Download This PaperAn Analysis of Service Effort Strategies in Dual-Channel Supply Chains with Showrooming Effect
37 Pages Posted: 1 Jul 2020
Date Written: April 14, 2020
Abstract
Nowadays, the rapid growth of the online market poses great challenges for the brick-and-mortar (BM) retailers. In response to this threat, BM retailers exert various service efforts to promote sales in the offline market. This service effort, maybe unintentionally, also increases sales in the online market as customers might benefit from the offline service even if they shop online; this is called the showrooming effect. In this paper, our objective is to analyze multichannel retailing under different service effort strategies with the showrooming effect. We develop a series of game theoretical models that each involve a manufacturer, a retailer and an e-tailer. We investigate the showrooming effect on the pricing and service effort and determine optimal pricing strategies for each player. We first consider two scenarios where the service is provided by only one firm: a retailer exerting effort case and a manufacturer exerting effort case. In the retailer exerting effort case, we discuss three subcases that differ in when the level of service effort is chosen: an ex-ante case, an ex-post case, and a simultaneous case. Thus we explore incentives to provide service for the different firms and how the optimal pricing strategy for each player and the total profits of the whole supply chain depend on the timing. The results indicate that in most cases, the service provider increases the service effort as the showrooming effect gets stronger. In addition, the analysis on the timing of exerting the service effort reveals that the retailer’s profit is highest when he exerts the effort after the announcement of the wholesale price using the ex-post strategy obtains the highest profits in the ex-post case than in the ex-ante case and the simultaneous case. In the end, we discuss a scenario in which all the supply chain members jointly determine the service and compare it to other cases. We find that the total supply chain’s profit under the joint decision-making case is always superior.
Keywords: showrooming, game theory, service effort, pricing, dual-channel
JEL Classification: C73, D21, D43, L13
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