Online-to-store channel expansion strategies: cost, heterogeneity, and power

Xu Chen; Ying Peng; Xiaojun Wang

doi:10.1109/TEM.2023.3330374

Online-to-store channel expansion strategies: cost, heterogeneity, and power

Xu Chen^*, Ying Peng, Xiaojun Wang

^*Corresponding author for this work

Management

Research output: Contribution to journal › Article › peer-review

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Abstract

In light of the growing prevalence of online and offline mixed channels, in this article, we examine the channel expansion strategy of adding offline store channels to an online direct channel for a manufacturer. Based on the Nash program framework, this article considers two alternative mixed-channel strategies, namely a conventional wholesale channel and a franchise store channel. By comparing the subgame perfect equilibrium solutions of these two mixed-channel formats to the benchmark strategy, where the manufacturer only engages in the online direct channel, we evaluate the effects of the two online-to-store mixed-channel strategies on optimal direct selling prices, the manufacturer's profits, and overall social welfare. The results indicate that a manufacturer's optimal channel expansion strategy is mainly governed by the trade-off between the extra revenue gained from the newly added offline channel and the economic loss from the direct online channel induced by channel competition. The manufacturer's negotiation power, unit production cost, and heterogeneity between the two channels are the key factors determining the relative gains and losses. In addition, our results demonstrate that both online-to-store mixed-channel strategies yield positive effects on social performance compared with the online direct channel.

Original language	English
Article number	10320092
Journal	IEEE Transactions on Engineering Management
Early online date	16 Nov 2023
DOIs	https://doi.org/10.1109/TEM.2023.3330374
Publication status	E-pub ahead of print - 16 Nov 2023

Bibliographical note

Acknowledgments:
This work was supported in part by the National Key R&D Program of China under Grant 2020YFB1711900, in part by the Major Program of National Social Science Foundation of China under Grant 20&ZD084, in part by the National Natural Science Foundation of China under Grant 72002023, and in part by the Sichuan Science and Technology Program under Grant 2022ZHCG0039.

Keywords

Channel competition
channel strategy
consumer valuation
Nash bargaining game
pricing

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ChenX2023Online
X. Chen, Y. Peng and X. Wang, "Online-to-Store Channel Expansion Strategies: Cost, Heterogeneity, and Power," in IEEE Transactions on Engineering Management, doi: 10.1109/TEM.2023.3330374. © 2023 IEEE. Personal use of this material is permitted. Permission from IEEE must be obtained for all other uses, in any current or future media, including reprinting/republishing this material for advertising or promotional purposes, creating new collective works, for resale or redistribution to servers or lists, or reuse of any copyrighted component of this work in other works.
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Cite this

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title = "Online-to-store channel expansion strategies: cost, heterogeneity, and power",

abstract = "In light of the growing prevalence of online and offline mixed channels, in this article, we examine the channel expansion strategy of adding offline store channels to an online direct channel for a manufacturer. Based on the Nash program framework, this article considers two alternative mixed-channel strategies, namely a conventional wholesale channel and a franchise store channel. By comparing the subgame perfect equilibrium solutions of these two mixed-channel formats to the benchmark strategy, where the manufacturer only engages in the online direct channel, we evaluate the effects of the two online-to-store mixed-channel strategies on optimal direct selling prices, the manufacturer's profits, and overall social welfare. The results indicate that a manufacturer's optimal channel expansion strategy is mainly governed by the trade-off between the extra revenue gained from the newly added offline channel and the economic loss from the direct online channel induced by channel competition. The manufacturer's negotiation power, unit production cost, and heterogeneity between the two channels are the key factors determining the relative gains and losses. In addition, our results demonstrate that both online-to-store mixed-channel strategies yield positive effects on social performance compared with the online direct channel.",

keywords = "Channel competition, channel strategy, consumer valuation, Nash bargaining game, pricing",

author = "Xu Chen and Ying Peng and Xiaojun Wang",

note = "Acknowledgments: This work was supported in part by the National Key R&D Program of China under Grant 2020YFB1711900, in part by the Major Program of National Social Science Foundation of China under Grant 20&ZD084, in part by the National Natural Science Foundation of China under Grant 72002023, and in part by the Sichuan Science and Technology Program under Grant 2022ZHCG0039. ",

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doi = "10.1109/TEM.2023.3330374",

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AU - Chen, Xu

AU - Peng, Ying

AU - Wang, Xiaojun

N1 - Acknowledgments: This work was supported in part by the National Key R&D Program of China under Grant 2020YFB1711900, in part by the Major Program of National Social Science Foundation of China under Grant 20&ZD084, in part by the National Natural Science Foundation of China under Grant 72002023, and in part by the Sichuan Science and Technology Program under Grant 2022ZHCG0039.

PY - 2023/11/16

Y1 - 2023/11/16

N2 - In light of the growing prevalence of online and offline mixed channels, in this article, we examine the channel expansion strategy of adding offline store channels to an online direct channel for a manufacturer. Based on the Nash program framework, this article considers two alternative mixed-channel strategies, namely a conventional wholesale channel and a franchise store channel. By comparing the subgame perfect equilibrium solutions of these two mixed-channel formats to the benchmark strategy, where the manufacturer only engages in the online direct channel, we evaluate the effects of the two online-to-store mixed-channel strategies on optimal direct selling prices, the manufacturer's profits, and overall social welfare. The results indicate that a manufacturer's optimal channel expansion strategy is mainly governed by the trade-off between the extra revenue gained from the newly added offline channel and the economic loss from the direct online channel induced by channel competition. The manufacturer's negotiation power, unit production cost, and heterogeneity between the two channels are the key factors determining the relative gains and losses. In addition, our results demonstrate that both online-to-store mixed-channel strategies yield positive effects on social performance compared with the online direct channel.

AB - In light of the growing prevalence of online and offline mixed channels, in this article, we examine the channel expansion strategy of adding offline store channels to an online direct channel for a manufacturer. Based on the Nash program framework, this article considers two alternative mixed-channel strategies, namely a conventional wholesale channel and a franchise store channel. By comparing the subgame perfect equilibrium solutions of these two mixed-channel formats to the benchmark strategy, where the manufacturer only engages in the online direct channel, we evaluate the effects of the two online-to-store mixed-channel strategies on optimal direct selling prices, the manufacturer's profits, and overall social welfare. The results indicate that a manufacturer's optimal channel expansion strategy is mainly governed by the trade-off between the extra revenue gained from the newly added offline channel and the economic loss from the direct online channel induced by channel competition. The manufacturer's negotiation power, unit production cost, and heterogeneity between the two channels are the key factors determining the relative gains and losses. In addition, our results demonstrate that both online-to-store mixed-channel strategies yield positive effects on social performance compared with the online direct channel.

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KW - Nash bargaining game

KW - pricing

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DO - 10.1109/TEM.2023.3330374

M3 - Article

SN - 0018-9391

JO - IEEE Transactions on Engineering Management

JF - IEEE Transactions on Engineering Management

M1 - 10320092

ER -

Online-to-store channel expansion strategies: cost, heterogeneity, and power

Abstract

Bibliographical note

Keywords

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