Dual-channel competition: the impact of pricing strategies, sales effort and market share

In this paper, we consider a two-echelon dual-channel supply chain model with a single manufacturer and multiple retailers for trading a single product. The manufacturer uses multiple channels - one direct channel and multiple retail channels - to sell his product. The market demand is dependent on price and sales effort, and divided among the direct channel and several retail channels. Retailers compete with each other as well as with the manufacturer's direct channel. We consider the scenarios when retailers' sales efforts boost their individual demands but reduce direct-channel demand, and when retailers' efforts boost their individual demands and also enhance direct-channel demand. We find out the optimal pricing strategies and effort levels of both the direct channel and retail channel using sequential optimization and the Stackelberg game. We also find out the threshold market share of the manufacturer and the retailers, below which they opt to stay out of business. Finally, we illustrate our model through a numerical example. We numerically determine the dependency of sales effort on each channel's demand in each scenario. We also show that the direct and retail channels' market shares heavily influence the pricing strategies and effort levels of the supply chain entities.