asymmetry, some retailers share information with manufacturers, while others do not. The gap between prior studies and current industrial practices motivates us to explore the roles of market information in supply chains regarding store brand introduction. In this research, we consider a two-echelon supply chain in which the retailer has an advantage over the manufacturer in accessing market information. In the focal supply chain, four decision scenarios are present, each of which deviates from the others on the retailer’s decision on information sharing and store brand introduction. By evaluating and comparing supply chain performances in these decision scenarios, we demonstrate the influence of information accuracy on the incentive for the retailer to introduce a store brand and the mitigation effect of information sharing on such influence. In particular, we contribute to the literature by finding that, surprisingly, high information accuracy prevents store brand introduction even if brand competition is intensive. This research bridges the gap between prior research and industrial practices and is the first to consider information asymmetry and information sharing in the context of store brand introduction. Our findings contribute to theories of store brand introduction and provide information sharing for practitioners as a managerial tool to realize the full potential of store brands.
This study considers a supply chain consisting of two independent agents, a manufacturer and a retailer. The demand and the price of the product are both uncertain, whereas capacity cost is high and capacity lead time is long. As a result, the manufacturer may not have the incentive to expand capacity if the retailer does not share the risk with her. This result induces a lower performance of the supply chain. We propose two types of contracts, i.e., capacity reservation contract and quantity flexibility contract, as risk-sharing mechanisms to encourage the manufacturer to expand the capacity and improve the overall performance of the supply chain. We find that when supply chain coordination is not achieved, our contracts can bring more system profit than other contracts with less flexibility. We further show that by setting elaborate parameters, the two contracts can coordinate the supply chain so that the total profit in the decentralized supply chain is the same as that in the centralized system. Furthermore, we compare the two contracts in terms of capacity and profits. We also show that the retailer prefers the quantity flexibility contract under coordination. Our conclusions are robust when the demand and retail price are correlated.
The author examines the phenomenon of manufacturer trade deals described as off-invoice and/or bill-backs in markets for frequently purchased consumer goods. The analysis affords a new explanation for why offering such deals may be in the best interest of manufacturers. It also provides some evidence to test the validity of the proposed theory. Though the power of the empirical tests is not strong, the results give encouragement for further data collection and more rigorous testing of the theory.
The authors examine the relative importance of extrinsic versus intrinsic cues in determining perceptions of store brand quality in an experiment using a sample of 1564 shoppers for five products. Results of the experiment suggest that consumers’ evaluations of store brand grocery items are driven primarily by the extrinsic cues that these products display rather than intrinsic characteristics. In addition, the authors found that a value for money orientation taken by retailers in the marketing of their private label lines may represent a suboptimal strategy; they recommend a quality orientation.
The authors compare the effectiveness of in-store coupons and straight off-the-shelf price discounts (bonus buys), in generating incremental sales and profits for the retailer. In five field tests, they find that, on average, in-store coupons lead to a 35% greater increase in the promoted brand's sales than bonus buys offering the same level of discount. Because redemption rates average 55%, in-store coupons produce a 108% greater increase in dollar profits than bonus buys. Both promotion vehicles have the same effect on the rest of the category, so coupons lead to higher overall category sales and profits. The authors develop a unified decision framework for a retailer maximizing category profits, that considers the trade-offs involved in using coupons and bonus buys in response to bill-back trade deals. Their empirical application in the ready-to-eat cereal category shows that the retailer passes through larger amounts of a trade deal when using in-store coupons. As a consequence, at the optimal discount level, unit category sales and dollar category profits are substantially higher with coupons. Robustness checks show that the findings hold over a wide range of parameter values and are, thus, generalizable.
We consider manufacturer rebate competition in a supply chain with two competing manufacturers selling to a common retailer. We fully characterize the manufacturers’ equilibrium rebate decisions and show how they depend on parameters such as the fixed cost of a rebate program, market size, the redemption rate of rebate, the proportion of rebate-sensitive consumers in the market and competition intensity. Interestingly, more intense competition induces a manufacturer to lower rebate value or stop offering rebate entirely. Without rebate, it is known that more intense competition hurts the manufacturers and benefits the retailer. With rebate, however, more intense competition could benefit the manufacturers and hurt the retailer. We find similar counter-intuitive results when there is a change in some other parameters. We also consider the case when the retailer subsidizes the manufacturers sequentially to offer rebate programs. We fully characterize the retailer's optimal subsidy strategy, and show that subsidy always benefits the retailer but may benefit or hurt the manufacturers. When the retailer wants to induce both manufacturers to offer rebate, he always prefers to subsidize the manufacturer with a higher fixed cost first. Sometimes the other manufacturer will then voluntarily offer rebate even without subsidy. This article is protected by copyright. All rights reserved.
