Effects of promotion cost sharing policy with the sales learning curve on supply chain coordination

Promotional activity has become increasingly more common in the service industry. This research considers a two-echelon multiple-retailer distribution channel under retailers' promotional efforts and the sales learning curve. The competition between retailers arises from substitution effect due to shortages. This paper incorporates the idea of the sales learning curve into the promotion cost. The objective is to solve the retailers' promotion and replenishment decisions under retailer competition and promotional effort with the sales learning curve. The current study considers promotion cost sharing as a mechanism to achieve coordination. The model shows that keeping the fractions of promotion cost sharing within an appropriate range increases profits for all parties. This work also discusses how retailer competition and the sales learning curve affect channel decisions and profits. Concepts from retailer competition and the sales learning curve, along with numerical studies on a few interesting cases help deliver several important managerial insights. These results should be a useful reference for managerial decisions and administrations. (C) 2011 Elsevier Ltd. All rights reserved.