E-retail platform or wholesale strategy for a manufacturer developing a market channel

Abstract

Compared with the conventional wholesale mode, the e-retail platform has been regarded as an important alternative for a manufacturer building a market channel. Motivated by the observation, this paper develops two models to investigate a manufacturer’s e-retail platform and wholesale strategies by the methods of mathematics optimization and game theory. We first focus on the issue of whether to enter an e-retail platform for an upstream manufacturer. The manufacturer’s decisions and profits under two scenarios are contrasted. Next, a supply chain with a third party logistics provider, a manufacturer and an e-commerce platform is considered. We further explore how a third party logistics and channel power affect the manufacturer’s strategy motivation. Three strategies are examined including the wholesale strategy, the manufacturer-led e-commerce strategy, and the e-commerce strategy led by the third party. It is found that: (i) even though the online platform charge is large, the manufacturer should still insist on the e-retail strategy; (ii) if the manufacturer’s logistics service is provided by a third party, the platform charge and the logistics service cost simultaneously affect the manufacturer’s strategy choice motivation; (iii) in the e-retail environment, the manufacturer should utilize his own channel power to extract more channel profits if the platform fee is not large; otherwise, the manufacturer should give up the channel influence advantage.