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May  2021, 17(3): 1187-1202. doi: 10.3934/jimo.2020017

Fit revelation strategy in a supply chain with two types of consumers

School of Economics & Management, Shanghai Maritime University, 1550 Haigang Ave, Shanghai 201306, China

* Corresponding author: Jing Shi

Received  February 2019 Revised  August 2019 Published  May 2021 Early access  January 2020

Fund Project: The author is supported in part by (ⅰ) the National Natural Science Foundation of China under Grants 71601111 and 71774109. (ⅱ)the Natural Science Foundation of Shanghai under Grant 18ZR1416900. (ⅲ) the Shanghai Key Basic Research Program under Grant 15590501800. (ⅳ) the Ministry of Education of Humanities and Social Science project under Grant 17YJCZH054

This paper develops a game theoretical model for a supply chain consisting of one manufacturer and one retailer who chooses one of two strategies: implementing fit revelation or not implementing fit revelation. Firstly, the fit revelation strategy of the retailer in the decentralized supply chain is analyzed. When the market scale is medium, the fit revelation strategy is implementing fit revelation and only good-fit consumer will buy the product; otherwise, it is not implementing fit revelation. The results are counterintuitive because people may believe that it would be better to let consumers know more information about the product when the market scale is low. Implementing fit revelation is not always beneficial for consumers. When the market scale is sufficiently low, good-fit and bad-fit consumers both prefer not implementing fit revelation. Secondly, the paper also considers the case in which the manufacturer decides whether to implement fit revelation. Sometimes, the retailer and the manufacturer prefer themselves to facilitate fit revelation. Thirdly, the effect of decentralization is investigated. Numerical examples show that the interval in which implementing fit revelation is optimal is larger under the centralized setting than that under the decentralized setting. The decentralization decreases the probability to implement fit revelation.

Citation: Jing Shi. Fit revelation strategy in a supply chain with two types of consumers. Journal of Industrial and Management Optimization, 2021, 17 (3) : 1187-1202. doi: 10.3934/jimo.2020017
References:
[1]

H. Bar-IssacG. Caruana and V. Cuñat, Information gathering and marketing, Journal of Economics & Management Strategy, 19 (2010), 375-401.  doi: 10.2139/ssrn.1120858.

[2]

Y. B. Chen and J. H. Xie, Online consumer review: Word-of-mouth as a new element of marketing communication mix, Management Science, 54 (2008), 477-491.  doi: 10.1287/mnsc.1070.0810.

[3]

W. Y. K. ChiangD. Chhajed and J. D. Hess, Direct marketing, indirect profits: A strategic analysis of dual-channel supply-chain design, Management Science, 49 (2003), 1-20.  doi: 10.1287/mnsc.49.1.1.12749.

[4]

L. Y. Chu and H. Zhang, Optimal preorder strategy with endogenous information control, Management Science, 57 (2011), 1055-1077.  doi: 10.1287/mnsc.1110.1335.

[5]

L. DengJ. G. Zheng and R. J. Zhao, Manufacturer's quality disclosure strategy in a dual-channel supply chain considering the impact of information acquisition, Industrial Engineering and Management, 23 (2018), 1007-5429. 

[6]

C. DingK. H. Wang and S. Y. Lai, Channel coordination mechanism with retailers having fairness preference: An improved quantity discount mechanism, Journal of Industrial and Management Optimization, 9 (2013), 967-982.  doi: 10.3934/jimo.2013.9.967.

[7]

S. J. Grossman, The informational role of warranties and private disclosure about product quality, Journal of Law and Economics, 24 (1981), 461-483.  doi: 10.1086/466995.

[8]

Z. Y. Gu and Y. Xie, Facilitating fit revelation in the competitive market, Management Science, 59 (2013), 1196-1212.  doi: 10.1287/mnsc.1120.1594.

[9]

L. Guo and Y. Zhao, Voluntary quality Disclosure and market interaction, Marketing Science, 28 (2009), 488-501.  doi: 10.2139/ssrn.1100956.

[10]

V. J. Hotz and M. Xiao, Strategic information disclosure: The case of multiattribute products with heterogeneous consumers, Economic Inquiry, 51 (2013), 865-881.  doi: 10.1111/j.1465-7295.2010.00340.x.

[11]

J. Johnson and D. P. Myatt, On the simple economics of advertising, marketing, and product design, The American Economic Review, 96 (2006), 756-784.  doi: 10.2139/ssrn.503182.

[12]

D. Kuksov and Y. Lin, Information provision in a vertically differentiated competitive marketplace, Marketing Science, 29 (2010), 1-198.  doi: 10.1287/mksc.1090.0486.

