Sales effort deployment in decentralized dual-channel distribution

The purpose of this paper is to determine the optimal sale effort deployment under dual-channel distribution which combines a traditional brick and mortar retail channel from the partner retailer and an online direct channel from the manufacturer.

A sales effort competition game is set up in the dual-channel distribution between the manufacturer and the retailer. Demand under sales efforts is determined based on the consumer valuation, consumer’s channel preference and sales efforts. Then, the optimal sales effort deployment is studied with a game theory approach which allow the retailer and the manufacturer to maximize their own profit.

Consumer’s channel preference is a key parameter of the demand assignment in the dual-channel distribution. Interestingly, the optimal sales effort and the profit of the manufacturer and the retailer can be limited by the other’s efficiency of sales effort. The finding suggests that the manufacturer and the retailer should collaborate to enhance the efficiency of the sales effort. It also shows that the manufacturer can utilize the direct channel as an important marketing channel even though no profit is obtained through the direct channel.

This research provides a new method to model the sales effort in the dual-channel distribution. The optimal sales efforts based on the consumer behavior are determined. However, since this study assumes a consistent product price across channels, the results is not applicable for a retailer who can set their own price.

It is a win-win situation for adoption of the dual-channel distribution although the manufacturer can benefit more. Additionally, direct channel can be used as an effective marketing channel.

This research contributes to a better understanding of demands in dual-channel distribution under sales efforts. Additionally, the research results provide a useful framework of sales effort deployment under different consumers’ channel preferences in the dual-channel distribution.