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Vertical Cooperative Advertising in Supply Chain Management pp 121–133Cite as

A Manufacturer-Retailer Supply Chain with Fuzzy Customer Demand: A Vertical Cooperative Advertising and Pricing Model

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Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

Abstract

In this paper, we apply fuzzy set theory to a single-manufacturer single-retailer supply chain, where both players try to determine their optimal pricing and advertising decisions. The interaction between manufacturer and retailer is analyzed by means of a Stackelberg game. Moreover, a vertical cooperative advertising program is considered, which represents a financial agreement where the manufacturer offers to share a certain fraction of his retailer’s advertising expenditures. Even though this topic gained substantial interest in recent years’ operations research literature and studies reveal that results strongly depend on demand parameters, most analyses are limited to deterministic model formulations. Here, fuzzy set theory has the advantage that it is not only able to incorporate the uncertainty of demand parameters into analysis. Furthermore, it enables us to take into consideration the experience of decision makers, which is often not expressed numerically, but rather in vague linguistic terms.

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Notes

  1. 1.

    Cf. Crimmins (1984): Cooperative advertising, p. 2

  2. 2.

    Cf. Somers et al. (1990): Cooperative advertising expenditures, p. 36.

  3. 3.

    Cf. Hutchins (1953): Cooperative advertising, pp. 7 et seq., and Young and Greyser (1983): Managing cooperative advertising, pp. 29–37.

  4. 4.

    Cf. Nagler (2006): Cooperative advertising participation rates, p. 92, and He et al. (2012): Co-op advertising, p. 74.

  5. 5.

    Cf. Nagler (2006): Cooperative advertising participation rates, p. 96.

  6. 6.

    See Aust and Buscher (2011): Werbungsbezogene Zusammenarbeit, pp. 16–19.

  7. 7.

    See Zadeh (1965): Fuzzy sets.

  8. 8.

    For a more formal introduction and the relevant definitions and axioms, we refer the reader to Zadeh (1965): Fuzzy sets and Nahmias (1978): Fuzzy variables or to the comprehensive books Liu (2009): Uncertain programming and Liu (2013): Uncertainty Theory. A more summarized but still formal discussion can be found in Zhou et al. (2008): Two-echelon supply chain games, pp. 391–394.

  9. 9.

    Cf. Liu (2009): Uncertain programming, p. 33.

  10. 10.

    Cf. Liu and Liu (2003): Expected value operator, p. 201.

  11. 11.

    Cf. Liu (2013): Uncertainty Theory, p. 23.

  12. 12.

    Cf. Zhao et al. (2012b): Pricing decisions for substitutable products, p. 410.

  13. 13.

    See Berger (1972): Vertical cooperative advertising.

  14. 14.

    We refer the reader to a recent review by Aust and Buscher (2014a): Cooperative advertising models.

  15. 15.

    See Chen (2011): Coordinating the ordering and advertising policies, He et al. (2011): Retail competition and Tsao and Sheen (2012): Promotion cost sharing.

  16. 16.

    See Aust and Buscher (2012): Vertical cooperative advertising.

  17. 17.

    See Zhou et al. (2008): Two-echelon supply chain games.

  18. 18.

    See Zhao et al. (2012b): Pricing decisions for substitutable products.

  19. 19.

    See Zhao et al. (2012a): Retail competition in a fuzzy environment.

  20. 20.

    See Karray and Zaccour (2006): Co-op advertising and Yang et al. (2013): Cooperative advertising. Though, the distinction between manufacturer and retailer advertising is a common assumption, which can be found in SeyedEsfahani et al. (2011): Vertical co-op advertising and Xie and Wei (2009): Coordinating advertising.

  21. 21.

    Cf. Kunter (2012): Coordination via cost and revenue sharing, p. 479, and Yan (2010): Cooperative advertising, p. 512.

  22. 22.

    Cf. Kim and Staelin (1999): Manufacturer allowances, pp. 65 et seq., and Zhang and Xie (2012): Cooperative advertising with multiple retailers, p. 40.

  23. 23.

    Cf. Thompson and Teng (1984): Optimal pricing and advertising policies, p. 151.

  24. 24.

    See Zhou et al. (2008): Two-echelon supply chain games, pp. 395–398.

  25. 25.

    See Cheng (2004): Group opinion aggregation.

  26. 26.

    In Zhao et al. (2012b), the profit of the two manufacturers as well as of the total system increases with higher fuzziness both in Manufacturer Stackelberg and Stackelberg Retailer game, while the retailer’s profit decreases (cf. Zhao et al. (2012b): Pricing decisions for substitutable products, pp. 417 et seq.).

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Acknowledgements

A slightly modified version of this work is also published in Aust (2015): A manufacturer-retailer supply chain with fuzzy consumer demand: A vertical cooperative advertising and pricing model. In J. Dethloff, H.-D. Haasis, H. Kopfer, H. Kotzab, & J. Schönberger (Eds.), Logistics management: Products, actors, technology - Proceedings of the German Academic Association for Business Research, Bremen, 2013 (chapter 7). Heidelberg: Springer.

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  1. Industrial Management, TU Dresden, Dresden, Germany

    Gerhard Aust (Chair)

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Aust, G. (2015). A Manufacturer-Retailer Supply Chain with Fuzzy Customer Demand: A Vertical Cooperative Advertising and Pricing Model. In: Vertical Cooperative Advertising in Supply Chain Management. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-319-11626-6_6

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