A manufacturer distribution issue: how to manage an online and a traditional retailer

The Internet’s popularity and success have shaped new relationships in B2B market. The use of dual channels becomes a widespread practice and new challenges face channel members. We assess the benefit of two coordinating mechanisms namely the whole‐channel price and the quantity discount when a manufacturer sells his product through a traditional and an online store and uses a single wholesale price for both retailers. Then, we extend the analysis to two‐wholesale pricing scenario. Our model suggests that product compatibility to the web is a key factor impacting the decision to coordinate the channel or not and which coordination mechanism to use. We found also that the whole channel is always better‐off when coordination is implemented though channel members have different positions with regards to such decision. Hence, a profit‐sharing mechanism is required to satisfy all members. Finally, we analyze the effect of varying channel substitutability on channel members’ profitability.