Pricing Strategies in a Dual-Channel Supply Chain with Local Advertising

With the rapid popularization of the Internet, nowadays manufacturers are increasingly adopting a dual-channel to sell their products, i.e., The traditional retail channel and online direct channel. Empirical studies have shown that retailer´s local advertising has significant effects on demand and pricing decision. However, there is scant literature addressing the decision on the local advertising and its impacts on the manufacturer and retailer´s pricing decisions. To fill this gap, we explore the optimal decisions of local advertising and pricing in a centralized and a decentralized dual-channel supply chain using the two-stage optimization technique and Stackelberg game, and analyze the impacts of local advertising and customers´ preference to the direct channel on the pricing strategies. The results show that local advertising strongly influences pricing strategies and profits of channel members. Numerical analysis reveals that customers´ preference to the direct channel has great effects on the local advertising and pricing decisions.