Consumer Heterogeneity, Product Quality, and Distribution Channels

Shi, Hongyan; Liu, Yunchuan; Petruzzi, Nicholas C.

doi:10.1287/mnsc.1120.1604

Cited by 206 publications

(101 citation statements)

References 21 publications

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“…The manufacturer can invest in new technology or strengthen the production control process to enhance the product quality and attract more customers [21]. Xu [37] and Shi et al [29] investigated price and quality decisions under the assumption that the manufacturer can sell a single product either through a direct channel or through a retailer. Ma et al [22] mainly discussed the quality effort and sales effort decisions under three supply chain modes: the centralized mode, the decentralized modes leaded by the manufacturer and the retailer respectively.…”

Section: Quality Effortmentioning

confidence: 99%

Joint pricing, services and quality decisions in a dual-channel supply chain

2020

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With the rapid development of the Internet, many manufacturers nowadays are increasingly adopting a dual-channel to sell their products, i.e., the traditional retail channel and online direct channel. In this paper, we focus on retail service, manufacturer's direct service and quality effort, and present an analytical framework to examine the optimal decisions in dual-channel supply chain between the manufacturer and the retailer. Considering the efficacy of different supply chain structures, centralized and decentralized models are established. By using the backwards induction and the twostage optimization technique in Stackelberg game, the corresponding analytical equilibrium solutions are obtained. Our analysis shows that the degree of customer loyalty to the direct channel strongly influences the manufacturer's and the retailer's services and quality strategies in the decentralized dualchannel supply chain, but not in the centralized model. Our results also point out that compared to centralized model, for any given selling price, the ratio of profit margins of selling one unit in the direct and retail channels determines the retailer's service strategy; and the manufacturer will raise the level of direct channel service, but put less effort on quality improvement in the decentralized model. Finally, numerical examples present the contrasting view that disparate interests within a dual-channel supply chain can actually realize improving outcomes.Mathematics Subject Classification. 90B05, 90C29.

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Section: Quality Effortmentioning

confidence: 99%

Joint pricing, services and quality decisions in a dual-channel supply chain

2020

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“…Consumer heterogeneity frequently appears in marketing analysis (Shi, Liu, & Petruzzi, ; Yu, Kapuscinski, & Ahn, ). Following Varian () and Prasad et al.…”

Section: Problem Descriptionmentioning

confidence: 99%

Advance Selling in the Presence of Market Power and Risk‐Averse Consumers

Sethi

et al. 2018

Decision Sciences

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We consider a manufacturer who procures raw material through a long-term contract as well as in a spot market to produce goods for selling to consumers, a fraction of whom are risk averse. We assume that the manufacturer has the market power to influence the spot market price of raw material. To increase consumer demand and obtain demand information, the manufacturer may implement an advance selling program that depends on his market power and consumer risk aversion. We investigate whether the manufacturer should offer the advance selling program and how his decision and performance are influenced by the program. We find that the advance selling program should be offered when consumer risk aversion is low, or when it is high, and the manufacturer has high and low market power. By contrast, the advance selling program should not be offered when consumer risk aversion is high and the market power is medium. Our results also reveal that even with no promotion cost of the advance selling program, the manufacturer may not always offer it. Finally, the manufacturer benefits more from advance selling when consumers are myopic and/or risk neutral. We sincerely thank the editors and two anonymous reviewers for their insightful comments and suggestions.

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“…Our paper is also related to the literature in operations that studies how a firm's choice of quality, i.e., the value of the product to the customers, is influenced by product line and architecture decisions (Kim and Chhajed 2002, Heese and Swaminathan 2006, Krishnan and Zhu 2006, Netessine and Taylor 2007, Agrawal and Ülkü 2013, supply chain structure and decentralization (Xu 2009, Shi et al 2013, Jerath et al 2015, capacity investments (Chayet et al 2011), and environmental regulation (Chen 2001, Plambeck andWang 2009). This stream of literature mostly focuses on nondurable products and does not consider snobbish consumer behavior.…”

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confidence: 99%

The Limits of Planned Obsolescence for Conspicuous Durable Goods

Agrawal

Kavadias

Toktay

2016

M&SOM

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A n extensive body of literature argues for the benefits of planned obsolescence, the strategy of designing products with low durability to induce repeat purchases from the consumers and allow the firm to sell a larger volume. Yet, several firms avoid planned obsolescence and instead offer products with high durability. In this paper, we offer a demand-side rationale for a high-durability product design strategy: the exclusivityseeking consumer behavior associated with conspicuous consumption. In the presence of consumers who value exclusivity, we find that firms benefit from designing products with higher durability in conjunction with a high-price, low-volume introduction strategy. A higher durability in such a context leads to greater resale value, allowing the firm to charge a higher price and lower the sales volume to achieve the product exclusivity valued by the consumers. This contrasts with the planned obsolescence strategy that capitalizes on the high sales volume achieved by setting a low new product price. We also show that offering higher durability and charging a higher price are complementary levers to respond to consumers who value exclusivity. Our analysis unearths insights regarding the effect of exclusivity-seeking behavior on a firm's demand and pricing. We show that firms' durability choice may explain the joint increase in price and demand for conspicuous goods.

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Consumer Heterogeneity, Product Quality, and Distribution Channels

Cited by 206 publications

References 21 publications

Joint pricing, services and quality decisions in a dual-channel supply chain

Joint pricing, services and quality decisions in a dual-channel supply chain

Advance Selling in the Presence of Market Power and Risk‐Averse Consumers

The Limits of Planned Obsolescence for Conspicuous Durable Goods

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