Optimal Pricing under The Consumer Segmentation in Dual Channel Supply Chain

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1 Intenational Confeence on Engineeing Management, Engineeing Education and Infomation Technology (EMEEIT 015) Optimal Picing unde The Consume Segmentation in Dual Channel Supply Chain Xiaoyu Zhu1, a *, Yanyi Xu, Tijun Fan3 1,,3 East China Univesity of Science and Technology Business School, Shanghai, P.R.China a Key wods: Consume Segmentation; Online Intemediay; Dual Channel; Optimal Picing Abstact.Based on the fast development of E-commece and heteogeneity of consume behavio, in this pape, we develop a hieachical selection model chaacteizing consumes acceptance of online channel, and then study the optimal picing stategy of supplies in a dual channel supply chain. We conclude that the supplie should actively communicate with the online intemediaies fo coopeation to impove customes' online shopping expeience. Fo the online intemediaies, they should not only focus on impoving consume acceptance of online channels, but should stive to impove thei poduct divesity, which will incease the popotion of type-pimay consumes. Intoduction The optimal picing in dual channel supply chain catches the scholas' eyes in the academic cicles both in homeland and aboad. Most liteatue at pesent use the method of game optimization decision-making and set the objective function as maximizing the pofit eithe in supply chain paties o the whole supply chain. Aya1 has poposed that supplie encoachment can diectly contol the etail channel's sales pices in the case of infomation symmety, which led he to gain moe pofit though the lowe wholesale pices. Li Zhuoxin discussed the etailes to obtain moe infomation than the supplie in double channel picing poblem on the basis of the study of Aya. She concluded that unde the infomation asymmetic, the etailes can pophet intensified dual maginal utility with its infomation advantage to make supplie encoachment damage themselves, which is all that mattes. Theefoe, Supplies pefe to selling the goods to the etaile who has no infomation advantage o etailes willing to infomation shaing.though the liteatue eview shows above, about the picing stategy in dual channel, most eseaches divided the channel into etail and diect online channel. This pape will put the intemediay into ou models as a paticipant. Because of thei advantage of its own win the tust of consumes. On the aspect of picing, most papes mainly focus on the customes puchase cost, channel pefeence and sale pice factos. Howeve, in this pape, we build the diffeent souces of demand function on the basis of using the layeed consume choice model. Poblem desciption and assumptions Hypothesis thee is a monopoly entepise in the maket selling goods to consumes though two channels. One is the taditional etail channel which is the band fanchise stoes such as apple and ZARA, the othe is a mobile intenet platfom (such as Tmall, VIP) that we call them as intemediay. In ode to discuss convenient, we suppose the goods in the fanchise stoe has no quality poblems while in the intemediay, the goods may be gay and have quality issues. Based on the consume hieachical selection model in efeence, we subdivide the consume goups into two types. The fist kind is band-pimay, the consumes in which often conside the band at fist when buying goods, so thei puchase behavio is diectly to the band monopolized shop. The second is type-pimay that the consumes decide the type of goods at fist befoe buying. They like fashion way with the continuous development of mobile Intenet. In addition to consideing pice factos, most of them conside the puchasing cost, consumption expeience, as well as a vaiety of value-added sevices in the pocess of consumption. So thei puchasing behavio is going to choose 51

2 Intenational Confeence on Engineeing Management, Engineeing Education and Infomation Technology (EMEEIT 015) the intemediay to buy goods they need. Basic Model In this pape, the consumes we discussed ae heteogeneous and thei willingness to pay fo homogeneous commodities is v, obeying the unifom distibution between 0 and 1. In etail channel, consume can obseve the poduct diectly. The bigge of suggests that the highe acceptance fo buying goods in the online channel. Afte the analysis above, fo the band-pimay consumes, although they would only conside one band of commodity, they will make the puchase decision afte compae the two channels. Suppose the net utility of the band-pimay consumes in etail channels and fom the intemediay espectively is U B = v - p, U mb = v - p m. We can conclude that when p (1 ) p m p, the p pm demand in etail channel of the band-pimay consumes is q B = α 1 and the 1 p pm pm demand in the intemediay is q mb = α.fo the type-pimay customes, they will 1 compae diffeent bands fom vaious aspects though the intemediay befoe making puchase decisions. They won't buy goods fom the stoe of one cetain band, so its utility function is U mt = v - pm and then the demand in the intemediay of the type-pimay consumes is q mt = (1 - α ) 1 m. It is a kind of stategic behavio that supplies outsouce thei online channels of opeation to the intemediay who has he efficient e-commece platfom that can educe the opeating costs fo poduces and eventually achieve a win-win effect between both sides. When the supplies sale goods though the intemediay in online channel, Supplie's income includes wholesale pofits of the etail channels and the pofit shae fom intemediay. The pofit of the intemediay comes fom the online sales and the pofit of the etailes comes fom the etail channels. In this time, the taget pofit function of the thee paticipants is espectively as bellow, p - pm - c - w ) 1-1 ( p m ) = ( p m - c m - s )(1 - α ) 1 - p m (p ) = α (p R M (p A (1) p - pm α ( p m - c m - s ) - m 1- p - pm pm p - pm, w ) = s (1 - α ) 1 - m α s α w () (3) Equilibium analysis In ode to compae with dual channel supply chain with the intemediay, we conside a single etail channel fist. In this case, the taget custome goups fo supplie is only the band-pimay consumes, theefoe the demand function fo this diect channel is q B = α (1 p d ) and at this time, the supplie and etaile s game ode is the supplie fist set the wholesale pice and the etaile develop his etail pice p accoding to the wholesale pice. PROPOSITION 1: The optimal picing decision set of supplie and etaile without the intemediay in single channel is (w, p1 ) 1 - c whee p 1 = 3 c, w =. At this point, the maximize α (1 - c ) α (1 - c ). = R 8 16 When supplies sale goods though the intemediay of online channel, Supplie's income includes wholesale pofits shae of the intemediay and the evenue fom etail channel, while the income of the supplie and etaile ae A = 513

