Optimal pricing policy in supply chain management by adopting network marketing

Network marketing (NM), as a strategic policy, recently has been gaining popularity in supply chain management. The network marketing paradigm has become more attractive due to the growth of internet. The integration of traditional retailing with network marketing adds a new dimension of competition to a product’s distribution channels. This paper provides a framework to study the integration of network marketing and SCM, especially from the point of analytical investigation. We also examine optimal decisions in cases of centralized and decentralized operation of network marketing as well as single and dual channel supply chains. In this article, we develop a model of Stackelberg game to optimize the pricing system of different sale channels. The results show that adding network marketing channel to SCM strongly influences the manufacturer and the retailer’s decisions strategies. Manufacturer and retailer prefer dual channels models (NM and tradition channel in parallel) in comparison over single channel model, provided the best scenario is selected. Furthermore, numerical studies show that the degree of customer loyalty to retail channel is effective on the decisions.