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

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.