3 Intenational Confeence on Engineeing Management, Engineeing Education and Infomation Technology (EMEEIT 015) pofit of the intemediay comes fom the sales evenue of online channel. The game ode fo the thee paticipants is as follows. Fist, the Supplie published wholesale pice and the sale pice in the diect channel, then the etaile develop his etail pice. At last, the intemediay develop the online pice accoding to the sales pice in etail channel and the wholesale pice. PROPOSITION : In the pesence of a intemediay in dual channel supply chain, the optimal picing decision set of supplies and the intemediay is ( w, p d, p m ). Among them, (1 - α )(c m - s - ) 1 - c ( - α ) (x α x )(c m s ) 1 α α x (1 - α )(c m - s - ) c 3 p = 1 ( x 1 α x ) ( x 1 α x ) ( - α ) ( x αx )(cm s) (1 - α)(cm - s - ) (1 α αx ) (c 3) cm s 1 α pm = 1 (x1 αx ) ( - α) (x1 αx ) (1 - α ) w = Data simulation and analysis In this section, we use the Matlab softwae to do some numeical expeiments though seveal goups of data, in ode to examine the supplie's optimal picing decisions unde two diffeent channels. Let the opeating costs of diect sales channels and online sales espectively be c = 0.1 cm = Supplies will gain the ebate fo each poduct fom the intemediay s = 0.. A. The influence of on the picing stategy Let changes between 0.1 and 1 and α = Then the etail pice, wholesale pice, the online pice and the benefits of supplies when the supplie choose dual channel supply chain ae espectively shown in figue 1 and figue as below. Fig. 1. The pofit of the supplie Fig.. The pofit of the intemediay Fom figue 1, we can see the supplie's evenue will be inceased obviously at fist and then became slowly with the incease of consume acceptance fo netwok channels inceased. While fom figue, the benefits of the intemediay dop at fist, then aise and at last dop again significantly with the incease of consume acceptance fo netwok channels inceased. Nowadays, with the mobile Intenet technology and elated logistics technology becoming matue, consume acceptance of online channel will gadually incease. In such case, supplie shall actively coopeate with intemediaies to gain moe pofit though optimizing the stuctue of dual channel supply chain. At the same time, Intemediaies should constantly impove the consume shopping expeience actively and coopeate with supplie by means of infomation shaing coopeation to make sales stategy actively with supplies in ode to achieve win-win situation. B. The influence of α on the picing stategy Let α changes between 0.1 and 1 and = Then the etail pice, wholesale pice, the 51

4 Intenational Confeence on Engineeing Management, Engineeing Education and Infomation Technology (EMEEIT 015) online pice and the benefits of supplies when the supplie choose dual channel supply chain ae espectively shown in figue 3 and figue as below. Figue. 3. The pofit of the supplie Figue..The pofit of the intemediay Fom figue 3, we can see the supplie's evenue will be inceased slightly the incease of band oiented consume atio inceased. While fom figue, the benefits of the intemediay dop slowly with the incease of band oiented consume atio inceased. When consume acceptance of Intenet channel is low, the impact of α on the supplie's eanings is moe obvious than the intemediay. When is high, the influence of α on intemediay is moe obvious effect than supplies. Theefoe, supplie shall actively coopeate with intemediaies to obtain effective coopeation ageement unde infomation shaing and contol the popotion of band-pimay consumes easonable to each the optimal benefits both of the supplies and the intemediay. Conclusion and pospect In this pape, we established a decentalized decision-making model afte consideing the influence of popotion of band-pimay consumes and type-pimay consumes and the degee of consumes' ecognition of netwok channels on supplies' picing stategy in dual channel. We conclude that the wholesale and sale pice of the goods will be deceased with the incease of consume acceptance fo netwoking channels and the popotion of band oiented consumes. Meanwhile, the pofit of the supplie will inceased obviously. With the divesification of poduct selection, the mode of outsoucing netwok maketing channel to intemediay can make supplie itself and intemediay ealize win-win outcome, so as to obtain moe pofits. Besides, the supplie should communicate with intemediay coopeation actively on the basis of pefecting its own band to impove the netwok shopping expeience. Fo intemediaies, they don't need to blindly demand to impove consume acceptance of online channels, but should stive to impove thei own platfom poducts ichness, to incease the popotion of type oiented consumes. In the end, we do not take the commodity competition in intemediay's platfom into account in ode to highlight the income diffeence between dual channels and single channel. At the same time, we also did not conside whethe the entity expeience in diect channel affects consume buying behavio. Thus, the picing decisions unde the competition in the intemediay in dual channel will be ou next eseach diection. Refeence [1]Aya A, Mittendof B, Sappington DEM. The Bight Side of Supplie Encoachment[J]. Maketing Science. 007, Vol.6(NO.5): []Li Z, Gilbet SM, Lai G. Supplie Encoachment unde Asymmetic Infomation[J]. Management Science. 01, Vol.60(No.):

5 Intenational Confeence on Engineeing Management, Engineeing Education and Infomation Technology (EMEEIT 015) [3]Chiang WK,Chhajed D,Hess JD.Diect maketing indiect pofits:a stategic analysis of dual-channel supply chain design.management Science, 003, 9(1): 1-0. []Kök A G, Xu Y. Optimal and Competitive Assotments with Endogenous Picing Unde Hieachical Consume Choice Models[Z]. 011: 57,