A strategic analysis of mixed channel structure: Retail store ownership

In order to meet the needs of different customer segments, manufacturers use multiple distribution channels. This paper will examine two of the most common types of multi-channel structures. Under Structure 1, a supply chain includes a manufacturer, its online store and its own retail store, like GAP’s business model. A profit maximization model is used to obtain optimal strategies in terms of optimal retail price and level of value-added services provided by manufacturer-owned retailer. Under Structure 2, a supply chain includes a manufacturer, its online store and an independent retail store, like Dell’s business model. Stackelberg game is applied to obtain the optimal retail price, wholesale price, and level of value-added services provided by an independent retailer. Furthermore, comparisons between these two business structures are discussed and managerial guidelines are proposed. Finally, numerical examples are provided and real business examples are discussed to illustrate and justify the theoretical results