Interactions between members of a marketing–production channel under seasonal demand

Key decisions in a marketing–production channel faced with a seasonal demand include production and pricing decisions for the manufacturer, and processing and pricing decisions for the retailer. In such situations, a variety of contracts are possible, including contracts under which the manufacturer charges a constant price throughout the season, or the retailer processes at a constant rate throughout the season. Also possible are channel structures in which the manufacturer and retailer cooperate to make decisions jointly. The main objective of the present paper is to compare optimal policies under all the situations described above. We show that having a constant manufacturer's price, or a constant processing rate does not have significant impact upon the retailer's price or inventory decisions. However, if the demand is not highly seasonal, a constant processing rate contract will result in higher production and processing rates, and a lower manufacturer's price, compared to a constant manufacturer's price contract. Also, a centralized channel involving joint decision making will lead to a lower price at the retail level, and higher production and processing rates. Hence, issues such as channel coordination and contracts between manufacturers and retailers, which have received significant attention in the marketing literature, have implications for the production area as well.