The effect of customer value and power structure on retail supply chain product choice and pricing decisions

Customer value in goods not only affect his purchase decision but also bring about a big challenge for retail supply chain management. A two-stage retail supply chain consisting of one manufacturer and one retailer is investigated in this paper. The manufacturer produces two substitute products which belong to two different generations while the retailer determines his product choice decisions and pricing policies with considering heterogeneous customer demand based on different customer value. The key issues faced by the retailer are which products to purchase, single or both? And how to make pricing policies in different power structures? From three different game theoretical perspectives, we found that the retailer's purchase decision criterions are based on two thresholds, and in each power structure the optimal pricing policies of manufacturer and retailer are obtained. In addition, the impact of power structure has been explored and it shows that different power structures have no effect on the retailer's product choice decision criterions and behaviors, however, they have a great influence on supply chain members’ pricing policies and performances. The revenue sharing contract achieves a Pareto improvement and makes a bigger pie, and the power structure determines the pie split between the supply chain members. Additionally, revenue sharing contract will not affect the retailer's purchase decision criterions and behaviors, either.