We study the context of one private label (PL) competing against one national brand (NB) through a unique retailer. We propose a novel utility-demand function that includes the consumer’s brand valuation, the retail prices, and the brands’ qualities. We investigate the effect of the NB local advertising strategy on supply chain players’ profits when either one of the players supports the advertising. Also, we explore the role of prior information about the manufacturer’s incentive function on supply chain players’ behaviors. We show that although the support for advertising from either the manufacturer or the retailer is Pareto improving, the manufacturer prefers to incite the retailer to invest in local NB advertising through profit sharing instead of using its money to counter the threat of the PL. Furthermore, we also show that the wholesale price incentive motivating the retailer to invest further in advertising is not preferred as expected, and all supply chain players are better off without prior information about the manufacturer’s behavior in the context of branding competition and advertising-level dependent incentive.
In the past two decades, many store-brand products have been introduced by their retailers as having low-cost alternatives to existing brands. However, many store-brand products are perceived with lower quality because their manufacturers do not own the brands. In this paper, we investigate using extended warranties to coordinate the quality decisions of store-brand products. We investigate three extended warranty contracts for the amount of revenue transferred from the retailer to the manufacturer: fixed fee, proportional sharing, and manufacturer direct. Under the fixed fee structure, the transferred amount is pre-negotiated, fixed, and independent of the price of the extended warranty; under the proportional sharing structure, the transferred amount is proportional to the price of the extended warranty; under the manufacturer-direct structure, the retailer let the manufacturer decide the price and collect all the revenue of the extended warranty. Our analytical results show that all three contracts provide incentives for the manufacturer to improve the product quality. In the numerical analysis, we compare the performance of the three extended warranty contracts with the baseline case, where no extended warranty is offered. It shows that the manufacturer-direct contract achieves the highest quality improvement and the highest profit among the three contracts.
Rebates are a form of sales promotions that have seen increased use over the past few years, with the difficulty in compliance increasing over time. To avoid fraudulent rebate claims, manufacturers have established such stringent rebate requirements that many consumers are unable to satisfy them and realize the rebates. A number of ethical considerations will be addressed. The purpose of this paper is to conduct preliminary research leading to an understanding of consumers’ attitudes toward rebates. Consumers indicated that rebate programs work to the advantage of the manufacturer. Finally, some recommended changes for rebate programs are discussed.
An investigation is undertaken to determine the relationships between important rebate redemption motives and rebate redemption using responses from a random sample of 417 adult consumers collected via telephone interviews. A proposed model of the relationships between price consciousness, time and effort, satisfaction and rebate redemption is tested via linear structural equation modeling. The results demonstrate that the effects of price consciousness and perceived time and effort on rebate redemption are mediated by perceived satisfaction with rebate usage. Implications and recommendations for effectively utilizing a rebate program are discussed.
Retailers face a complex task in formulating ordering and promotional strategies in today's business. To help those retailers, this paper aims to investigate the joint optimization of ordering and promotional strategies focusing on the choice between rebates and everyday low price (EDLP). After quantifying consumers' purchase and redemption decision making, we jointly determine the optimal order quantity, rebate face value, and required redemption effort level for a rebate program. For the EDLP strategy, we jointly optimize the retailers' order quantity and pricing decisions. Comprehensive numerical studies highlight the main features of the model and provide managerial insights. We find that the price sensitivity and regular undiscounted retail price are among the most influential factors in choosing promotional strategies. Our analysis concludes that this choice is not only a pure pricing strategy but more of a marketing positioning strategy for retailers.
