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Optimal Sales Promotion in a Supply Chain Using Consignment Contract under Stochastic Demand.

Ruotong Wang1, Jianbin Li1, Han Xu2

  • 1School of Management, Huazhong University of Science & Technology, Wuhan, 430074 China.

Journal of Systems Science and Systems Engineering
|June 27, 2022
PubMed
Summary
This summary is machine-generated.

This study models sales promotion in uncertain demand cross-border e-commerce. Distributors reserving promotion rights lead to lower consumer prices, benefiting buyers.

Keywords:
Supply chain managementconsignment contractpricing strategypromotion decisionsrevenue sharing

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Area of Science:

  • Operations Research
  • Supply Chain Management
  • E-commerce

Background:

  • Sales promotions are increasingly vital in Chinese cross-border e-commerce with uncertain demand.
  • Existing research often overlooks demand uncertainty in promotion strategy analysis.

Purpose of the Study:

  • To investigate pricing, inventory, and sales promotion strategies in a supply chain with uncertain demand.
  • To analyze these strategies under a consignment contract between a cross-border distributor and a capital-constrained retailer.

Main Methods:

  • Developed a game-theoretical model incorporating multiplicative stochastic demand.
  • Analyzed equilibrium outcomes considering both endogenous and exogenous inventory decisions.

Main Results:

  • Optimal pricing and promotion investment are influenced by demand uncertainty and inventory decisions.
  • Retailer preference for promotion rights depends on price/promotion elasticity and capital.
  • Distributor preference for controlling promotion is consistent, especially with large promotion elasticity.

Conclusions:

  • Demand uncertainty impacts price sensitivity and optimal promotion strategies.
  • Distributor control of sales promotion generally results in lower optimal retail prices, benefiting consumers.
  • The intensity of retailer-led promotion can exceed distributor-led promotion under specific elasticity conditions.