Optimality of network marketing integrated in a dual-channel distribution system

Document Type : Article

Authors

Department of Industrial Engineering, Sharif University, Tehran, Iran

Abstract

This paper provides a framework to study the integration of network marketing in a dual channel distribution system. We develop an approach to optimize the main decision variables of this system simultaneously. These decision variables include the price paid by the customers of both channels, confidence level, the effort level of active distributors of network marketing and also whole sale price. Although both channels compete, it is vital to have a balanced pricing system to make both channels motivated. However, the price in network marketing and traditional retailer system is not necessarily equal, due to the difference of their nature. Furthermore, it is also required to develop an appropriate system of commissioning for the payoff of distributers at different levels of network marketing to make them motivated. We also examine different scenarios of dual distribution systems, centralized and decentralized operation of network marketing. Furthermore, in case of decentralized system, we also investigate revenue or profit sharing for all parties involved (manufacturer; retailer and network marking distributers). To illustrate the proposed approach, we present some numerical studies and also investigate the impact of customer loyalty degree to retail channel on decisions.

Keywords

Main Subjects


References
1. Sparks, J.R. and Schenk, J.A. \Socialization communication,
organizational citizenship behaviors, and sales
M. Modarres and M. Sha ei/Scientia Iranica, Transactions E: Industrial Engineering 25 (2018) 2838{2851 2849
in a multilevel marketing organization", J. Pers. Sell.
Sales Manag., 26(2), pp. 161-180 (2006).
2. Direct Saling Association, \2012 direct selling
statistics", Direct Saling Association (2015). Available:
http://www. dsa.org/research/2012-industrystatistics.
3. Legara, E.F., Monterola, C., Juanico, D.E., Litong-
Palima, M., and Saloma, C. \Earning potential in
multilevel marketing enterprises", Phys. A Stat. Mech.
its Appl., 387(19-20), pp. 4889-4895 (2008).
4. Selladurai, R. \Network marketing and supply chain
management: Here to stay", Management, 2(2), pp.
31-39 (2012).
5. Bhattacharya, P. and Mehta, K.K. \Socialization in
network marketing organizations: is it cult behavior?",
J. Socio. Econ., 29(4), pp. 361-374 (2000).
6. Coughlan, A.T. and Grayson, K. \Network marketing
organizations: Compensation plans, retail network
growth, and pro tability", Int. J. Res. Mark., 15(5),
pp. 401-426 (1998).
7. Dai, F., Wang, K.Y., and Teo, S.T.T. \Chinese
immigrants in network marketing business in Western
host country context", Int. Bus. Rev., 20(6), pp. 659-
669 (2011).
8. Kim, B.J., Jun, T., Kim, J.-Y., and Choi, M.Y.
\Network marketing on a small-world network", Phys.
A Stat. Mech. Its Appl., 360(2), pp. 493-504 (2006).
9. Kiet, H.A.T. and Kim, B.J. \Network marketing with
bounded rationality and partial information", Phys.
A Stat. Mech. its Appl., 387(19-20), pp. 4896-4902
(2008).
10. Yan, R. \Pro t sharing and rm performance in
the manufacturer-retailer dual-channel supply chain",
Electron. Commer. Res., 8(3), pp. 155-172 (2008).
11. Hou, R. and Zhang, L. \Traditional marketing channel
VS network marketing channel: A multi-market
competition model", Int. Conf. Manag. Sci. Eng.
19th Annu. Conf. Proc., Xiamen, China, pp. 693-698
(2012).
12. Panda, S. \Coordination of a socially responsible
supply chain using revenue sharing contract", Transp.
Res. Part E Logist. Transp. Rev., 67(1), pp. 92-104
(2014).
13. Modak, N.M., Panda, S., and Sana, S.S. \Threeechelon