In this paper, we investigate the remanufacturing problem of pricing single-class used products (cores) in the face of random price-dependent returns and random demand. Specifically, we propose a dynamic pricing policy for the cores and then model the problem as a continuous-time Markov decision process. We first design a basic model that does not consider the quality uncertainty of cores, and then extend our model to incorporate this factor. Besides proving optimal policy uniqueness and establishing monotonicity results for the optimal policy, we also characterize the impact of system parameters on the optimal policies, which can provide simple managerial insights. Finally, we use computational experiments to assess the benefits of dynamic pricing compared to static pricing and identify the impacts of specific parameters on the relative merits of dynamic pricing policy.
In this article, we provide a comprehensive review of the literature on economic models of national brand - store brand competition and address three questions: (i) What types of economic models have been used to analyze the competition between national brands and store brands? (ii) What insights and implications have they generated? (iii) What are some useful future directions for modelers of national brand - store brand competition? We review 47 articles published or written during the period 1966-2011, present the model characteristics of the key articles, and develop over 160 results pertaining to national brand and store brand decisions. Then, we discuss the implications of these results and suggest directions for future research.
This paper studies the effect of firm and country reputation on exports when buyers cannot observe quality prior to purchase. Firm-level demand is determined by expected quality, which is driven by the dynamics of consumer learning through experience and the country of origin's reputation for quality. We show that asymmetric information can result in multiple steady-state equilibria with endogenous reputation. We identify two types of steady states: a high-quality equilibrium (HQE) and a low-quality equilibrium (LQE). In a LQE, only the lowest-quality and the highest-quality firms are active; a range of relatively high-quality firms are permanently kept out of the market by the informational friction. Countries with bad quality reputation can therefore be locked into exporting low-quality, low-cost goods. Our model delivers novel insights about the dynamic impact of trade policies. First, an export subsidy increases the steady-state average quality of exports and welfare in a LQE, but decreases both quality and welfare in a HQE. Second, there is a tax/subsidy scheme based on the duration of export experience that replicates the perfect information outcome. Third, a minimum quality standard can help an economy initially in a LQE moving to a HQE.
We study the joint decisions of offering mail-in rebates (MIRs) in a single-manufacturer–single-retailer supply chain using a game theoretic framework. Either party can offer an MIR to the end consumer if it is in his best interest. The consumer demand is stochastic and depends on the product price and the amount of MIRs. When the retail price is exogenous, we show the existence of a unique Nash equilibrium under both additive and multiplicative demand functions and characterize it completely. We show that any of the following four scenarios can be the equilibrium: both parties offer MIR, only one party offers MIR, none offers MIR. When the retail price is a decision variable for the retailer and the rebate redemption rate increases with the amount of MIR, we once again prove the existence of a unique Nash equilibrium where both the retailer and the manufacturer offer MIRs. Using a numerical study, we show that the average post-purchase price of the product is higher not only than the perceived pre-purchase price but also than the newsvendor optimal price without an MIR. This implies that an MIR makes a product look cheaper while the consumers actually pay more on average.
In the literature of cooperative (co-op) advertising, the focus of the research is on a relationship in which a manufacturer is the leader and retailers are followers. This relationship implies the dominance of the manufacturer over retailers. Recent market trends have shown a shift in power from manufacturers to retailers. Retailers, as a result, may now possess equal or even greater power than a manufacturer in some instances when it comes to retailing. Based on this new market phenomenon, we intend to explore the role of co-op advertising in a manufacturer-retailer supply chain through brand name investments, local advertising expenditures, and sharing rules of advertising expenses. Two co-op advertising models are developed and compared. The first co-op advertising model is based on the traditional leader-follower relationship of a manufacturer and a retailer. The second model incorporates partnership into co-op advertising coordination. Business examples and managerial implications of the models have been discussed. A cooperative bargaining technique is utilized to implement the partnership co-op advertising model.
ABSTRACT Store brands are of increasing importance in retail supply chains, often causing channel conflict, as the retailer's product directly competes with the manufacturer's national brand. Extant research on the resulting channel interactions either assumes the national brand manufacturer can credibly commit to maintaining a wholesale price or that he lacks such ability. However, these two scenarios imply very different supply chain interactions, as only a national brand manufacturer with commitment ability can strategically adjust a national brand wholesale price to prevent a store brand introduction by the retailer. We specifically analyze the impact of this assumption on the manufacturer, the retailer, and the customers. We determine when long-term contracts that provide the manufacturer with such commitment ability can improve supply chain profitability.
