Rebate mechanism for the manufacturer in two-level supply chains

Abstract In a supply chain setting, the manufacturer's strategy to offer mail-in rebates directly to customers or retailer rebates to retailer is pivotal. Retailer may pass some fraction of such retailer rebates to end customers. We discuss two important implications for rebates: 1) For both type of rebates, we analyze the case of explicitly defined wholesale and retail price. We show that retailer rebate can coordinate supply chain under special arrangements. Mere wholesale price discount does not confer supply chain coordination mechanism and retailer has to pass significant portion of discount to the end customers and hence, such coordination is more of a collusion. Our numerical insights show that instead of coordination, there is a collusion as the arrangement allows only one supply chain member to take all the extra profit. 2) We compare rebates efficiency for targeted-sales rebate scenario. Under such scheme, threshold exists for both the parties and depends upon redeemers' proportion for the manufacturer. Using this strategy, the manufacturer is in a better position to determine the type of promotion. For the manufacturer, retailer rebate is a useful tool for controlling retail price while with mail-in rebate, he discriminates price among customers based on rebate sensitivity.