Coordination of a supply chain with extended warranty when retailers compete

<p style='text-indent:20px;'>Currently, many upstream software developers not only sell software through downstream service providers, but also directly sell it to clients. However, in the field of IT service supply chain management, there is a lack of research on the channel encroachment of software developers. In this study, we consider an IT service supply chain with a software developer, a service provider and client enterprises. Clients can either purchase the software (developed by the software developer) from the provider with a high price and additional pre-sale services, or directly purchase it from the developer with a low price but without pre-sale service. After purchasing the software, the clients can also purchase the extended warranty service from the developer. The study shows that the market size occupied by the developer and the intensity of competition between the two parties will neither affect the developer's product and service pricing decisions, nor influence the total demand for software products and extended warranty services, and thus will not impact his own profit. However, these factors will impact the provider's decisions for pre-sale service quality and software sales price, thereby affecting the provider's software demand and profit, and thus impact the performance of the supply chain. In addition, as the intensity of competition between both parties increases, the provider will simultaneously choose to reduce the pre-sales service quality and the software sales price to compete with the developer. Different from conclusions of the existing research on competition, we surprisingly observe that as the sensitivity of client enterprises to the extended warranty services price increases, both parties will increase the software price to compete. The encroachment of the developer will reduce the provider's software demand and profit, and thus lead to a decline in the performance of the supply chain. Therefore, the encroachment of the developer is an act of squeezing out partners by decreasing the profit of the provider, but without affecting his own profit.</p>

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Pricing Decisions and Provider Choice on Extended Warranty Service in Supply Chain

International Journal of Information Systems and Supply Chain Management ◽

10.4018/ijisscm.2019100104 ◽

2019 ◽

Vol 12 (4) ◽

pp. 55-71 ◽

Cited By ~ 2

Author(s):

Rong Zhang ◽

Mengjiao Li ◽

Bin Liu

Keyword(s):

Supply Chain ◽

Total System ◽

Service Cost ◽

Supply Chain System ◽

Provider Choice ◽

Retail Pricing ◽

Pricing Decisions ◽

Extended Warranty ◽

Cost Coefficient ◽

Warranty Service

This article constructed a manufacturer-leading supply chain system considering the extended warranty service (EW) with a single manufacturer and a single retailer to study the influence of service cost on the choice of the EW provider. First, this article analyzed retail pricing, EW pricing, EW quality, the manufacturer's profit, the retail's profit and the total system profit in Model M and Model R. Then, the article analyzed the influence of service cost on the choice of the EW provider. Finally, it shows that if only part of consumers purchases the product with the EW, the manufacturer benefits from EW provided by the retailer. However, the retailer has to balance the ratio of the service cost coefficient. Furthermore, all consumers purchase the product with the EW, both the manufacturer and the retailer has to balance the ratio of service cost coefficient between manufacturer and retailer.

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Optimal Pricing Strategies in a Product and Service Supply Chain with Extended Warranty Service Competition considering Retailer Fairness Concern

Mathematical Problems in Engineering ◽

10.1155/2019/8657463 ◽

2019 ◽

Vol 2019 ◽

pp. 1-15 ◽

Cited By ~ 5

Author(s):

Du Zhao ◽

Xumei Zhang ◽

Tinghai Ren ◽

Hongyong Fu

Keyword(s):

Supply Chain ◽

Optimal Pricing ◽

Pricing Strategies ◽

Price Difference ◽

Extended Warranty ◽

Service Supply Chain ◽

Reasonable Range ◽

Fairness Concerns ◽

Extended Warranties ◽

Warranty Service

This paper examines optimal pricing in a two-tier product and service supply chain consisting of a manufacturer and a retailer in the context of vertical competition in extended warranty in two cases: one considering the retailer’s fairness concerns and one without considering the retailer’s fairness concerns. A manufacturer-dominated product and service supply chain game-theoretic model on the Stackelberg model is developed to analyse how the level of vertical competition in extended warranty service and the intensity of a retailer’s fairness concerns influence the optimal pricing of products and extended warranties for the manufacturer and retailer. This study finds the following: (i) Two parties of the supply chain employ differential pricing strategies for extended warranties when the retailer has fairness concerns. (ii) Compared to the same pricing strategies for extended warranty service when the retailer has no fairness concerns, the increase of competition intensity of vertical extended warranty service will enlarge the price difference of extended warranty service. Meanwhile, it is the intensity of fairness concerns that determines the influences of retailer’s fairness concerns on the price difference of extended warranties. (iii) If no fairness concerns are raised, an increase in the level of vertical competition in extended warranty service would benefit both supply chain parties, rather than hurting their profit. If the retailer is fair-minded, its fairness utility increases when the intensity of the fairness concerns rises in a reasonable range and decreases when the intensity exceeds the reasonable range, but for the manufacturer, its profits will be damaged as long as the retailer raises fairness concerns.

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