We model a supply chain consisting of a national brand manufacturer and an independent manufacturer, both of whom are potential suppliers of store brand to a single retailer. The retailer serves two customer segments—a quality sensitive segment (high type) and a price sensitive (low type) segment. The retailer serves these two segments by targeting the national and store brands to the quality and price sensitive segments, respectively. When the national brand manufacturer supplies the store brand he internalizes the effect of store brand quality on the national brand's retail prices. This leads the national brand manufacturer to choose a lower store brand quality than the independent manufacturer. This decrease in store brand quality has the benefit of increased revenues from the high type customers along with an associated cost of decreased revenues from the low type customers. Thus, when the benefit outweighs the cost the retailer chooses the national brand manufacturer to supply the store brand. We show that the retailer will choose the national brand manufacturer to supply the store brand when (a) the size of the high type customer segment is large relative to the low type customer segment, (b) the valuations of the high type customer segment is large relative to the low type customer segment, and (c) the retailer's margin requirement on the store brand is not very high. Overall, these results suggest that retailers who serve a bigger sized quality (price) sensitive clientele would have the national brand (independent) manufacturer supply the store brand.
In this article, the authors study the role of a store brand in building store loyalty through a game theoretic analysis. In a market in which a segment of consumers is sensitive to product quality and consumers' brand choice in low-involvement packaged goods categories is characterized by inertia, the authors show that quality store brands can be an instrument for retailers to generate store differentiation, store loyalty, and store profitability, even when the store brand does not have a margin advantage over the national brand. In addition, this loyalty argument does not apply for the "cheap and nasty" private label strategy. Such a private label policy, on the contrary, reinforces rather than reduces price competition among stores. Indeed, the quality of the store brand must be above a threshold level to create this opportunity. It also follows that quality store brands, when carried by competing retailers, can be an implicit coordination mechanism that enables all the retailers to become more profitable. Finally, a quality store brand policy is profitable only if a significant portion of shoppers buys the national brand. This surprising result establishes the complementary roles of store brands and national brands. The former create store differentiation and loyalty, whereas the latter enable the retailer to raise prices and increase store profitability. The authors provide empirical support for their thesis by using evidence from Europe and house-hold-level scanner panel data from the United States and Canada.
This paper investigates the retailer's problem of positioning her private label against two national brands in terms of both product quality and product features. Using a demand function derived from consumer utility, we show that the private label's best positioning strategy depends on the nature of the national brands’ competition and its own quality. When the national brands are differentiated, a high quality private label should position closer to a stronger national brand, and a low quality private label should position closer to a weaker national brand. When the national brands are undifferentiated, the private label should differentiate from both national brands.
The influence of affective and behavioral components on three defined motivational segments for usage of rebates is explored. The defined motivational segments are (.1) satisfaction with deal, (2) consumer-orientation of manufacturer, and (3) not an aggravation. The key findings are (1) that more consumer satisfaction with a rebate promotion exists in the earlier stages of awareness of a rebate promotion and for initial usage of rebates and (2) more frequent users of rebates in particular are more concerned about the redemption process.
Purpose
In this paper the authors seek to develop a measure that can identify those customers who might best be described as rebate prone, and to link rebate proneness to behavioral usage of rebate offers, intentions to use rebate offers in the future, attitudes towards using rebates as a way to try new products, and finally, the tendency to complete the rebate transaction.
Design/methodology
In study 1, college students enrolled in marketing classes at two large state universities were asked to complete a brief online survey regarding their attitudes towards rebates as a promotional tool as well as shopping behaviors and attitudes towards shopping. Study 2 replicated study 1 using a mall intercept approach.
Findings
Confirmatory factor analyses of the measure of rebate proneness demonstrated substantial psychometric validity and yielded acceptable levels of internal consistency. In both studies, rebate proneness was significantly and positively related to behavioral, intentional and attitudinal approaches to rebate usage. Rebate prone shoppers viewed rebates as a substantive incentive for trying new products.
