Referral service and customer incentive in online retail supply Chain

Transcription

1 Refeal sevice and custome incentive in online etail supply Chain Y. G. Chen 1, W. Y. Zhang, S. Q. Yang 3, Z. J. Wang 4 and S. F. Chen 5 1,,3,4 School of Infomation Zhejiang Univesity of Finance and Economics Hangzhou, China chenyg@zufe.edu.cn 5 School of Economics and Management Zhejiang Nomal Univesity Jinhua, China ABSTRACT This pape studies an online etail supply chain that includes one efeal infomediay and one etaile, in which the infomediay povides demand efeal sevice to etailes and incentive ebates to customes. A linea dual-channel demand with the effect of custome incentive and hoizontal sevice coopeation model was established, and then the optimal policies of infomediay and etailes in centalized and decentalized supply chain wee analyzed. Moeove, a hoizontal coopeation contact based on custome incentive cost as well as efeal sevice pice was developed to coodinate the supply chain. The esults evealed that the contact contibuted to pofit optimization of online etail supply chain and effective win-win coopeation. Finally, we analyze the impact of ebate sensitivity and maket shae on these optimal policies and illustate the esults by some numeical examples. Keywods: online etail supply chain, infomediay, custome incentive, demand efeal, contact coodination. 1. Intoduction The apid development of Infomation technology and Intenet pesents the etailes with the oppotunities fo expansion to new online segments. Accoding to the ecent epot of China Intenet Netwok Infomation Cente (CNNIC), the numbe of online shopping uses eached 4 million and utilization atio of online shopping ose to 4.9% by the end of Decembe 01[1]. The incease of uses puchase powe and the combination of online consumption habit and the foms of mobile and social online shopping pomote the gowth of online etail maket. The Intenet maket stuctue is in a apid optimization stage while the online shopping uses apidly incease in numbe. Fims ae inceasingly embacing integated Intenet-based supply chains because such chains ae believed to enhance efficiency and competitiveness [, 3]. The Intenet has opened up oppotunities fo fims to shae infomation and efficiently collaboate thei activities with othe entities in the supply chain [4]. E-commece has given ise to a new beed of intemediaies, the so-called infomation intemediaies o infomediaies [5, 6]. An infomediay plays an expanded ole in bokeing pospect infomation in poduct categoies, such as automobiles, insuance, and eal estate, whee the puchase decisions that consumes face ae complex and fequently equie diect inteactions with salespeople [7]. The loweing of seach costs with the advent of the Intenet has changed the shopping way of consumes. With the help of online infomediay, consumes can get the infomation they need to make moe infomed choices [8]. Fo example, Shopping.com collects the consumes comments and offes online compaison shopping, and is cuently one of the fastest gowing shopping destinations fo a compehensive set of poducts. It ecommends inteested customes to some tusted online stoes, such as Ebay.com, Amazon.com and Buy.com. Seveal ecent studies have elaboated on the efeal sevice, pice of segments and othe maketing poblems. Chen et al. (00) analyze the effect of efeal infomediay on etail makets and examines the contactual aangements that Jounal of Applied Reseach and Technology 61

