4.7 Article

Price and quality-based competition and channel structure with consumer loyalty

Journal

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 262, Issue 2, Pages 563-574

Publisher

ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2017.03.052

Keywords

Supply chain management; Channel strategy; Price and quality-based competition; Customer loyalty

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Inspired by practices of the Chinese household appliance industry, we explore interaction of channel structure with price-and quality-based competition between two manufacturers who are asymmetric on customer loyalty. Each manufacturer sells its product through either a decentralized channel or an integrated channel to customers and faces demand depending on quality, retail price, and customer loyalty. We divide the market into two types: The price-sensitive market and quality-sensitive market, and find that the equilibrium depends on the market type. Different from the literature, in a quality-sensitive market with higher market innovation desire, the pure integration structure is likely to be in equilibrium, and furthermore, the manufacturer with higher loyalty can earn higher profit; Otherwise, the pure decentralization structure is in equilibrium. So, a manufacturer benefits the most from consumers' higher quality valuation, strong loyalty, and channel centralization. (C) 2017 Elsevier B.V. All rights reserved.

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