Research limitations/implications
These results are preliminary yet provide an important foundation to explore a measurable propensity towards product and brand specific rebate usage.
Originality/value
The promising theoretical framework of consumptive delay provides a managerial opportunity to segment consumers on the basis of measurable psychological and behavioral tendencies. Rebate usage is but one of a number of strategies that can create and or maintain brand loyalty. The ability to identify and provide incentives to incent rebate prone shoppers has widespread implications including the enhancement of the lifetime value of the customer.
This paper studies pricing strategies in a market channel composed of one national brand manufacturer and two retailers who, each, carry their own store brand and a national brand products. The model accounts for product competition between store brands and the national brand products, as well as for store competition between retailers.We use a game-theoretic model to examine a variety of channel leadership structures that consider strategic interactions both at the vertical level (between manufacturer and retailers) and at the horizontal level (between retailers). This extends the existing literature in main three directions: (a) accounting for both store competition and product competition in the same model, (b) considering a more comprehensive study including all possible interactions between channel members in this context, and (c) introducing horizontal price leadership between the retailers.Our results suggest that to be more successful and reap higher profits every retailer should pursue greater store differentiation relative to other competing retailers and less brand differentiation relative to the national brand to provide relatively homogeneous brands in a well differentiated store. On the other hand, the manufacturer should differentiate his national brand more from the retailers’ store brands and deal with as many and less strategically powerful retailers as possible. From the consumers’ perspective, the manufacturer’s leadership represents the worst scenario as it leads to the highest retail prices for all brands. The lowest prices for the store brand are reached when the retailers have vertical price leadership and for the national brand when there is no leadership.
We consider a retailer’s decision of whether to develop an internally produced, private label version of a national brand and the role that this decision plays in coordinating the supply chain. Our model assumes that the perceived quality of the private label is lower than that of the national brand, and we allow for the two products to have different marginal costs. We further allow for a fixed development cost that the retailer must incur to develop private label capability, and distinguish two types of private labels depending upon whether they would or would not be developed as product line extensions by a vertically integrated supply chain. We refer to these two types as first-best (FB) and non-first-best (NFB) product line extensions, respectively. When the private label can be characterized as a NFB product line extension, its development creates adverse cannibalization effects, yet it also helps to mitigate the effects of double marginalization with respect to the national brand. We characterize the conditions under which the retailer will develop private label capability, and distinguish among the conditions under which this is either beneficial or detrimental to the overall performance of the supply chain.
We examine the use of consumer cash mail-in rebates offered by a manufacturer in a Stackelberg game where the manufacturer is the leader and the retailer is the follower. Our analysis indicates that rebates are profitable for manufacturers if consumers are inconsistent in the sense that their rebate valuation when they make purchase decisions is independent of their redemption probabilities when they make redemption decisions. If the manufacturer keeps the wholesale price unchanged, then the rebate increases the retailer's profit by a larger amount than the increase in the manufacturer's profit. If the manufacturer jointly optimizes the wholesale price and rebate, then the increase in the manufacturer's profit is twice the increase in the retailer's profit. The retailer responds to rebates by increasing the retail price, which increases the margin paid by consumers who do not redeem the rebate. On average, consumer surplus decreases when it is optimal for manufacturers to offer rebates. We suggest incentive schemes that make it worthwhile for retailers to limit the price increase. In these incentive schemes, the manufacturer imposes a negative relationship between the rebate value and the retail price. We show that such incentives increase supply chain profits.
Coordination within a supply chain is a strategic response to the problems that arise from inter-organizational dependencies within the chain. A coordination mechanism is a set of methods used to manage interdependence between organizations. Given the increasing importance of high-performance supply, and the advantages to be gained through supply chain coordination, the challenge to an organization is how to select the appropriate coordination mechanism to manage organizational interdependencies. This paper develops and illustrates an attribute-based, systematic process for selecting coordination mechanisms in a supply chain.
This article assesses the impact of retailer store brand products on manufacturer brand prices, profitability and consumer welfare in Boston's white fluid milk market. Estimates from a random coefficients logit demand model are used to specify and test a set of pricing games. Under the selected model, milk manufacturers are Stackelberg leaders to retailers, and store brand milks are procured by retailers at cost. The model is used to investigate counterfactual markets without retailer store brand milks. Counterfactual Simulation results indicate that store brands increase channel profits, retailer profits and consumer welfare, while having mixed effects on equilibrium retail prices.
