Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 325-338 |
| Number of pages | 14 |
| Journal | Journal of the Operational Research Society |
| Volume | 67 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 1 Feb 2016 |
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Keywords
- channel structure
- retail operating expenses
- termination risk
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Sell through a local retailer or operate your own store? Channel structure and risk analysis. / NIU, Baozhuang; LIU, Liming; WANG, Jun.
In: Journal of the Operational Research Society, Vol. 67, No. 2, 01.02.2016, p. 325-338.Research output: Journal Publications › Journal Article (refereed)
TY - JOUR
T1 - Sell through a local retailer or operate your own store? Channel structure and risk analysis
AU - NIU, Baozhuang
AU - LIU, Liming
AU - WANG, Jun
PY - 2016/2/1
Y1 - 2016/2/1
N2 - Either a company store or a local retailer can be used to establish a sales channel. For high-value products with an existing competing brand, this choice represents a crucial decision a brand-named manufacturer must make for a new market. Under the burden of high operating costs, a weak local retailer may find it difficult to sustain and using it may hurt the manufacturer’s chance to successfully establish the channel. We consider a chain-to-chain competition model comprising two manufacturers and two retailers, in which one retailer may be unable to continue its operation because of high financing costs. We identify a threshold policy for the manufacturers to select the channel structure. Interestingly, we find that channel integration is not always better. Without the consideration of contract termination risk, the manufacturer will bear the operating expenses when its opportunity cost is low or the retailer’s financing cost is sufficiently high. In equilibrium, the manufacturers will choose either (decentralized, decentralized) or (integrated, integrated) channel structure. However, when the termination risk is considered, the equilibrium channel structure would be more likely (integrated, integrated) or (integrated, decentralized).
AB - Either a company store or a local retailer can be used to establish a sales channel. For high-value products with an existing competing brand, this choice represents a crucial decision a brand-named manufacturer must make for a new market. Under the burden of high operating costs, a weak local retailer may find it difficult to sustain and using it may hurt the manufacturer’s chance to successfully establish the channel. We consider a chain-to-chain competition model comprising two manufacturers and two retailers, in which one retailer may be unable to continue its operation because of high financing costs. We identify a threshold policy for the manufacturers to select the channel structure. Interestingly, we find that channel integration is not always better. Without the consideration of contract termination risk, the manufacturer will bear the operating expenses when its opportunity cost is low or the retailer’s financing cost is sufficiently high. In equilibrium, the manufacturers will choose either (decentralized, decentralized) or (integrated, integrated) channel structure. However, when the termination risk is considered, the equilibrium channel structure would be more likely (integrated, integrated) or (integrated, decentralized).
KW - channel structure
KW - retail operating expenses
KW - termination risk
UR - http://commons.ln.edu.hk/sw_master/5075
U2 - 10.1057/jors.2015.39
DO - 10.1057/jors.2015.39
M3 - Journal Article (refereed)
VL - 67
SP - 325
EP - 338
JO - Journal of the Operational Research Society
JF - Journal of the Operational Research Society
SN - 0160-5682
IS - 2
ER -