Internet channel

Huang, W. and J.M. Swaminathan, Pricing On Traditional And Internet Channels Under Monopoly And Duopoly Analysis And Bounds, Working Paper, Kenan-Flagler Business School, UNC Chapel Hill, 2003. 

Kumar, N. and R. Ruan, On Strategic Pricing And Complementing The Retail Channel With A Direct Internet Channel, Working Paper, University of Texas at Dallas, 2002. 

Keywords Channel coordination pricing retail channel Internet channel supply chain... 

The Internet has provided traditional manufacturers and retailers a new avenue to conduct their business. On one hand, utilizing the Internet channel potentially could increase the market for the firm and, due to synergies involved, reduce the costs of operations. On the other hand, a new channel threatens existing channel relationships through possible cannibalization. This chapter explores recent research on coordination opportunities that arise for firms that participate in both traditional channels as well as internet channels. Three areas of coordination are discussed procurement, pricing, and the backend operations of distribution and fulfillment. 

For a manufacturer that has forward integrated to provide direct product sales (models 3 and 4 of Figure 15.1), the opportunity exists to coordinate distribution and fulfillment. Research taking a traditional approach to channel coordination (which seeks to eliminate double marginalization) is thoroughly reviewed in Lariviere (1999) and Tsay, et al. (1999). In this chapter, we focus attention on research that assumes the existence of both a traditional channel and an internet channel, and exploits the differences between the two channels to manage the supply chain more effectively. 

Under the set of assumptions used in this model, the introduction of an internet channel leads to a higher price than was charged with only the traditional channel. For some parameter values, the internet channel causes customers to abandon searching in favor of ordering the familiar product over the web, thus the Internet can lead to higher prices and a reduction in search activity. They... 

Cattani, et al. (2003) use a consumer choice model to determine the optimal prices that a firm should charge when they compete in both a traditional channel and an internet channel. They allow the firm to set different prices in each channel and analyze the effect of different factors on the relative prices in the two channels. Their results provide some guidance to firms attempting to establish an effective management structure for multi-channel competition. 

Individual customers are modeled using a utility function for the product sold by the firm. A customer s utility for the product is decreasing in the price of the product and the effort to purchase the product. They assume that the scaled effort required to purchase a product is distributed uniformly between 0 and OLT for the traditional channel (representing factors such as distance from the store), and between 0 and otj for the internet channel (representing factors such as internet connection speed and comfort with making purchases on the Internet). The traditional and internet efforts of a customer are assumed to be independent. A linear customer utility function common in the marketing literature is used the utility a customer j receives from a product in channel x is... 

A second strategy would be to allow prices in both the traditional channel and the internet channel to differ from the original price. When prices in both channels are matched (but not necessarily the same as the original price in the traditional channel), as many firms do in practice, the resulting price will be higher than the original price when the two channels costs are the same. When different prices are allowed in each channel, the relationship between the prices in each channel is dependent upon the relative consumer acceptance of the Internet (characterized by the relationship between ar and aj in the model). Under the assumption that costs are the same in each channel, the internet price is higher than the price in the traditional channel when a/ > ar (i.e., the Internet is considered less convenient than the traditional channel), and the... 

Chiang, et al. (2002) use a parameter, 0, with 0 < 0 < 1, to measure customers acceptance of products sold over the Internet. A consumer who places value v on the product when purchased through the traditional channel would value the product 6v if it were purchased through the internet channel. 

A fully integrated structure, with a manufacturer controlling both a traditional and internet channel, provides opportunity for further research in this area. 

The rationale for the model is that retail customers demand instantaneous availability and the retailer will experience lost sales if the product is not in stock. In contrast, internet customers are willing to wait. In particular, the short delay incurred by transshipping leftover product from a retailer to the customer does not result in lost sales in the internet channel, although the longer delay required to source the product from the manufacturer does result in lost sales in the internet channel (as it does in the traditional channel). 

Optimal inventory base stock levels in the traditional and internet channels for a dedicated supply chain are ((p + tt — ct)/(p + tt + /it — otCT))... 

Huang, W. and J. M. Swaminathan. 2003. Pricing on traditional and internet channels under monopoly and duopoly Analysis and bounds. Working Paper. The Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC. 

In Level 5, the idea of virtual logistics is part of the collaboration that takes place as the network members want to find the best costs and satisfaction, whether the orders go through traditional channels or are processed through an Internet channel. With residential package delivery, for example, expected to top 2.1 billion per year by 2003, this latter situation is of great interest to business to consumer (B2C) channel providers. Here lead logistics providers (lip) can enter the equation — firms with little to no physical assets, but the wherewithal to find the best answer to logistics needs, inbound and outbound. 

Associated with the rapid rise of Internet channels has been the growth of mobile media, i.e. the use of mobile phones to enable a two-way communication channel to be established, particularly between suppliers and consumers - alerting them of promotional offers, for example, Consumers increasingly are using new generation mobile phones for Internet access to place orders but also to make price comparisons whilst on shopping expeditions. 

Warehouse management was implemented in three DCs, two return centers, and several stores, to integrate inventory with other systems. It was initially focused on the DC-to-store channel and was then integrated into the catalog and internet channels. The replenishment procedure calculates daily orders in response to actual sales and updates inventory positions. Each inventory item is forecast weekly on a rolling horizon basis, and order projections are provided to the DCs and vendors. Additional capabilities include system-generated seasonal profiles, demand alerts, purchase order alerts, and order frequency optimization. 

The Internet channel has allowed companies like Dell to make price changes quickly and efficiently based on product availability and demand. By being available all day, the online channel allows Dell to serve customers at a much lower cost than retail stores. 

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