Analysis of online rebates and commission formats in a retailer-Stackelberg supply chain with cashback website

Abstract

Motivated by the fact that many e-tailers offer online rebates through cashback websites to attract more consumers, and wield channel leadership, we construct a retailer-Stackelberg supply chain comprised of one e-tailer, one manufacturer, and one cashback website. Cashback websites have two commission formats: sharing and fixed. We first explore the online rebate strategy of the e-tailer (under the two commission formats); and then study the e-tailer's commission format selection strategy when offering rebates. Our analysis reveals that: (i) the product valuation and fraction of low-end consumers play key roles in shaping the e-tailer's online rebate and commission format selection strategies; (ii) the e-tailer's rebates increase the wholesale price under sharing commission, but decrease it under fixed commission; (iii) the e-tailer's rebates may be a trap for consumers because they may pay a higher retail price after rebates; (iv) under both commissions, the e-tailer's rebates hurt the manufacturer, but could enhance supply chain performance; and (v) when offering rebates, low-end consumers and the manufacturer are better off under sharing commission if its product valuation is sufficiently low, while high-end consumers are better off under fixed commission. Additionally, the e-tailer has a stronger incentive to provide rebates when the manufacturer acts as the leader; temporary rebate promotion may lead to a triple win situation for the manufacturer, e-tailer, and consumers.