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IMPACT OF RETURNS POLICIES AND GROUP-BUYING ON CHANNEL COORDINATION
Title
IMPACT OF RETURNS POLICIES AND GROUP-BUYING ON CHANNEL COORDINATION.
Creator
Tran, Thanh, Desiraju, Ramarao, University of Central Florida
Abstract / Description
This dissertation investigates the role of two marketing practices---returns policies and group-buying services---in improving channel coordination. The first study (presented in Chapter Two) focuses on the interaction between two types of returns policies---returns of unwanted products from consumers to retailers and returns of unsold inventory from retailers to manufacturers. Even without the right to return unsold inventory to the manufacturer, the retailers may accept returns from...
Show moreThis dissertation investigates the role of two marketing practices---returns policies and group-buying services---in improving channel coordination. The first study (presented in Chapter Two) focuses on the interaction between two types of returns policies---returns of unwanted products from consumers to retailers and returns of unsold inventory from retailers to manufacturers. Even without the right to return unsold inventory to the manufacturer, the retailers may accept returns from consumers; by doing so, they benefit from a less price-sensitive market demand, an ability to screen for high-valuation consumers, and a competitive advantage (offering a returns policy makes a retailer more attractive to consumers). From the manufacturer's perspective, accepting returns may induce the retailers to order more stock, set lower prices, generate more sales, and therefore, improves the performance of the channel. However, under some conditions (e.g., when the marginal cost of stock-outs is relatively high), this study shows that this effect disappears and the manufacturer does not accept returns from the retailer in equilibrium. The second study (presented in Chapter Three) investigates the rationale for using group-buying services vis-a-vis the traditional posted-pricing mechanism. It focuses on the behavior of consumers and explores the role of heterogeneity in their valuation for the product and cost of purchasing via group-buying in the functioning of group-buying services as a price-discrimination device. Finally, the role of group-buying services in improving channel coordination under asymmetric information is studied in Chapter Four. This analysis shows that the availability of group-buying services provides an opportunity for the manufacturer to reduce the informational rents of the retailer arising from its private information about the market condition. Interestingly, the manufacturer can avoid paying these rents and regains the first-best profitability when asymmetry in information exists regarding the relative sizes of consumer segments. In other settings (e.g., when asymmetric information exists regarding consumers' price sensitivity), leveraging the group-buying mechanism nevertheless allows the manufacturer to design a contract that requires lower rents and improves channel coordination to some extent.
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Date Issued
2009
Identifier
CFE0002747, ucf:48182
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0002747
MARKETING PARTNERSHIPS: IMPACT OF MONITORING SCHEMES AND COOPERATIVE ADVERTISING AGREEMENTS
Title
MARKETING PARTNERSHIPS: IMPACT OF MONITORING SCHEMES AND COOPERATIVE ADVERTISING AGREEMENTS.
Creator
Chennamaneni, Pavan, Desiraju, Ramarao, University of Central Florida
Abstract / Description
Marketing partnerships may involve either horizontal relationships (e.g., a co-marketing alliance between firms selling different products) or vertical relationships (e.g., between an upstream manufacturer and its downstream retailers). Either type of partnership often includes multiple members and the marketing efforts (e.g., level of advertising) of any member typically affect the profitability of the other members. When selecting their effort levels, however, the individual members of the...
Show moreMarketing partnerships may involve either horizontal relationships (e.g., a co-marketing alliance between firms selling different products) or vertical relationships (e.g., between an upstream manufacturer and its downstream retailers). Either type of partnership often includes multiple members and the marketing efforts (e.g., level of advertising) of any member typically affect the profitability of the other members. When selecting their effort levels, however, the individual members of the partnership do not account for such externalities. Consequently, the overall effort on behalf of the partnership is not optimal. This dissertation investigates the value of contractual mechanisms such as monitoring schemes (for horizontal partnerships) and cooperative advertising programs (for vertical partnerships) that may provide better incentives to the partners to invest into the relationship. The first part of this dissertation focuses on horizontal marketing partnerships and examines the relative effectiveness of outcome- and action-based contracts in providing the alliance partners with the incentives to invest appropriately. A mathematical model is developed in which a focal firm (e.g., Sony) contracts with two partners (e.g., McDonald's and Old Navy), when each of these partners is privately informed about the impact of the alliance on its demand. The analysis evaluates the strengths and weaknesses of outcome- (or output-) and action- (or input-) based contracts in several settings including those with no demand externality, a positive externality and a negative externality. The analysis shows that when there is (a) no externality, (b) negative externality, or (c) a relatively weak positive externality, there is a strict preference for output-based contracts; that preference, however, is reversed with a sufficiently strong positive externality. The rationale for these findings, along with the implications and directions for further work are discussed. The second part of this dissertation focuses on a vertical marketing relationship where multiple retailers sell the products from a common manufacturer. Here, each retailer's level of advertising affects the demand for the other retailers. This positive externality, however, allows any retailer to free-ride on the other retailers' efforts and leads to an overall reduction in the level of advertising by all the retailers. In this context, a manufacturer can use a cooperative advertising contract to reimburse part of the advertising expenses of its retailers in order to induce them to raise their levels of advertising. Observed terms in a cooperative advertising contract include either a participation rate, a participation rate and a variable accrual rate, or a participation rate and a fixed accrual rate. This dissertation analyzes the relative effectiveness of the above three types of cooperative advertising contracts in minimizing or eliminating the free-riding problem. More specifically, a mathematical model is developed to analyze the relative impact of these contractual terms when the downstream retailers face either symmetric or asymmetric demand and cost structures. The analysis shows that with symmetric retailers, the three types of contracts are equally effective. With asymmetric retailers, though, including some form of accrual stipulations typically adds value to a contract that specifies only a participation rate. Further, using a variable accrual stipulation may be preferred to the fixed accrual stipulation under certain conditions and vice versa. The two types of accrual stipulations affect retail prices and efforts in distinct ways and these differences may tip the scale in favor of one contract versus the other under the appropriate circumstances. These conditions and the intuition behind the results are discussed. Overall, this dissertation contributes to the literature on horizontal and vertical marketing relationships and enhances our understanding of distinct contractual mechanisms that can help align the actions of various members involved in such partnerships.
