Retail service for mixed retail and E‐tail channels

Retail service for mixed retail and E‐tail channels

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Article ID: iaor201113470
Volume: 192
Issue: 1
Start Page Number: 151
End Page Number: 171
Publication Date: Jan 2012
Journal: Annals of Operations Research
Authors: ,
Keywords: e-commerce, simulation: applications, optimization, stochastic processes
Abstract:

Together with regular retail channel, a firm can distribute products directly through Internet (referred to as an ‘e‐tail’ distribution channel). The competitive edge of the retail channel lies in more value‐added services, some of which are unavailable through the e‐tail channel. We consider a model mixed with retailing and e‐tailing distribution channels where the service level and price decision are made, respectively, ex ante and ex post demand realizations. From the firm’s perspective of managing the two channels, we acquire the optimal decisions and characterize the effects of the demand uncertainty on the firm’s optimal retail service and expected profit. Applying stochastic comparison method, we show the firm’s retail service and profit both increase in the demand mean, and the firm profits from the increase of the convex order of the demand by decreasing his service level. Further, if the coefficient of the demand increases, we characterize that the firm benefits from it. Finally, several numerical studies are presented to gain insights.

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