A strategic analysis of dual-channel supply chain design with price and delivery lead time considerations

Abstract This paper extends the work of Chiang et al. (2003) by investigating how price and delivery lead time decisions affect channel configuration strategy under either the manufacturer-owned or the decentralized mode. We show the choice of channel structure depends on customer acceptance of the online channel and the cost parameters, following a threshold policy in both forms of ownership. We prove that the strategic use of direct marketing to mitigate the double marginalization – the major finding in Chiang et al. (2003) – still holds even in this general situation; moreover, Pareto zone exists where both manufacturer and retailer outperform their counterparts in the traditional indirect channel-only case, thus indicating that mitigating double marginalization may bring mutual benefits. We also compare pricing and delivery lead time decisions between different forms of ownership or between different channel structures under the same form of ownership. The manufacturer adopts a “slow down deliver later” approach and speeds up delivery to serve customers with a higher sensitivity to delivery lead time when he owns the whole indirect channel, but chooses to “stay fast and brag about better services” and surprisingly slows down the speed of service when customers are more sensitive to delivery lead time due to the internal competition between two channels in the decentralized mode.