The Study on How Promotion Affects a Two-Echelon Supply Chain System
The dominant retailer with large retailing chain stores is the essential marketing channels for suppliers. Either
being invited by the dominant retailer or being cooperated with retailers for promotion activities, how to balance between
profit and cost is concerned by every parties of a supply chain. In this study, we investigate a two-echelon supply chain with
two suppliers and three retailers among which one retailer dominates other retailers. A price competition demand function is
used to model this dominant retailer leading market. The promotion strategies and negotiation schemes are integrated to form
decision-making models under different scenarios. These models are then formulated into mathematical programming
models. The decision variables such as promotional costs, retailer prices, wholesale price and order quantity are included in
these models. At last, the distributions of promotion costs under different cost allocation strategies are discussed. Finally, a
household paper market is used as an example to validate our models. The results from this empirical example show that the
profit model will create the largest profit for the supply chain but with different profit-sharing results. At the same time,
more risk a member can take, more profits are distributed to that member in the utility model.
Keywords - Supply Chain, Price Promotion, Mathematical Model.