A channel of distribution consists of different channel members each having his own decision variables. However, each channel member's decisions do affect the other channel members' profits and, as a consequence, actions. A lack of coordination of these decisions can lead to undesirable consequences. For example, in the simple manufacturer-retailer-consumer channel, uncoordinated and independent channel members' decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated. In addition, the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer. This paper explores the problems inherent in channel coordination. We address the following questions. —What is the effect of channel coordination? —What causes a lack of coordination in the channel? —How difficult is it to achieve channel coordination? —What mechanisms exist which can achieve channel coordination? —What are the strengths and weaknesses of these mechanism? —What is the role of nonprice variables (e.g., manufacturer advertising, retailer shelf-space) in coordination? —Does the lack of coordination affect normative implications from in-store experimentation? —Can quantity discounts be a coordination mechanism? —Are some marketing practices actually disguised quantity discounts? We review the literature and present a simple formulation illustrating the roots of the coordination problem. We then derive the form of the quantity discount schedule that results in optimum channel profits.distribution, profitability, margins, coordination

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A very parsimonious first-order multibrand model of the individual consumer for frequently purchased consumer goods is developed, generalizing the zero-order multinomial model. The model incorporates the notion of brand choice inertia, which is a form of short-term loyalty. Besides the equilibrium marginal choice probabilities of the multinomial model, a single additional parameter of choice inertia is defined. A maximum likelihood estimation procedure is derived and used on individual data from a subsample of the Secodip Consumer Panel, France: 2,401 purchases of cooking oil from eighty-nine of the consumers who were in the panel for the entire 1971-1972 period are used. Through the likelihood ratio test procedure, the model is shown to significantly improve on the multinomial model. An aggregate version of the model is also developed and estimated by a minimum chi-square procedure on four independent data sets. It is compared with the linear learning model which has been preferred over other probabilistic models of brand choice in most empirical studies in the past fifteen years. On the criterion of the p-level corresponding to the chi-square procedure, the model is superior for data set one, basically equivalent for data set two and its special case of the multinomial model being best for data sets three and four. The model operationalizes in a simple way the notion of carryover effect of marketing actions: a short-term perturbation from equilibrium--due to marketing mix actions, for example--has some residual effect on future purchase occasions. Moreover, in the context of new product modeling, the inertia model is in accord with the empirical observation by Parfitt and Collins of leveling-off of repeat-buying.marketing: buyer behavior, statistics: estimation, philosophy of modeling

This paper analyzes dynamic pricing strategies for new durable goods in a two-period context. The first period is characterized as a monopoly market structure for a new product having dynamic demand. The second period begins when a new firm enters the market, and thereby changes the market structure to a duopolistic one. We begin by analyzing the pricing strategies of three types of monopolists: nonmyopic, myopic and “surprised.” A nonmyopic monopolist is a first entrant who perfectly predicts the competitive entry. A myopic monopolist totally discounts the duopolistic period, and a “surprised” monopolist is a first entrant who has the longer time horizon of the nonmyopic monopolist, but who does not foresee the competitive entry. Our results indicate that the nature of these pricing strategies may be quite different. It is optimal for the nonmyopic firm to price its product at a higher level than the myopic monopolist. Additional results indicate under what circumstances the “surprised” monopolist will price too high during the monopoly period. The intuition behind these results is the fact that the myopic monopolist competition while the surprised monopolist it. We also characterize the nature of the dynamic equilibrium prices that will prevail during the competitive period. For example, we show that products having higher prices (because of differences) will exhibit a more rapid rate of price decline. Moreover, a in the first entrant's pricing strategy, as a response to a second entry—which is often observed in the market place—is also captured by our model. Because these analyses are limited to situations where the time of second entry is predictable, a scenario that fits our model better would be the health-care equipment industry where a specified period of government observation and/or testing is required. Immediate extensions of our model should include a discount factor and learning effects on both costs and demand.new product competition, market saturation, entry deterrence, dynamic pricing

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