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Date Issued
2009
Identifier
CFE0002770, ucf:48122
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0002770
Three essays on the marketing strategies of a durable goods manufacturer
Title
Three essays on the marketing strategies of a durable goods manufacturer.
Creator
Chau, Ngan, Desiraju, Ramarao, Krishnamoorthy, Anand, Joshi, Amit, Chintagunta, Pradeep, University of Central Florida
Abstract / Description
When purchasing durable goods, consumers not only pay for current but also future consumption; consequently, forward looking behavior is an important consideration in durable goods markets. For example, anticipating that prices will go down in the future, consumers may delay the purchase today; such behavior has a significant impact on the firm's marketing strategies. This dissertation investigates the impact of durability on two marketing strategies: new product introductions and supply...
Show moreWhen purchasing durable goods, consumers not only pay for current but also future consumption; consequently, forward looking behavior is an important consideration in durable goods markets. For example, anticipating that prices will go down in the future, consumers may delay the purchase today; such behavior has a significant impact on the firm's marketing strategies. This dissertation investigates the impact of durability on two marketing strategies: new product introductions and supply chain design. The first part of this dissertation (Chapter 3) examines a durable goods manufacturer's new product introduction strategy under different market environments where network effects and product compatibility are important. More specifically, this part explores the incentives of a firm to use either a replacement strategy or a skipping strategy---in the former, the firm commercializes the existing technology, while in the latter, it does not; in either case, an improved technology will be available in the future and the firm will introduce a new product at that time. Using a two-period analytical model with network effects, the analysis shows how the level of improvement in the new product, along with the type of compatibility between the products, interacts with network strength to determine the manufacturer's optimal strategy. Under gradual new product improvement, there is a strict preference for replacement. In contrast, under rapid new product improvement, that preference only holds in markets with relatively high levels of the network strength; at lower levels of the network strength, skipping is preferred; interestingly, for moderate values of the network strength, the level of product improvement affects the manufacturer's optimal choice differently under varying types of compatibility.The second part of this dissertation (Chapters 4 and 5) focuses on the supply chain design decisions of a durable goods manufacturer who is a sole supplier of an essential proprietary component for making the end product. Three different supply chain structures are considered. In the first, the manufacturer operates as a ``component supplier'' and sells the component to a downstream firm who then makes the end product. In the second structure, the manufacturer produces the end product using its component but does not make that component available to any other firms; here, the manufacturer operates as a ``sole entrant''. Finally, the manufacturer can operate as a ``dual distributor'' who not only makes the end product using its own component, but sells the component to a downstream firm who then competes against the manufacturer in the end product market.The extant literature on the optimal choice among the above supply chain structures has focused mainly on static settings in a framework of price competition. By contrast, researchers predominantly use quantity competition to examine durable goods markets in dynamic (i.e., multiple time period) settings. Moreover, the literature notes diversity in optimal firm behavior under the two types of (i.e., price and quantity) competition. Therefore, to transition from supply chain design in a static setting to a more dynamic one where consumers are forward-looking, this part utilizes Chapter 4 to analyze the manufacturer's choice using quantity competition in a static setting. This analysis (in Chapter 4) identifies precisely the shift in the manufacturer's choice of supply chain structure when moving from price competition to a quantity competition framework. With that analysis as a benchmark, the next chapter focuses on the manufacturer's choice in a dynamic setting. More specifically, Chapter 5 investigates the impact of durability on the optimality of the supply chain structures identified above. Using a two period setting, the analysis explores how the manufacturer's preference for different supply chain structures is modified. The findings reveal that, e.g., when durability is taken into account, the manufacturer's preference for the sole entrant role goes up, while the preference for the component supplier role goes down. Further, under certain conditions, the manufacturer may opt to be a dual distributor in the first period and then choose to become only a component supplier in the second period. The underlying rationale for such shifts in preference is directly linked to durability, which creates future competition and substantially reduces the manufacturer's profitability in the long run. Interestingly, this negative impact varies across different supply chain structures.Overall, this dissertation contributes to the current literature on durable goods and enhances our understanding of the impact of durability on the optimality of distinct marketing strategies, and provides insights that are valuable to both academics and managers.
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Date Issued
2012
Identifier
CFE0004364, ucf:49428
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0004364