This paper investigates the effect of product substitutability on Nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer, which may be either a franchised outlet or a factory store. Static linear demand and cost functions are assumed, and a number of rules about players' expectations of competitors' behavior are examined. It is found that for most specifications product substitutability does influence the equilibrium distribution structure. For low degrees of substitutability, each manufacturer will distribute its product through a company store; for more highly competitive goods, manufacturers will be more likely to use a decentralized distribution system.

This article was originally published in Marketing Science, Volume 2, Issue 2, pages 161--191, in 1983.

methods

https://www.jstor.org/stable/pdfplus/184115.pdf

Economics of Marketing

An Industry Equilibrium Analysis of Downstream Vertical Integration

A channel of distribution consists of different channel members each having his own decision variables. However, each channel member's decisions do affect the other channel members' profits and, as a consequence, actions. A lack of coordination of these decisions can lead to undesirable consequences. For example, in the simple manufacturer-retailer-consumer channel, uncoordinated and independent channel members' decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated. In addition, the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer.

This paper explores the problems inherent in channel coordination. We address the following questions.

---What is the effect of channel coordination?

---What causes a lack of coordination in the channel?

---How difficult is it to achieve channel coordination?

---What mechanisms exist which can achieve channel coordination?

---What are the strengths and weaknesses of these mechanism?

---What is the role of nonprice variables (e.g., manufacturer advertising, retailer shelf-space) in coordination?

---Does the lack of coordination affect normative implications from in-store experimentation?

---Can quantity discounts be a coordination mechanism?

---Are some marketing practices actually disguised quantity discounts?

We review the literature and present a simple formulation illustrating the roots of the coordination problem. We then derive the form of the quantity discount schedule that results in optimum channel profits.

This article was originally published in Marketing Science, Volume 2, Issue 3, pages 239--272, in 1983.

Managing Channel Profits

This paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life. A hierarchical model is developed, and the results of the single period inventory model are used to examine possible pricing and return policies. The paper shows that several such policies currently in effect are suboptimal. These include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted. The paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination, but that the optimal return allowance will be a function of retailer demand. Therefore, such a policy cannot be optimal in a multi-retailer environment. It is proven, however, that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi-retailer environment.

This article was originally published in Marketing Science, Volume 4, Issue 2, pages 166--176, in 1985.

background

Optimal Pricing and Return Policies for Perishable Commodities

In this article, we offer an overview of macromarketing from the mid–1960s to the present. Based on this overview, describe examples of the system elements that have been of interest in researching marketing systems (including those that relate to the environment and the components, attributes, and outcomes of marketing systems). Next, we consider where the field stands today and discuss twelve challenges in macromarketing that compose a possible scenario for future research. Finally, we note the scenarios links to intellectual and normative traditions in the field, its potential relevance for macromarketing scholarship, and its limitations.

Macromarketing: Past, Present, and Possible Future:

In this study, we propose a customer-oriented conceptual model of segmentation variables for mail-order repeat buying behavior. We investigate (1) from a theoretical perspective what customer-related variables should be included in response models for modeling repeat purchasing, and (2) empirically validate how these variables perform for predictive purposes. We use binary logit modeling. Our results confirm that all three traditionally-used R(ecency), F(requency) and M(onetary value) variables are very important in predicting who is going to purchase during the next mailing period, with frequency being the most important one. In total, they account for 50 % of the ‘room for improvement’ in terms of AUC performance. However, next to the RFM variables, our findings suggest that at least three other variables significantly increase the predictive performance of the models: (1) credit usage, (2) length of relationship, and (3) general mail-order buying behavior. Depending on the context of the specific company use of these additional variables may translate into millions Euro of additional profit. Furthermore, we conclude that buying additional data from external sources is not economically justified when predicting repeat purchasing behavior.

Economics of Marketing

Citations

An Industry Equilibrium Analysis of Downstream Vertical Integration

Managing Channel Profits

Optimal Pricing and Return Policies for Perishable Commodities

Macromarketing: Past, Present, and Possible Future:

Predicting Mail-Order Repeat Buying: Which Variables Matter?

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