Sales effort free riding and coordination with price match and channel rebate

Sales effort free riding and coordination with price match and channel rebate

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Article ID: iaor20122070
Volume: 219
Issue: 2
Start Page Number: 264
End Page Number: 271
Publication Date: Jun 2012
Journal: European Journal of Operational Research
Authors: ,
Keywords: supply & supply chains, e-commerce, optimization
Abstract:

This paper studies sales effort coordination for a supply chain with one manufacturer and two retail channels, where an online retailer offers a lower price and free‐rides a brick‐and‐mortar retailer’s sales effort. The free riding effect reduces brick‐and‐mortar retailer’s desired effort level, and thus hurts the manufacturer’s profit and the overall supply chain performance. To achieve sales effort coordination, we designed a contract with price match and selective compensation rebate. We also examined other contracts, including the target rebate contract and the wholesale price discount contract, both with price match. The numerical analysis shows that the selective rebate outperforms other contracts in coordinating the brick‐and‐mortar retailer’s sales effort and improving supply chain efficiency.

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