2 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / they should use in selling thei sevices [9]. The infomediay helps consumes to costlessly get an additional etail pice quote befoe puchase and endows enolled etailes with a pice discimination mechanism. Viswanathan et al. (007) investigate the ole of online infomediaies in maket segmentation and pice discimination in the automotive etailing context based on thee online buying sevice (OBS) patten [7]. The esult shows that consumes who obtain pice infomation pay lowe pices (fo the same poduct), wheeas consumes who obtain poduct infomation pay highe pices. Chen and Yao (01) study the optimal decisions of infomediay s effot and etaile s ode quantity in centalized and decentalized supply chain, and popose a hoizontal coopeation contact based on shaing maketing effot cost [10]. Futhemoe, the quantity and quality of infomation about companies, poducts, bands o sevices via online media, in the fom of scoes o comments, becomes the coe competitive advantage of infomediay [11-13]. Recent evidence suggests that consume eviews have become vey impotant fo online puchase decisions and poduct sales [14]. Accoding to eal data on fim secuity pices, Luo (009) finds that negative WOM (Wod of Mouth) of customes has significant diect shot- and long-tem effects on fim cash flows and stock pices [15]. Cheung and Lee (01) focus on the factos that dive consumes to spead positive digital WOM in online consume-opinion platfoms and pesent the positive elationship between the peception of the oppotunity to enhance consumes own eputations and thei ewom (electonic Wod of Mouth) intentions [16]. Consumes ae consideed as co-povides in the online consumption pocess and intimately involved in the tansition fom selling the poduct to selling the expeience [17]. In addition to these intenal factos, customes incentive plan of infomediay becomes the extenal induce to encouage customes to wite and disseminate thei eviews and comments. Some online shopping platfoms and vitual communities povides many kinds of custome incentives, such as pice discount, coupon, cash ebate et al, to encouage customes to shae thei shopping expeience and ecod thei comments. But eseaches have not yet studied the custome incentive plans povided by infomediay, even though undestanding these mechanisms could enhance customes behavio of eviews dissemination and infomediay ability to ecommendation of poducts and sevices. Ou pimay inteests of this eseach focus on the effect of custome incentive mechanism and the demand efeal sevice coopeation between infomediay and etaile. The afoesaid liteatue usually does not explicitly conside the impact of custome incentive on the final online demand, the sevice coopeation and supply chain coodination. We will chaacteize supply chain demands, equilibium pices, and incentive commission paid by infomediay. The coodination mechanisms of the online etail supply chain ae also to be investigated. The est of the pape is oganized as follows. Section outlines the model famewok and the necessay assumptions and notations. Section 3 poposes the optimal policies in Stackelbeg decentalized supply chain. Sevice contact of supply chain is discussed in Section 4. And some numeical examples ae given in Section 5 and the pape concludes with some emaks in Section 6.. Model Fomulation In an online etail supply chain, a etaile sells the poduct though self-owned channel as well as though an infomediay website. The etaile pays the infomediay fo the efeal sevice at t pe unit. The infomediay only povides the customes with poduct and pice infomation and ecommends the potential customes to the etaile. Thus, the etaile odes the poducts fom upsteam supplie, sells to his diect customes fom self maketing effot and indiect customes fom the demand efeal (Figue 1). It is easonable to expect that the infomediay gets the compensation fom the etaile fo demand efeal sevice. Futhemoe a ebate will be given to the customes as an incentive to fo ecoding thei expeiences and comments on the poducts and sevices in detail. 6 Vo. 1, Apil 014

3 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / The linea ebate function k epesents the custome incentive plan and paamete k (k>0) denotes the positive effect of ebate. Moeove the ebate indicates the quantity and quality of custome ewom, and the paamete k epesents the ecommendation effectiveness fo the efeal potential customes. As in Liu et al. (013) [18], we suppose the etaile and infomediay both face independent demand and the etaile declaes the same pice p to both two custome segments. Assume that all the potential customes influenced by the pice and the efeal customes ae also dependent on the amount of ebate. Notation Desciption D Potential customes of the whole maket D Refeal custome demand of the i infomediay Diect custome demand of the etaile D p Pice of the poduct t Pice chaged fo the demand efeal sevice Maket shae popotion of the infomediay Pice sensitivity paamete Custome ebate fo the eviews k ebate sensitivity paamete incentive cost paamete Table 1. Notation. Theefoe, the following Eqs. 1 and captue the diect demand of the etaile and the efeal demand of the infomediay espectively. D (1 ) D p (1) D D p k () i Whee 0 epesents the pice effect and k 0 denotes the positive effect of incentive ebate. They ae both constants duing the whole hoizon. Figue 1. Supply chain of the etaile and infomediay. Let Di and D be the maket demand shae of the infomediay and the etaile espectively. Assume that (1 )D popotion potential customes will buy the poduct fom the etaile, while the othe D popotion will come fom the infomediay ( 0 1). The simila linea demand functions ae fequently used in supply chains eseach [19-1]. The common concave function denotes the custome incentive cost ( 0 ) []. Assume that the puchase cost, sales cost and tanspotation cost of etaile is zeo and unfulfilled demand is lost. See Table 1 fo summay of notation. 3.The optimal sevice and sales polices in a etaile Stackelbeg game Assume that etaile is the leade of Stackelbeg game. The fims objectives can be divided into the following two-stage poblem: in stage one, the etaile detemines the sevice pice t of the efeal demand befoe the sales hoizon; in stage two, the infomediay detemines the custome ebate in accodance with the efeal pice t. Infomediay povides all the efeal demand to the etaile and gets the paid sevice fee, and the etaile undetakes the custome s ode fulfillment and gets the etailing pice. Fo fixed efeal sevice t, the infomediay s pupose is to choose the custome ebate to maximize the pofit i Jounal of Applied Reseach and Technology 63

