IDEAS home Printed from https://ideas.repec.org/a/inm/ormksc/v38y2019i1p170-190.html
   My bibliography  Save this article

Managing Consumer Deliberations in a Decentralized Distribution Channel

Author

Listed:
  • Xi Li

    (College of Business, City University of Hong Kong, Kowloon, Hong Kong)

  • Yanzhi Li

    (College of Business, City University of Hong Kong, Kowloon, Hong Kong)

  • Mengze Shi

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

Abstract

Consumers may incur deliberation costs in learning about their valuations for new products. When the deliberation cost is not trivial, the retailer may set a low price to inhibit deliberation ( regressive pricing ) or choose a high price to induce deliberation ( transgressive pricing ). In a decentralized channel, we find that, first, the retailer is more likely to adopt the regressive pricing (versus transgressive pricing) when the wholesale price is lower. In response, the manufacturer sets a high (low) wholesale price to induce the transgressive (regressive) pricing when the deliberation cost is intermediate (high). Second, channel members can be misaligned in the incentive in investing in consumer empowerment. The ability to empower consumers and reduce their deliberation costs enhances the retailer’s channel power and its share of channel profit. Finally, the manufacturer may offer a socially suboptimal product quality because a high quality can lead to excessive deliberation. These nontrivial effects of the deliberation cost underscore the importance of considering consumer deliberations in channel management. The insights are robust under a positive production cost, heterogeneous deliberation costs, continuous deliberation efforts, and a channel structure with multiple layers.

Suggested Citation

  • Xi Li & Yanzhi Li & Mengze Shi, 2019. "Managing Consumer Deliberations in a Decentralized Distribution Channel," Marketing Science, INFORMS, vol. 38(1), pages 170-190, January.
  • Handle: RePEc:inm:ormksc:v:38:y:2019:i:1:p:170-190
    DOI: 10.1287/mksc.2018.1120
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/mksc.2018.1120
    Download Restriction: no

