Product rollover and direct sales decisions in dual-channel supply chains

Abstract

This study investigates product rollover and direct sales decisions in a supply chain with one fashion manufacturer and one retailer when two style generations are sequentially introduced to the market over two periods. The retailer serves as the exclusive sales channel during the introductory period of a style generation. Both the retailer and manufacturer are capable of selling the old style generation in the second period. The retailer adopts dual rollover if she sells the old style generation, and single rollover if she does not. We develop a two-stage game to explore the chain members’ equilibrium decisions while accounting for the manufacturer’s cost inefficiency in direct sales and consumers’ mental account deficit. We find that the manufacturer’s cost inefficiency has double-edged effects and can offset the negative effect of consumers’ mental account deficit on the introduction of a new style generation. Furthermore, a win-win outcome can be achieved when the manufacturer with an intermediate level of cost inefficiency engages in direct sales and consumers have high valuations of the old style generation or when the manufacturer with significant cost inefficiency does not engage in direct sales.

The Joint Decision of Cost Reduction Effort and Product Rollover Strategy for Fashion Items in the Presence of Strategic Consumers

“…Higher (lower) implies consumers are more (less) strategic and values the second period higher (lower). In that sense, implies consumers are purely myopic (does not consider his/her second period surplus when making his/her first period purchase decision), which can be seen in [2] [4]. On the other extreme case, implies consumers are fully strategic in their purchase behavior, threating his/her first and second period surplus equally, as in [22] and [3].…”