The Impact of Channel Role on the Outsourcing of After-Sales Service with Asymmetric Retailer Competition

30 Pages Posted: 14 Jan 2025

See all articles by Shuguang Zhang

Shuguang Zhang

affiliation not provided to SSRN

Wei Shi Lim

National University of Singapore

Ziqiu Ye

University of International Business and Economics (UIBE) - School of International Trade and Economics

Date Written: September 29, 2024

Abstract

After-sales service is support provided to a customer after purchase, which potentially leads to higher customer satisfaction and is demand-enhancing. Using a game-theoretic model in which a manufacturer determines its after-sales service and distribution channel strategies in the presence of two asymmetric retailers, we identify channel position as an important criterion in determining the outsourcing of after-sales service. Specifically, outsourcing to a third-party provider, due to its lack of channel interaction, is never an optimal choice for the manufacturer unless the third-party has a significant cost advantage in providing after-sales service. However, because of the channel role of the retailers, the manufacturer outsources to the large retailer rather than undertaking the after-sales service in-house, when the competing small retailer is less competitive and the cost of service provision is high. The trade-off between the manufacturer outsourcing the service and undertaking that in-house involves whether the manufacturer accommodates the small retailer in the market. When service provision is outsourced, the large retailer enjoys a lower wholesale price if the small retailer is present, and therefore the large retailer subsidizes the manufacturer to induce the manufacturer to accommodate the small retailer. However, the manufacturer, when undertaking the service by itself, forgoes the small retailer. Finally, we show that when the manufacturer adopts a multi-retailer distribution channel, the large retailer benefits because improved after-sales service increases demand and consumer valuation of the product. We also demonstrate the robustness of our key results in multiple extensions.

Keywords: supply chain management, channel strategy, after-sales service, game theory, asymmetric retailer competition

Suggested Citation

Zhang, Shuguang and Lim, Wei Shi and Ye, Ziqiu, The Impact of Channel Role on the Outsourcing of After-Sales Service with Asymmetric Retailer Competition (September 29, 2024). Available at SSRN: https://ssrn.com/abstract=5037367 or http://dx.doi.org/10.2139/ssrn.5037367

Shuguang Zhang

affiliation not provided to SSRN

Wei Shi Lim

National University of Singapore ( email )

1 Business Link
Singapore, 117592
Singapore

Ziqiu Ye (Contact Author)

University of International Business and Economics (UIBE) - School of International Trade and Economics ( email )

10 East Huixin Street
Chaoyang District
Beijing, 100029
China

HOME PAGE: http://www.ziqiuye.com/

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