    File URL: https://libkey.io/10.1287/mksc.2018.1120?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. K. Sridhar Moorthy, 1988. "Strategic Decentralization in Channels," Marketing Science, INFORMS, vol. 7(4), pages 335-355.
    2. J. Miguel Villas-Boas, 1998. "Product Line Design for a Distribution Channel," Marketing Science, INFORMS, vol. 17(2), pages 156-169.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    4. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    5. Liang Guo & Ganesh Iyer, 2010. "Information Acquisition and Sharing in a Vertical Relationship," Marketing Science, INFORMS, vol. 29(3), pages 483-506, 05-06.
    6. Liang Guo & Juanjuan Zhang, 2012. "Consumer Deliberation and Product Line Design," Marketing Science, INFORMS, vol. 31(6), pages 995-1007, November.
    7. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58(4), pages 347-347.
    8. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
    9. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    10. Ming Hu & Xi Li & Mengze Shi, 2015. "Product and Pricing Decisions in Crowdfunding," Marketing Science, INFORMS, vol. 34(3), pages 331-345, May.
    11. Yunchuan Liu & Z. John Zhang, 2006. "Research Note—The Benefits of Personalized Pricing in a Channel," Marketing Science, INFORMS, vol. 25(1), pages 97-105, 01-02.
    12. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-327, May.
    13. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    14. Preyas S. Desai & Kannan Srinivasan, 1995. "Demand Signalling Under Unobservable Effort in Franchising: Linear and Nonlinear Price Contracts," Management Science, INFORMS, vol. 41(10), pages 1608-1623, October.
    15. Hui Xiong & Ying-Ju Chen, 2013. "Product Line Design with Deliberation Costs: A Two-Stage Process," Decision Analysis, INFORMS, vol. 10(3), pages 225-244, September.
    16. Shugan, Steven M, 1980. "The Cost of Thinking," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 7(2), pages 99-111, Se.
    17. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2007. "Fairness and Channel Coordination," Management Science, INFORMS, vol. 53(8), pages 1303-1314, August.
    18. Luc Wathieu & Marco Bertini, 2007. "Price as a Stimulus to Think: The Case for Willful Overpricing," Marketing Science, INFORMS, vol. 26(1), pages 118-129, 01-02.
    19. Hemant K. Bhargava, 2012. "Retailer-Driven Product Bundling in a Distribution Channel," Marketing Science, INFORMS, vol. 31(6), pages 1014-1021, November.
    20. Jinhong Xie & Steven M. Shugan, 2001. "Electronic Tickets, Smart Cards, and Online Prepayments: When and How to Advance Sell," Marketing Science, INFORMS, vol. 20(3), pages 219-243, June.
    21. Liang Guo, 2009. "Quality Disclosure Formats in a Distribution Channel," Management Science, INFORMS, vol. 55(9), pages 1513-1526, September.
    22. Liang Guo, 2016. "Contextual Deliberation and Preference Construction," Management Science, INFORMS, vol. 62(10), pages 2977-2993, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Yanran & Li, Bo & Wang, Minxue & Liu, Yang, 2023. "Optimal sales strategies for an omni-channel manufacturer in livestreaming demonstration trends," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 180(C).
    2. Daozhi Zhao & Yang Xue & Cejun Cao & Hongshuai Han, 2019. "Channel Selection and Pricing Decisions Considering Three Charging Modes of Production Capacity Sharing Platform: A Sustainable Operations Perspective," Sustainability, MDPI, vol. 11(21), pages 1-28, October.
    3. Zha, Yong & Guo, Xiaowei & Chen, Huaping & Ling, Liuyi, 2022. "How does Store Branded Lookalike Packaging Affect Competition in a Dyadic Supply Chain: A Consumer Confusion Perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).
    4. Bing Qi & Tianjuan Deng & Zhilin Yang, 2023. "The Role of User Experience in the Impact of Low-Carbon Building Characteristics on Consumer’s Housing Purchase Intention," Sustainability, MDPI, vol. 15(13), pages 1-21, June.
    5. Yinliang (Ricky) Tan & Yan Xiong & Haibing Gao & Xi Li & Huazhong Zhao, 2021. "Less is More? The Strategic Role of Retailer's Capacity," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3354-3368, October.
    6. Yuetao Gao & Yue Wu, 2023. "Regulating Probabilistic Selling of Counterfeits," Management Science, INFORMS, vol. 69(8), pages 4498-4517, August.
    7. Zibin Xu & Anthony Dukes, 2022. "Personalization from Customer Data Aggregation Using List Price," Management Science, INFORMS, vol. 68(2), pages 960-980, February.
    8. Xi Li & Xinlong Li, 2023. "The Bright Side of Inequity Aversion," Management Science, INFORMS, vol. 69(7), pages 4210-4227, July.
    9. Xi Li & Zibin Xu, 2022. "Superior Knowledge, Price Discrimination, and Customer Inspection," Marketing Science, INFORMS, vol. 41(6), pages 1097-1117, November.
    10. Guo, Xiaowei & Zha, Yong & Chen, Huaping & Liang, Liang, 2023. "National brand manufacturers’ supply strategy in the presence of retailers’ store-branded lookalike packaging and consumer confusion about quality preference," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xi Li & Xinlong Li, 2023. "The Bright Side of Inequity Aversion," Management Science, INFORMS, vol. 69(7), pages 4210-4227, July.
    2. Altug, Mehmet Sekip & van Ryzin, Garrett, 2013. "Product quality selection: Contractual agreements and supplier competition in an assemble-to-order environment," International Journal of Production Economics, Elsevier, vol. 141(2), pages 626-638.
    3. Roman Inderst & Greg Shaffer, 2019. "Managing Channel Profits When Retailers Have Profitable Outside Options," Management Science, INFORMS, vol. 65(2), pages 642-659, February.
    4. Xi Li & Zibin Xu, 2022. "Superior Knowledge, Price Discrimination, and Customer Inspection," Marketing Science, INFORMS, vol. 41(6), pages 1097-1117, November.
    5. Long Gao & Birendra K. Mishra, 2019. "The Role of Market Evolution in Channel Contracting," Management Science, INFORMS, vol. 67(5), pages 2432-2441, May.
    6. Liang Guo & Juanjuan Zhang, 2012. "Consumer Deliberation and Product Line Design," Marketing Science, INFORMS, vol. 31(6), pages 995-1007, November.
    7. Cao, Qingning & Geng, Xianjun & Zhang, Jun, 2015. "Strategic Role of Retailer Bundling in a Distribution Channel," Journal of Retailing, Elsevier, vol. 91(1), pages 50-67.
    8. Yinliang (Ricky) Tan & Yan Xiong & Haibing Gao & Xi Li & Huazhong Zhao, 2021. "Less is More? The Strategic Role of Retailer's Capacity," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3354-3368, October.
    9. Fabio Caldieraro, 2016. "The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions," Management Science, INFORMS, vol. 62(11), pages 3327-3350, November.
    10. Liang Guo, 2009. "The Benefits of Downstream Information Acquisition," Marketing Science, INFORMS, vol. 28(3), pages 457-471, 05-06.
    11. Dmitri Kuksov & Amit Pazgal, 2007. "Research Note—The Effects of Costs and Competition on Slotting Allowances," Marketing Science, INFORMS, vol. 26(2), pages 259-267, 03-04.
    12. Anil Arya & Brian Mittendorf, 2006. "Benefits of Channel Discord in the Sale of Durable Goods," Marketing Science, INFORMS, vol. 25(1), pages 91-96, 01-02.
    13. Huang, Qinghua & Yang, Shilei & Shi, Victor & Zhang, Yibin, 2018. "Strategic decentralization under sequential channel structure and quality choices," International Journal of Production Economics, Elsevier, vol. 206(C), pages 70-78.
    14. Sumit Raut & Sanjeev Swami & Eunkyu Lee & Charles B. Weinberg, 2008. "How Complex Do Movie Channel Contracts Need to Be?," Marketing Science, INFORMS, vol. 27(4), pages 627-641, 07-08.
    15. Pedro M. Gardete & Liang Guo, 2021. "Prepurchase Information Acquisition and Credible Advertising," Management Science, INFORMS, vol. 67(3), pages 1696-1717, March.
    16. Jeffrey Shulman & Anne Coughlan, 2007. "Used goods, not used bads: Profitable secondary market sales for a durable goods channel," Quantitative Marketing and Economics (QME), Springer, vol. 5(2), pages 191-210, June.
    17. Yunchuan Liu & Tony Haitao Cui, 2010. "The Length of Product Line in Distribution Channels," Marketing Science, INFORMS, vol. 29(3), pages 474-482, 05-06.
    18. Teck-Hua Ho & Juanjuan Zhang, 2008. "Designing Pricing Contracts for Boundedly Rational Customers: Does the Framing of the Fixed Fee Matter?," Management Science, INFORMS, vol. 54(4), pages 686-700, April.
    19. Baojun Jiang & Kinshuk Jerath & Kannan Srinivasan, 2011. "Firm Strategies in the "Mid Tail" of Platform-Based Retailing," Marketing Science, INFORMS, vol. 30(5), pages 757-775, September.
    20. Dmitri Kuksov & Chenxi Liao, 2023. "Restricting Speculative Reselling: When “How Much” Is the Question," Marketing Science, INFORMS, vol. 42(2), pages 377-400, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:38:y:2019:i:1:p:170-190. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.