Single versus dual-channel: A strategic analysis in perspective of retailer's profitability under three-level dual-channel supply chain

Abstract

This paper explores characteristics of three different channel structures of three-echelon supply chain, namely a traditional retail channel; a manufacturer's dual-channel and a retailer's dual-channel. In the dual-channel setting, a manufacturer operates retail channel through a distributor and a retailer while either the manufacturer or the retailer operates the direct e-channel. Mathematical models for both non-cooperative and cooperative decisions are developed. Optimal pricing policies of all the proposed models are analyzed with theory. It has been showed that in three echelon supply chain, introduction of dual channel is not always profitable for the channel members compared to single retail channel. Optimal price of the product is always greater in single retail channel compared to retail prices in both the dual channels. To eliminate channel conflicts of non-cooperative supply chain, a two-way price discount mechanism is used to coordinate both the dual channels. It is analytically found that the retailer has opportunity to gain more profits in own dual-channel and in non-cooperative single retail channel instead of manufacturer dual channel. The distributor also prefers the retailer's dual-channel compared to the manufacturer's dual-channel. All analytical results are illustrated numerically.

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