supply chain coordination considering
duopolistic retailers with perfect quality products",
Int. J. Prod. Econ., 182(1), pp. 643-677 (2015).
14. Cattani, K.D., Gilland, W.G., and Swaminathan,
J.M. \Coordinating traditional and internet supply
chains", International Series in Operations Research
and Management Science, pp. 643-643, Kluwer academic
publisher, Netherlands (2004).
15. Boyaci, T. and Gallego, G. \Supply chain coordination
in a market with customer service competition", Prod.
Oper. Manag., 13(1), pp. 3-22 (2009).
16. Yan, R. and Pei, Z. \Retail services and rm pro t
in a dual-channel market", J. Retail. Consum. Serv.,
16(4), pp. 306-314 (2009).
17. Rhee, B.-D. and Seong-Yong, P. \Online store as a new
direct channel and emerging hybrid channel system",
Work. Pap. (2000).
18. Panda, S. and Modak, N.M. \Exploring the e ects of
social responsibility on coordination and pro t division
in a supply chain", J. Clean. Prod., 139(1), pp. 25-40
(2016).
19. Cardenas-Barron, L.E. and Sana, S.S. \A productioninventory
model for a two-echelon supply chain when
demand is dependent on sales teams' initiatives", Int.
J. Prod. Econ., 155(1), pp. 249-258 (2014).
20. Sana, S.S. \Optimal production lot size and reorder
point of a two-stage supply chain while random demand
is sensitive with sales teams' initiatives", Int. J.
Syst. Sci., 47(2), pp. 450-465 (2014).
21. Sana, S.S. \An EOQ model of homogeneous products
while demand is salesmen's initiatives and stock sensitive",
Comput. Math. with Appl., 62(2), pp. 577-587
(2011).
22. Sana, S.S. \An EOQ model for salesmen's initiatives,
stock and price sensitive demand of similar products -
A dynamical system", Appl. Math. Comput., 218(7),
pp. 3277-3288 (2011).
23. Chiang, W.K., Chhajed, D., and Hess, J.D. \Direct
marketing, indirect pro ts: A strategic analysis
of dual-channel supply-chain design", Manage. Sci.,
49(1), pp. 1-20 (2003).
24. Wang, L., Song, H., and Wang, Y. \Computers &
industrial engineering pricing and service decisions
of complementary products in a dual-channel supply
chain", Comput. Ind. Eng., 105(1), pp. 223-233
(2017).
25. Roy, A., Sana, S.S., and Chaudhuri, K. \Optimal Pricing
of competing retailers under uncertain demanda
two layer supply chain model", Ann. Oper. Res.,
250(1), pp. 1-20 (2015).
26. Roy, A., Sana, S.S., and Chaudhuri, K. \Joint decision
on EOQ and pricing strategy of a dual channel of
mixed retail and e-tail comprising of single manufacturer
and retailer under stochastic demand", Comput.
Ind. Eng., 102(1), pp. 423-434 (2016).
27. Kaplan, R.S. and Norton, D.P., The Balanced Scorecard,
Boston. Massachosette: Harvard Business school
press (1996).
28. Yue, X. and Liu, J.J. \Demand forecast sharing in
a dual-channel supply chain", Eur. J. Oper. Res.,
174(1), pp. 646-667 (2006).
2850 M. Modarres and M. Sha ei/Scientia Iranica, Transactions E: Industrial Engineering 25 (2018) 2838{2851
29. Huang, W. and Swaminathan, J.M. \Introduction of a
second channel: Implications for pricing and pro ts",
Eur. J. Oper. Res., 194(1), pp. 258-279 (2009).
30. Ganfu, W., Xing-zheng, A.I., and Huaping, D. \Study
on dual-channel revenue sharing coordination mechanisms
based on the free riding", 6th Int. Conf.
Serv. Syst. Serv. Manag., Xiamen, China, pp. 532-535
(2009).
31. Tsay, A.A. and Agrawal, N. \Channel con
ict and
coordination in the E-commerce age", Prod. Oper.
Manag., 13(1), pp. 93-110 (2004).
32. Dan, B., Xu, G., and Liu, C. \Pricing policies in a
dual-channel supply chain with retail services", Int. J.
Prod. Econ., 139(1), pp. 312-320 (2012).
33. Sha ei, M. and Modarres, M. \Optimization of an
integrated parallel distribution system by including
network marketing", Work. pap (2016).