Coordination through cooperative advertising in a two-period supply chain with retail competition

Abstract

Purpose

Most firms in the fashion industry frequently design and promote new products, which leads to a two-period phenomenon in product sales. This study aims to examine the optimal advertising efforts of each channel member and the subsidy strategies of the manufacturer with retail competition in a two-period supply chain.

Design/methodology/approach

By utilizing the game theory, this study developed a cooperative advertising model that considers the element of retailer competition in a two-period supply chain.

Findings

The main results of this study are as follows. An increase in the subsidy rate of one retailer’s advertising cost will lead to a decrease in the share of the other. When a manufacturer’s marginal profit from one retailer is considerably larger than that from the other, the manufacturer will share more advertising cost with the former. This study demonstrates that a bilateral participation contract can achieve supply chain coordination and increases the likelihood of retailers to participate in this contract when competition effect is small.

Research limitations/implications

First, product price is not a decision variable in this model. This concern can be studied in future work. Second, the one-manufacturer and two-retailer supply chain can be expanded to competitive manufacturers.

Practical implications

This study provides some decision references for the manufacturer and retailer on advertising strategies. The manufacturer can also gain insights into cooperative advertising strategy when facing a competitive retail environment.

Originality/value

Most previous studies related to cooperative advertising focused on a single-period supply chain. This study investigates cooperative advertising strategy with retail competition in two-period sales and explores the potential coordinating power of a bilateral participation contract.

Citation

Xu, Q., Xu, B., Bo, Q. and He, Y. (2019), "Coordination through cooperative advertising in a two-period supply chain with retail competition", Kybernetes, Vol. 48 No. 6, pp. 1175-1194. https://doi.org/10.1108/K-01-2018-0004