4 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / i max( tdi ) (3) Substituting Eq. into Eq. 3 and solving the fist deivate of Eq. 3 accoding to, we can get the optimal custome ebate kt (4) The supescipt denotes the optimal decision vaiables in Stackelbeg scenaio. Next, consideing the etaile detemines the optimal etailing and efeal sevice pice the pofit function of etaile can be witten as max p( D D ) td (5) i i pt, Substituting Eqs. 1, and 4 into Eq. 5 and solving the fist deivate accoding to p, t espectively, we have the optimal etailing pice p and sevice pice t p t [ ( ) ] k k D 8 k ( k ) [( k ) 4 ] D 8 k ( k ) (6) (7) Since the optimal solution of Eq. 5, the Hessian Matix H( ) must be negative definite matix. We can deive H( ) H( ) 4 k k k If paametes k and satisfy 8 k ( k ) 0 (8) (9) The objective function must be jointly concave in ( p, t ). Hence, we pove that policies p and t ae optimal. Substituting Eqs. 6 and 7 to Eq. 4 the optimal custome ebate can be descibed as [( k ) 4 ] kd 8 k ( k ) (10) Consequently ational infomediay and etaile will commit to paticipate in the efeal demand coopeation only if the etailing pice p is highe than the pice of efeal sevice t. And we can obtain (1 ) k (1 3 ) (11) Fom Eqs. 9 and 11 the feasible egion of paametes k can be descibed as following (13 ),(3 ),if 0 (1 ) k (4 1),(3 ),if 1 4. Sevice contact coodinating the online etail supply chain If the whole online etail supply chain acts as a centalized system, the pofit of supply chain can be descibed as s max pd ( i D) (13) p, The subscipt s denotes the optimal decision vaiables in centalized scenaio. To maximize the system pofit the etailing pice p s and custome ebate s ae chosen accoding to the following p s s D 4 k kd 4 k (1) (14) (15) Based on Eqs. 14 and 15, paametes k must satisfy k min, to ensue the etaile and infomediay to paticipate in the supply chain coopeation. 64 Vo. 1, Apil 014

5 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / It is obvious that the system optimal pice is highe than the etaile optimal pice. Theefoe, it eveals that the sevice pice-only contact can not coodinate the supply chain system. The sepaation of maketing and sales opeation between infomediay and etaile will esult in inefficiency in the supply chain. The custome incentive activities esult in consideable costs. When the demand is affected by infomediay effot, such as buy-back, ebate and etuns contact alone can not achieve channel coodination [, 3]. But the maketing cost shaing mechanism can help supply chain attain a win win goal [4, 5]. We assume the etaile povides ( [0,1] ) pecent of customes ebate cost as well as efeal pice t. The supescipt denotes the vaiables in this scenaio with custome ebate cost shaing contact. Let i be the pofit of infomediay and pofit of etaile. We can get the (1 ) i max[ tdi ] (16) Accoding to we can get the optimal custome ebate kt (1 ) (17) If the supply chains achieve coodination, the custome ebate of infomediay in decentalized scenaio equals to that in centalized scenaio. Substituting Eq. 15 into Eq. 17 we can obtain (4 k ) t (18) D So when the online infomediay povides demand efeal sevice to the etaile, the etaile must (4 k ) t shae pecent of the custome D incentive cost in addition to unit t sevice fee. This custome incentive cost shaing contact can achieve coodination of the online etail supply chain. 5. Numeical examples To exploe the effects of the efeal sevice and custome ebate of the decentalized and centalized supply chains, we give some numeical examples in this section. The basic settings with espect to the paametes ae summaized in Table. Paametes Base values The potential customes of the whole maket 100 (D) The pice sensitivity paamete ( ) The incentive cost paamete ( ) 0.5 Paametes Base values The potential customes of the whole maket 100 (D) The pice sensitivity paamete ( ) The incentive cost paamete ( ) 0.5 Table. Paametes setting in the numeical examples. Fo a given maket shae popotion, we can get the minimum lowe k and fixed uppe k. An inteesting obsevation fom Fig. is that as inceases, the ange of paamete k ( k k k ) inceases fistly and deceases subsequently, whee k indicates the feasible ange of ebate sensitivity o custome efeal effectiveness. Theefoe, it eveals that when the popotion of online efeal demand accounts fo a small maket shae (Fom Eq. 1 paamete is assumed smalle than 0.93), the possible vaiance of custome ebate sensitivity o efeal effectiveness inceases with the gowth of efeal segment. But if the maket shae of online efeal demand exceeds 0.93, the opposite change will happen. Thus, infomediay should continuously impove the featues of ewom to help shoppes make quick, easy and infomed shopping decisions, Jounal of Applied Reseach and Technology 65