There are two broad categories of risk affecting supply chain design and management: (1) risks arising from the problems of coordinating supply and demand, and (2) risks arising from disruptions to normal activities. This paper is concerned with the second category of risks, which may arise from natural disasters, from strikes and economic disruptions, and from acts of purposeful agents, including terrorists. The paper provides a conceptual framework that reflects the joint activities of risk assessment and risk mitigation that are fundamental to disruption risk management in supply chains. We then consider empirical results from a rich data set covering the period 1995–2000 on accidents in the U. S. Chemical Industry. Based on these results and other literature, we discuss the implications for the design of management systems intended to cope with supply chain disruption risks.
The effects of the introduction of a store-brand into a particular product category are studied. The paper focuses on the effect of store-brand introduction on the demand as well as on the supply side. On the demand side, the changes in preferences for the national brands and price elasticities in the category are investigated. On the supply side, the effects of the new entrant on the interactions between the national brand manufacturers and the retailer introducing the store brand are studied, including how these interactions influence the retailer's pricing behavior. In doing so, it is possible to test whether the observed data are consistent with some of the commonly used assumptions regarding retailer pricing behavior. In examining the nature of manufacturer interactions with the retailer, the manufacturer of the national brand appears to take a softer stance in its interactions with the retailer subsequent to store-brand entry. This finding is consistent with academic research and with articles in the popular press which suggest that the store brand enhances the retailer's bargaining ability vis-a-vis the manufacturers of the national brands.
In recent years, the practitioner literature in operations management has seen a dramatic surge in articles on quality management. It reflects the increased emphasis on quality by U.S. firms, which has been attributed largely to increased competition faced by them. The question of how quality is influenced by competitive intensity, however, has not received much attention, either in the practitioner or the academic research literatures. The notion of competitive intensity itself has not been defined precisely. In this paper, we develop formal models of oligopolistic competition to investigate whether equilibrium levels of quality increase as competition intensifies. We consider three different competitive settings: (i) asymmetric duopolistic competition where the dominant firm's intrinsic demand potential decreases; (ii) a symmetric duopoly where the firms are precluded from cooperating in setting quality levels; and (iii) symmetric oligopolistic competition where the number of firms increases. We find that the relation between equilibrium quality and competitive intensity depends on what is understood by increased competition and, in addition, the relation is contingent on the values of parameters describing the cost and demand structure for the industry.
We present an analytical framework for understanding what makes a product category more conducive for store brand introduction. We also investigate market characteristics that help explain differences in store brand market share across product categories. Our findings suggest that the introduction of a store brand is likely to increase retailer's profits in a product category if the cross-price sensitivity among national brands is low and the cross-price sensitivity between the national brands and the store brand is high. Our model predicts that the store brand share would also be greater under these conditions. In addition, we find that the introduction of a store brand is more likely to lead to an increase in category profits if the category consists of a large number of national brands---even though the store brand market share is expected to be lower when there are a large number of national brands. We compare the key predictions of our model with data on 426 grocery product categories. The data are consistent with the predictions of the model.
The purpose of this paper is to develop a theory of market segmentation based on consumer self-selection. The extant theory is based on the third-degree price discrimination model of Pigou, central assumptions of which are that the firm can directly address individual segments and isolate them. By using consumer self-selection, I am relaxing these assumptions. In the context of a monopolist designing a product line, I show that this relaxation has significant implications for how the products and prices are chosen and what they look like. In particular, segments may be aggregated even though there are no economies of scale. Furthermore, consumer self-selection enables us to model “cannibalization” and competition among firms.
This paper examines a key difference between two promotional vehicles, coupons and rebates. Whereas coupons offer deals up front, with the purchase of the product, rebates can be redeemed only after purchase. When consumers experience uncertain redemption costs, this difference translates to a difference in when uncertainty is resolved. With coupons the uncertainty is resolved before purchase; with rebates the uncertainty is resolved after purchase. As a result, we show that rebates are more efficient in surplus extraction but coupons offer more finetuned control over whom to serve.
