Markdown pricing strategy under a dual-channel supply chain with strategic consumers

Abstract

This study investigates the markdown pricing strategies for a manufacturer and a retailer in a two-period dual-channel supply chain, where the manufacturer sells its products via its own direct channel and an independent retail channel to strategic consumers who may wait for markdowns. A two-period game is developed to systematically study the optimal regular prices and markdown prices under four cases, i.e., no markdown in both channels, markdown only in the direct channel, markdown only in the retail channel, and markdowns in both channels. By comparing the different cases, we find that the manufacturer benefits most from the case with markdowns in both channels, where the markdown rate of the retail channel is lower than that of the direct channel. On the other hand, the results indicate that the retailer may also profit most from the case with markdowns in both channels when the consumer acceptance of the direct channel is sufficiently high; otherwise, the retailer enjoys the highest profit under the case with markdown only in the retail channel. Finally, it is found that strategic consumer behavior has a positive impact on the retailer’s profit but a negative impact on the manufacturer’s profit.