A Study On Hybrid Channels In Internet Era

The rapidly developing Internet is changing modern business rule. More and more manufacturers go online,adding direct Internet channel besides traditional retailers to contact directly with customers. The coexistence of Internet with traditional channel is a major characteristic of modern manufacturers. However, how to manage such kind of hybrid channels remains a difficult task for most manufacturers.Current literatures focus on studying the coordination and profit-sharing of traditional retail channels. Though many studies are about Internet, the most are focusing on the interim characteristics of Internet itself, such as transaction cost and customer's buying behavior, and only few are about Internet hybrid channels. The hybrid channel strcuture looks like a facial phenomenon, but its scientific explanation and analysis remains a big challenge.Based on a combination of qualitative and quantitative research methods, the paper aims to seek the interim rules of Internet hybrid channels, so as to provide scientific references for people to understand the prevailing channel structure in nowadays'business world, as well as to provide a new perspective for researchers and managers.The study includes three parts. Firstly, a summary of basic theories of traditional channel management is presented. The second part is a systematic quantitative research on Internet hybrid channels, including the pricing game between manufacturer and retailer, the coordination mechanism of hybrid channel supply chain, and an extended model which integrates price and non-price factors of hybrid channels. The last part is an empirical study of hybrid channels in Internet era.The focus of researches on traditional channels is channel coordination, i.e., how to determine the wholesale price offered by the manufacturer to the retailer. The purpose of channel coordination is to maximize the total channel profit, aiming to reach a"win-win"situation. The reason behind channel coordination is the so-called"social dilemma"problem, also named the"prison dilemma"in price game theory. Due to the dilemma, channel members will choose not to cooperate though actually they all know cooperation will bring about more benefits for them. The frequently used mechanisms for channel coordination include quantity discount and two-part tariff. With respect to pricing game between manufacturer and retailer inside the hybrid channels, a model integrating a manufacturer, a traditional retailer and an Internet channel is established. Three different game scenarios are analyzed, including static Nash game, manufacturer-Stackelberg game and retailer-Stackelberg game. The profits of manufacturer and retailer under different games are compared, as well as the effect of cost structure,θ(i.e., the discomfort cost occurred when customers buy online) on profits. In addition, a comparison of manufacturer and retailer's sales and profits under Internet channel, traditional channel and hybrid channel structure is provided. The question of under what conditions Internet channel act as a threat to traditional channel is analyzed.The results indicate that hybrid channel mode is a right choice for manufacturer.With regards to coordination of hybrid channel supply chain, the quantity discount and two-part tariff based on Stackelberg game models are presented for coordination of hybrid channels. Based on flexible pricing and negotiation mechanisms, manufacturer and retailer can reach a"win-win"situation by sharing cooperative profits.With regards to the research on extended hybrid channel model which integrates price and non-price factors, a circular market model consisted of one manufacturer (namely the directer) and N retailers are established. N retailers are evenly distributed on the circular. The travel cost rate t is introduced, as well asμ, which represents the discomfort cost of customers when they buy online. Three games are analyzed, namely, the vertical Nash game in which manufacturer and retailer act simultaneously, the manufacturer led Stackelberg game and the retailer led Stackelberg game. In detail, the prices, market shares and profits of channel members are analyzed. In addition, the service level of retailer is integrated into the model as the non-price factor.With regards to the empirical study of Internet hybrid channels, companies in audio-video and fire-fighting industries are studied, through methods including questionnaire, telephone interview, on-site interview and outside information collection.The motivations, benefits, and integration strategies of hybrid channels are analyzed.The major innovations of the paper include:1. Based on both qualitative and quantitative methods, a deep and systematic study on hybrid channels consisted of Internet and traditional retail channels is presented, providing a theoretic framework for understanding hybrid channels in Internet era.2. The pricing game between manufacturer and retailer in hybrid channels is established. A comparison of prices, sales and profits of channel members under different channel structure is presented. The results indicate hybrid channel mode is a right choice for manufacturer, and Internet channel is unnecessarily a threat to traditional retailing channel. 3. The game model for coordination of hybrid channels is established, providing mechanisms of quantity discount and two-part tariff for the maximization of total channel profit. The manufacturer can induce the retailer to coordinate through flexible pricing method, and both of them can share cooperative profits based on negotiations.4. An extended model based on circular market for hybrid channels consisted of one manufacturer (directer) and N retailers are established, with travel cost rate and Internet discomfort cost introduced, as well as service level of retailer as non-price factor integrated. The study indicates that retailers will choose to upgrade services to reinforce their competences, while Internet channel is attractive to customers only when they have low discomfort costs of web buying.5. An empirical study of Internet hybrid channels is presented.The implementation of Internet hybrid channels is bound to some restrictions, such as the imbalance in Internet development in different countries, the social credit system, the manufacturer's product category and company size and the merger & acquisition activities of retailers. Therefore, manufactures should take a strategic view towards Internet, not subject to short-term profits brought by Internet. A"win-win"thinking approach is necessary to help manufacturers build Internet as a strategic tool, not just as a new type of marketing channel.Further researches on hybrid channels include the following: the hypotheses for modeling hybrid channels, such as the demand function, the behavior of customers'buying choice and the product attributes; the non-price factors for modeling hybrid channels, such as service, promotion and brand loyalty; the conflict in hybrid channels and the profit-sharing mechanisms for coordinated hybrid channels and the further empirical research of hybrid channels.