Impact of bundling on the omnichannel supply chain under price competition

Abstract

Purpose Many e-commerce firms suffer from high returns because of inaccurate and incomplete product information. Omnichannel and bundling settings can help firms improve operational efficiency and lower returns costs. However, no studies have been conducted on omnichannel supply chains considering bundling strategies. The purpose of this study is to examine the comparison between test-in-store-and-buy-online (TSBO) and online retail, comparing manufacturers’ bundling with retailers’ bundling. Design/methodology/approach The supply chain discussed here consists of two competitive manufacturers and one retailer. The retailer sells both manufacturers' products online and displays one manufacturer's product in a showroom who bears the display cost. Stackelberg game theory is used to develop mathematical models that help manufacturers and retailers make the most effective decisions. Here, the manufacturer is the Stackelberg leader, while the retailer is the follower. Using the backward induction approach, the authors determined the optimal values for selling price, wholesale price and service effort level. Findings The results show that the total TSBO retailing profit under manufacturer bundling is highest when the second manufacturer integrates with the online retailer. The result additionally establishes that when the bundling cost exceeds a certain threshold (1.5), the total profit is higher for the non-integrated type of supply chain channel as compared to the integrated retailer bundling-based configuration. Practical implications The operations and logistics manager will likely undertake the TSBO omnichannel strategy during manufacturers bundling and retailer bundling under the integrated strategy. Originality/value The main contribution of the study is to examine the effect of TSBO retailing on supply chains profit and individual decision-making under different bundling strategies. The authors developed different mathematical models in the TSBO retailing and bundling context and extended the earlier work in the area of integration frame.