[13]

X. LiY. J. Li and X. Q. Cai, Double marginalization and coordination in the supply chain with uncertain supply, European Journal of Operational Research, 226 (2013), 228-236.  doi: 10.1016/j.ejor.2012.10.047.

[14]

O. Loginova and C. R. Taylor, Price experimentation with strategic buyers, Review of Economic Design, 12 (2008), 165-187.  doi: 10.1007/s10058-008-0048-5.

[15]

M. L. Luo and G. Li, Cross-channel consumers return in a multi-channel supply chain, Operations Research and Management Science, 28 (2019), 16-22. 

[16]

P. R. Milgrom, Good news and bad news: Representation theorems and applications, The Bell Journal of Economics, 12 (1981), 380-391.  doi: 10.2307/3003562.

[17]

S. Moorthy and S. A. Hawkins, Advertising repetition and quality perception, Journal of Business Research, 58 (2005), 354-360.  doi: 10.1016/S0148-2963(03)00108-5.

[18]

J. Noll, Comparing quality signals as tools of consumer protection: Are warranties always better than advertisements to promote higher product quality?, International Review of Law and Economics, 24 (2004), 227-239.  doi: 10.1016/j.irle.2004.08.007.

[19]

E. OfekZ. Katona and M. Sarvary, Bricks and clicks: The impact of product returns on the strategies of multi channel retailers, Marketing Science, 30 (2011), 1-194.  doi: 10.1287/mksc.1100.0588.

[20]

D. Purohit and J. Srivastava, Effect of manufacturer reputation, retailer reputation, and product warranty on consumer judgments of product quality: A cue diagnosticity framework, Journal of Consumer Psychology, 10 (2001), 123-134.  doi: 10.1207/s15327663jcp1003_1.

[21]

E. Schmidbauer and A. Stock, Quality signaling via strikethrough prices, International Journal of Research in Marketing, 35 (2018), 524-532.  doi: 10.1016/j.ijresmar.2018.03.005.

[22]

J. Shi and T. J. Xiao, Service investment and consumer returns policy in a vendor-managed inventory supply chain, Journal of Industrial and Management Optimization, 11 (2015), 439-459.  doi: 10.3934/jimo.2015.11.439.

[23]

J. StockT. Spek and H. Shear, Managing product returns for competitive advantage, MIT Sloan Management Review, 48 (2006), 57-62. 

[24]

M. Sun, Disclosing multiple product attributes, Journal of Economics & Management Strategy, 20 (2011), 195-224.  doi: 10.1111/j.1530-9134.2010.00287.x.

[25]

T. J. XiaoT.-M. Choi and T. C. E. Cheng, Product variety and channel structure strategy for a retailer-Stackelberg supply chain, European Journal of Operational Research, 233 (2014), 114-124.  doi: 10.1016/j.ejor.2013.08.038.

[26]

T. ZhangG. LiK. K. Lai and J. W. K. Leung, Information disclosure strategies for the intermediary and competitive sellers, European Journal of Operational Research, 271 (2018), 1156-1173.  doi: 10.1016/j.ejor.2018.06.037.

[27]

X. M. Zhang and L. Jin, Pricing and contract design of supply chain under money-back guarantees offered by the online retailer, Forcasting, 37 (2018), 74-80. 

show all references

References:
[1]

H. Bar-IssacG. Caruana and V. Cuñat, Information gathering and marketing, Journal of Economics & Management Strategy, 19 (2010), 375-401.  doi: 10.2139/ssrn.1120858.

[2]

Y. B. Chen and J. H. Xie, Online consumer review: Word-of-mouth as a new element of marketing communication mix, Management Science, 54 (2008), 477-491.  doi: 10.1287/mnsc.1070.0810.

[3]

W. Y. K. ChiangD. Chhajed and J. D. Hess, Direct marketing, indirect profits: A strategic analysis of dual-channel supply-chain design, Management Science, 49 (2003), 1-20.  doi: 10.1287/mnsc.49.1.1.12749.

[4]

L. Y. Chu and H. Zhang, Optimal preorder strategy with endogenous information control, Management Science, 57 (2011), 1055-1077.  doi: 10.1287/mnsc.1110.1335.

[5]

L. DengJ. G. Zheng and R. J. Zhao, Manufacturer's quality disclosure strategy in a dual-channel supply chain considering the impact of information acquisition, Industrial Engineering and Management, 23 (2018), 1007-5429. 

[6]

C. DingK. H. Wang and S. Y. Lai, Channel coordination mechanism with retailers having fairness preference: An improved quantity discount mechanism, Journal of Industrial and Management Optimization, 9 (2013), 967-982.  doi: 10.3934/jimo.2013.9.967.