We identify the conditions under which each is optimal, and these conditions turn on the gap between “low” reservation price consumers’ valuations and their highest redemption costs. Rebates are optimal when this gap is large; coupons tend to be optimal otherwise. Risk aversity on the part of consumers reduces the attractiveness of rebates, as does the delay between rebate redemption and rebate payment, but the latter if and only if consumers are more impatient than the seller. These observations match up well with what we know about the use of these promotional vehicles in the real world.
The retail trade today is increasingly dominated by large, centrally managed “power retailers.” In this paper, we develop a channel model in the presence of a dominant retailer to examine how a manufacturer can best coordinate such a channel.
We show that such a channel can be coordinated to the benefit of the manufacturer through either quantity discounts or a menu of two-part tariffs. Both pricing mechanisms allow the manufacturer to charge different effective prices and extract different surpluses from the two different types of retailers, even though they both have the appearance of being “fair.” However, quantity discounts and two-part tariffs are not equally efficient from the manufacturer’s perspective as a channel coordination mechanism. Therefore, the manufacturer must judiciously select its channel coordination mechanism.
Our analysis also sheds light on the role of “street money” in channel coordination. We show that such a practice can arise from a manufacturer’s effort to mete out minimum incentives to engage the dominant retailer in channel coordination. From this perspective, we derive testable implications with regard to the practice of street money.
This paper provides some empirical generalizations regarding how the relative prices of competing brands affect the cross-price effects among them. Particular focus is on the asymmetric price effect and the neighborhood price effect. The asymmetric price effect states that a price promotion by a higher-priced brand affects the market share of a lower-priced brand more so than the reverse. The neighborhood price effect states that brands that are closer to each other in price have larger cross-price effects than brands that are priced farther apart. The main objective of this paper is to test if these two effects are generalizable across product categories, and to assess which of these two effects is stronger.
While the neighborhood price effect has not been rigorously tested in past research, the asymmetric price effect has been validated by several researchers. However, these tests of asymmetric price effect have predominantly used elasticity as the measure of cross-price effect. The cross-price elasticity measures the percentage change in market share (or sales) of a brand for 1% change in price of a competing brand. We show that asymmetries in cross-price elasticities tend to favor the higher-priced brand simply because of scaling effects due to considering percentage changes. Furthermore, several researchers have used logit models to infer asymmetric patterns. We also show that inferring asymmetries from conventional logit models is incorrect.
To account for potential scaling effects, we consider the absolute cross-price effect defined as the change in market share (percentage) points of a target brand when a competing brand's price changes by one percent of the product category price. The advantage of this measure is that it is dimensionless (hence comparable across categories) and it avoids scaling effects. We show that in the logit model with arbitrary heterogeneity in brand preferences and price sensitivities, the absolute cross-price effect is symmetric.
We develop an econometric model for simultaneously estimating the asymmetric and neighborhood price effects and assess their relative strengths. We also estimate two alternate models that address the following questions: (i) If I were managing the ith highest priced brand, which brand do I impact the most by discounting and which brand hurts me the most through price discounts? (ii) Who hurts whom in National Brand vs. Store Brand competition?
Based on a meta-analysis of 1,060 cross-price effects on 280 brands from 19 different grocery product categories, we provide the following empirical generalizations:
1. The asymmetric price effect holds with cross-price elasticities, but tends to disappear with absolute cross-price effects.
2. The neighborhood price effect holds with both cross-price elasticities and absolute cross-price effects, and is significantly stronger than the asymmetric price effect on both measures of cross-price effects.
3. A brand is affected the most by discounts of its immediately higher-priced brand, followed closely by discounts of its immediately lower-priced brand.
4. National brands impact store brands more so than the reverse when the cross-effect is measured in elasticities, but the asymmetric effect does not hold with absolute effects. Store brands hurt and are, in turn, hurt the most by the lower-priced national brands that are adjacent in price to the store brands.
5. Cross-price effects are greater when there are fewer competing brands in the product category, and among brands in nonfood household products than among brands in food products.
The implications of these findings are discussed.
