Coordinating a two-echelon supply chain with price and promotional effort dependent demand

Apart from retail price, promotional effort is an important factor that controls market demand. Primary objective of promotional effort is to reach the potential customers and presenting the unique features, efficiency and usefulness of the product. Assuming that the market demand is dependent on both the retail price and promotional efforts, a two‐level supply chain with single manufacturer and single retailer is considered in this paper. We study the centralised model as the benchmark case. To reflect the real market scenario, the wholesale price‐only contract is provided. Aiming at coordination, different contract mechanisms are attempted, and finally a suitable one is developed. We also provide two possible extensions of the decentralised model: one by using co‐op advertising policy, and other one by incorporating retail fixed mark‐up (RFM). All the models are further illustrated and analysed numerically.