[7]

S. J. Grossman, The informational role of warranties and private disclosure about product quality, Journal of Law and Economics, 24 (1981), 461-483.  doi: 10.1086/466995.

[8]

Z. Y. Gu and Y. Xie, Facilitating fit revelation in the competitive market, Management Science, 59 (2013), 1196-1212.  doi: 10.1287/mnsc.1120.1594.

[9]

L. Guo and Y. Zhao, Voluntary quality Disclosure and market interaction, Marketing Science, 28 (2009), 488-501.  doi: 10.2139/ssrn.1100956.

[10]

V. J. Hotz and M. Xiao, Strategic information disclosure: The case of multiattribute products with heterogeneous consumers, Economic Inquiry, 51 (2013), 865-881.  doi: 10.1111/j.1465-7295.2010.00340.x.

[11]

J. Johnson and D. P. Myatt, On the simple economics of advertising, marketing, and product design, The American Economic Review, 96 (2006), 756-784.  doi: 10.2139/ssrn.503182.

[12]

D. Kuksov and Y. Lin, Information provision in a vertically differentiated competitive marketplace, Marketing Science, 29 (2010), 1-198.  doi: 10.1287/mksc.1090.0486.

[13]

X. LiY. J. Li and X. Q. Cai, Double marginalization and coordination in the supply chain with uncertain supply, European Journal of Operational Research, 226 (2013), 228-236.  doi: 10.1016/j.ejor.2012.10.047.

[14]

O. Loginova and C. R. Taylor, Price experimentation with strategic buyers, Review of Economic Design, 12 (2008), 165-187.  doi: 10.1007/s10058-008-0048-5.

[15]

M. L. Luo and G. Li, Cross-channel consumers return in a multi-channel supply chain, Operations Research and Management Science, 28 (2019), 16-22. 

[16]

P. R. Milgrom, Good news and bad news: Representation theorems and applications, The Bell Journal of Economics, 12 (1981), 380-391.  doi: 10.2307/3003562.

[17]

S. Moorthy and S. A. Hawkins, Advertising repetition and quality perception, Journal of Business Research, 58 (2005), 354-360.  doi: 10.1016/S0148-2963(03)00108-5.

[18]

J. Noll, Comparing quality signals as tools of consumer protection: Are warranties always better than advertisements to promote higher product quality?, International Review of Law and Economics, 24 (2004), 227-239.  doi: 10.1016/j.irle.2004.08.007.

[19]

E. OfekZ. Katona and M. Sarvary, Bricks and clicks: The impact of product returns on the strategies of multi channel retailers, Marketing Science, 30 (2011), 1-194.  doi: 10.1287/mksc.1100.0588.

[20]

D. Purohit and J. Srivastava, Effect of manufacturer reputation, retailer reputation, and product warranty on consumer judgments of product quality: A cue diagnosticity framework, Journal of Consumer Psychology, 10 (2001), 123-134.  doi: 10.1207/s15327663jcp1003_1.

[21]

E. Schmidbauer and A. Stock, Quality signaling via strikethrough prices, International Journal of Research in Marketing, 35 (2018), 524-532.  doi: 10.1016/j.ijresmar.2018.03.005.

[22]

J. Shi and T. J. Xiao, Service investment and consumer returns policy in a vendor-managed inventory supply chain, Journal of Industrial and Management Optimization, 11 (2015), 439-459.  doi: 10.3934/jimo.2015.11.439.

[23]

J. StockT. Spek and H. Shear, Managing product returns for competitive advantage, MIT Sloan Management Review, 48 (2006), 57-62. 

[24]

M. Sun, Disclosing multiple product attributes, Journal of Economics & Management Strategy, 20 (2011), 195-224.  doi: 10.1111/j.1530-9134.2010.00287.x.

[25]

T. J. XiaoT.-M. Choi and T. C. E. Cheng, Product variety and channel structure strategy for a retailer-Stackelberg supply chain, European Journal of Operational Research, 233 (2014), 114-124.  doi: 10.1016/j.ejor.2013.08.038.

[26]

T. ZhangG. LiK. K. Lai and J. W. K. Leung, Information disclosure strategies for the intermediary and competitive sellers, European Journal of Operational Research, 271 (2018), 1156-1173.  doi: 10.1016/j.ejor.2018.06.037.

[27]

X. M. Zhang and L. Jin, Pricing and contract design of supply chain under money-back guarantees offered by the online retailer, Forcasting, 37 (2018), 74-80. 

Figure 1.  The profit of each member when different members facilitate fit revelation
Figure 2.  The upper bound and lower bound versus the proportion of bad-fit consumer
Figure 3.  The upper bound and lower bound versus the loss of bad-fit consumer
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