This paper develops a modeling framework for making promotions decisions. In contrast to some of the prior research, the framework explicitly models promotions. Its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first, followed by the choice of promotion depths and frequencies. It is used to illustrate the nature of competition between a national brand and private label. In equilibrium, the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand. Moreover, the private label does not promote. This equilibrium is also contrasted with Varian's framework, used by other researchers, in which mixed strategy equilibrium prices are interpreted as promotions.
This paper examines effects of both purchasing involvement and product involvement on consumers' responses to rebates. In Part One, the study examines the effects of involvement on consumer responses to a rebate price promotion. Specifically, the study reports that consumers with high levels of purchasing involvement and consumers with high levels of product involvement are more likely to experience satisfaction with a shopping experience involving a rebate and, subsequently, are more likely to express intentions to engage in repeat purchase behavior and word-of-mouth communication about the product. High purchasing involved (but not high product involved) customers are also more likely to use rebates. In Part Two, the study examines effects of involvement on consumer attributions for satisfaction with the price deal and reports that high purchasing involvement is significantly related to a tendency to make internal, rather than external, attributions for satisfaction with a rebate shopping experience. Results of hierarchical moderated regression suggest that consumer responses to the rebate price promotion are moderated by these internal attributions. Implications of the findings for a theoretical understanding of involvement effects on attributions and for the effectiveness of price promotion strategies in the marketplace are discussed.
This paper analyzes channel pricing in multiple distribution channels under competition between a national brand (NB) and a store brand (SB), where an NB can be distributed both through a direct channel (e-channel) and an indirect channel (local stores) but an SB can be distributed only through an indirect channel. We first explore cross-brand and cross-channel pricing policies. Formulating the problem as a Nash pricing game, we reach two findings: (1) brand loyalty building is profitable for both an NB and an SB; and (2) marketing decisions are more restrictive for an NB channel than they are for the SB channel. We next assess supply chain coordination and reach two findings: (1) wholesale price change does not coordinate the supply chain and (2) an appropriate combination of markup and markdown prices can achieve both supply chain coordination and a win–win outcome for each channel.
Price and advertising strategies of a national brand challenged by a private-label clone in a frequently purchased consumer package good category are examined. The situation is developed in the framework of a signaling game, in which the national brand manufacturer is a signal (advertising) sender and the consumer is a receiver. The game is solved for the separate, pooling, and hybrid equilibria. Applications of the perfect Bayesian equilibrium criterion and other refinement concepts led to a unique separating equilibrium. This result suggested that if the quality of a national brand is superior to that of its private-label clone, its manufacturer should advertise more than it would if its product were similar to the clone in quality. The level of advertising must be just high enough to maintain differentiation from the clone-quality national brand manufacturer, for which advertising is inefficient because of low product quality. Consumers, after observing the high level of advertising, realize that the clone-quality national brand manufacturer would not have spent that much advertising and hence are willing to pay a premium for the difference in quality. Consequently, the superior quality national brand can charge a higher price and increase its profit.
Our research examines why retailers offer, not one, but multiple store brands in some product categories. More specifically, we are interested in how certain product category characteristics affect the number of store brands. We model a product category consisting of two incumbent national brands that may differ in strength. The retailer may introduce one or two store brands depending on which maximizes category profits. Our analysis suggests that the retailer is likely to carry two store brands in categories where (i) the national brands are similar in strength; and (ii) the price sensitivity between the national brands is low. Interestingly, the conditions that support the introduction of more than one store brand are quite different than the conditions that would facilitate the introduction of additional national brands. We provide empirical evidence that support our model-based predictions.
A key change in the retail environment over the last 20 years has been the emergence and growth of low priced quality-equivalent store brands. National brand manufacturers with popular products seem to help retailers by supplying them with quality-equivalent store brands that are then sold for lower prices. Nevertheless, empirical research has found that this phenomenon often leads to higher average category prices. We explain this apparent contradiction using a model where a national brand manufacturer supports its product with advertising and the retailer may introduce a store brand to better serve its customers. Our analysis shows that when both the manufacturer and the retailer have market power, the launch of a quality-equivalent store brand by the retailer can lead to higher average category prices. Rather than leading to what some call “private label competition”, both the manufacturer and the retailer benefit with the launch of quality-equivalent store brands. As a result, even a dominant manufacturer has an incentive to agree to a retailer's request to supply a quality-equivalent store brand.