6 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / theeby inceasing its efficiency of potential custome convesion. Figue. Effect of maket shae on feasible ange of paamete k. Consideing the diect demand of etaile is dominant to the efeal demand of infomediay o vice vesa, we assume 0.1 o 0.6 espectively on condition that the numeical example of must satisfy Eqs. 9 and 11. Futhemoe, the feasible egion of paametes k is (0.881,.414) while 0.1 and (1.183,.414) while 0.6. The optimal solutions of etailing pice, efeal sevice pice and custome ebate ae listed in Table 3-1 and Table 3-. Fom Table 3-1 and Table 3-, we can see that the segments of diect and efeal demand have impotant influence on feasible ebate sensitivity k and optimal decisions of etailing pice, efeal sevice pice and custome ebate. k p t Table 3-1. Optimal solutions in the numeical examples ( 0.1 ). 66 Vo. 1, Apil 014 k p t Table 3-. Optimal solutions in the numeical examples ( 0.6 ).

7 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / Figue. 4 pesents the shaing pecentage of custome incentive cost and optimal custome ebate fo diffeent values of ebate sensitivity k. Figue. 3-1 Pofit of supply chain when 0.1. Figue. 4 Optimal custome ebate and shaing pecentage of incentive cost in supply chain coodination scenaio. 6. Conclusions Figue. 3- Pofit of supply chain when 0.6 Figue 3-1 and 3- illustate how the pofits of the supply chain in decentalized and centalized scenaios depend on the diffeent paamete k. The total supply chain pofit inceases with the ebate sensitivity o the ecommendation effectiveness unde any condition of dual-maket segments. We denote 4 and t 1. The etaile povides custome incentive cost shaing contact to encouage infomediay to ecommend customes. We elaboate on the poblem of demand efeal sevice of infomediay, custome incentive effect and coodination contact in this aticle. With the shaing of customes comments and expeiences the infomediay helps to meet and match the common needs between the numeous and apidly gowing consumes and supplies. The online etail supply chain benefits fom the hoizontal efeal sevice. The highe efeal sevice pice paid by the etaile will activate the infomediay to exet its custome incentive. But the sevice pice contact alone can not achieve supply chain coodination. The custome incentive cost shaing contact besides sevice pice is poved to coodinate the Intenet supply chain. We show that efficient efeal decision bings about moe oppotunity fo supply chain coopeation. We believe that these insights will be useful fo manages in dual-channel supply chain stategy. The demand efeal and channel coopeation in the supply chain is a meaningful and inteesting field. This eseach helps us to undestand how online etaile and infomediay inteact with each othe with espect to the customes ecommendation conduct. As stated in the basic model settings, only one etaile and sole contact of incentive cost shaing is consideed. In ou futuestudy, we will Jounal of Applied Reseach and Technology 67

