A Study Of Substitutable Products’ Pricing And Selecting Model Considering The Marketing Structure

Nowadays there are more and more substitutable products on the market, providing more choices to the customer, and also proposing a question to the retailers: how to decide which products to sell and the proper price of the substitutable products to maximize the profit?Different customer value and preference to products have significantly influenced retailers’ pricing and ordering strategy. This paper analyzing a channel structure with a manufacturer selling two substitutable products to a retailer, i.e., a good brand and an average brand. Based on the customer value theory and game theory, the demand function related to customer acceptance of average brand is built and three power structures, including Vertical Nash model, Manufacturer Stackelberg model and Retailer Stackelberg model are examined. Additionally, the impact of customer acceptance and power structure on optimal policy, maximum profit and the whole supply chain profit were analyzed.It is found that customer acceptance decides the brand choice. In each model, there exists an upper bound and a floor bound.When is lower than, the optimal strategy is to only order the good brand, when is higher than, the optimal strategy is to only order the average brand, when is between and, the optimal strategy is to order both brands. And there always exists an optimal wholesale and retail price for both brands. The wholesale price is highest in MS, and lowest in RS, while the retail price is highest in MS and RS, and lowest in VN. About the profit, the one with bigger power will get more profit, yet for the whole supply chain, when no one is more powerful than the other, it will achieve better performance. When is under, the profit is constant and lowest, When is higher than, exerts a positive influence on each member and the whole chain’s profit, the profit increases as increases.