Implementation of Manufacturer and Reseller Interaction Models, Taking Into Account Advertising Costs

Abstract

Establishing effective cooperation between the manufacturer and reseller as vertical marketing channel participants implies the effective mechanism for the development of the main strategies of their business behaviour, such as price and expenditure forming for the joint promotion of the product. This provides the manufacturer and reseller the ability to select the most appropriate business game scenarios to maximize their profits in the short and long-term perspectives. This issue is relevant in the practice of distribution channels functioning. The purpose of the study is defining the optimal parameters values of expenditure function reaction for the compatible advertising, which will help to maximize the profits of both distribution channel participants. The research takes into account the statistical analysis of empirical data, in particular, data on average monthly sales volumes, as well as retail price for the unit of the product of the manufacturer enterprise. Besides, the paper presents a numerical experiment on the possible values of the advertisement expenditures parameters’ function, calculated on the basis of effectively selected range and step change. It was mathematically substantiated and defined the solutions of Stackelberg's business game, which implies functioning of the manufacturer equilibrium. A numerical experiment was conducted to maximize the possibilities of the manufacturer’s profitability features, reseller and marketing channel from the point of pricing strategies formation, and expenditure strategies for joint advertising of the both participants of the goods turnover channel. Stakelberg's variant of a business game is found to be optimal for the manufacturer, in which the percentage of its participation in the reseller’s expenditures on the joint advertising is non-zero. The obtained results can be the initial information base to form recommendations on possibilities of Stakelberg’s business game application in comparison with other variants of theoretical and game models of marketing channels’ participants interaction