8 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / exploe the diffeent mechanisms of sevic ecommendation and vaious stuctues of supply chain coodination contact. Acknowledgements This eseach was patially suppoted by the Zhejiang Povincial Natual Science Foundation of China unde Gant No. LY1G0006, the Humanity and Social Science Youth Foundation of the Ministy of Education of the Republic of China unde Gand No. 11YJC63008 and 13YJC63003, and the Philosophy and Social Science Reseach Poject of Zhejiang Povince unde Gant No. 13NDJC054YB. This wok was also suppoted by the Key Soft Science Reseach Poject of Zhejiang Povince unde Gant No. 013C5045 and the National Natual Science Foundation of China unde Gant No and Refeences [1] CNNIC, "The 31th Statistical Repot on Intenet Development_in_China,"_http:// /www1.cnni c.cn/idr/repotdownloads/0130/p pdf, Febuay 8, 013. [] J. M. Swaminathan and S. R. Tayu, "Models fo Supply Chains in E-Business," Management Science, vol. 49, no. 10, pp , 003. [3] M. Fathollah et al., "Developing a Conceptual Famewok fo Simulation Analysis in a Supply Chain Based on Common Platfom (Scbcp)," Jounal of Applied Reseach and Technology, vol. 7, no., pp , 009. [4] S. M. Disney et al., "Assessing the Impact of E- Business on Supply Chain Dynamics," Intenational Jounal of Poduction Economics, vol. 89, no., pp , 004. [5] M. G. Helande and H. M. Khalid, "Modeling the Custome_in_Electonic_Commece,"_Applied_Egono mics, vol. 31, no. 6, pp , 000. [6] W. Chu et al., "The Role of on-line Retaile Band and Infomediay Reputation in Inceasing Consume Puchase Intention," Intenational Jounal of Electonic Commece, vol. 9, no. 3, pp , 005. [7] Viswanathan et al., "Online Infomediaies and Pice Discimination: Evidence fom the Automotive Retailing Secto," Jounal of Maketing, vol. 71, no. 3, pp , 007. [8] J. Y. Son et al., "Consume Adoption of Net-Enabled Infomediaies: Theoetical Explanations and an Empiical Test," Jounal of the Association fo Infomation Systems, vol. 7, no. 7, pp , 006. [9] Y. Chen et al., "Refeal Infomediaies," Maketing Science, vol. 1, no. 4, pp , 00. [10]_Y. Chen and J. Yao, "Refeal Sevice of Infomediay in Bc Supply Chain," Intenational Jounal of Netwoking and Vitual Oganisations, vol. 10, no. 3/4, pp , 01. [11] M. Tusov et al., "Effects of Wod-of-Mouth Vesus Taditional Maketing: Findings fom an Intenet Social Netwoking Site," Jounal of Maketing, vol. 73, no. 5, pp , 009. [1] C. C. Yang and A. Chung, "Intelligent Infomediay fo Web Financial Infomation," Decision Suppot Systems, vol. 38, no. 1, pp , 004. [13] A. Ghose et al., "The Impact of Intenet Refeal Sevices on a Supply Chain," Infomation Systems Reseach, vol. 18, no. 3, pp , Sep 007. [14] Y. Chen and J. Xie, "Online Consume Review: Wod-of-Mouth as a New Element of Maketing Communication Mix," Management Science, vol. 54, no. 3, pp , 008. [15]_X. Luo, "Quantifying the Long-Tem Impact of Negative Wod of Mouth on Cash Flows and Stock Pices," Maketing Science, vol. 8, no. 1, pp , 009. [16] C. M. K. Cheung and M. K. O. Lee, "What Dives Consumes to Spead Electonic Wod of Mouth in Online Consume-Opinion Platfoms," Decision Suppot Systems, vol. 53, no. 1, pp. 18-5, 01. [17]_H. Dai and A. F. Salam, "Antecedents and Consequents of Sevice Consumption Expeience in Electonic Mediated Envionment: Empiical Evidence fom Electonic Sevice Industy in China," Jounal of System and Management Sciences, vol. 1, no. 1, pp , 011. [18] Y. Liu et al., "Channel Selection in E-Commece Age: A Stategic Analysis of Co-Op Advetising Models," Jounal of Industial Engineeing and Management, vol. 6, no. 1, pp , 013. [19] A. A. Tsay and N. Agawal, "Channel Conflict and Coodination in the E-Commece Age," Poduction and 68 Vo. 1, Apil 014

9 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / Opeations Management, vol. 13, no. 1, pp , Sping 004. [0]_M. Elizondo-Cotés and R. Aceves-Gacía, "Stategy of Solution fo the Inventoy Routing Poblem Based on Sepaable Coss Decomposition," Jounal of Applied Reseach and Technology, vol. 3, no., pp , 005. [1] R. Yan and Z. Pei, "Retail Sevices and Fim Pofit in a Dual-Channel Maket," Jounal of Retailing and Consume Sevices, vol. 16, no. 4, pp , 009. [] H. Kishnan et al., "Coodinating Contacts fo Decentalized Supply Chains with Retaile Pomotional Effot," Management Science, vol. 50, no. 1, pp , 004. [3] T. A. Taylo, "Supply Chain Coodination unde Channel Rebates with Sales Effot Effects," Management Science, vol. 48, no. 8, pp , 00. [4] S. X. Li et al., "Coopeative Advetising, Game Theoy and Manufactue Retaile Supply Chains," Omega, vol. 30, no. 5, pp , 00. [5] A. H. L. Lau et al., "Usefulness of Resale Pice Maintenance unde Diffeent Levels of Sales-Effot Cost and System-Paamete Uncetainties," Euopean Jounal of Opeational Reseach, vol. 03, no., pp , 010. Jounal of Applied Reseach and Technology 69

10 Refeal sevice and custome incentive in online etail supply Chain, Y. G. Chen et al. / Vo. 1, Apil 014