When should a retailer with competing manufacturers reveal product fit information?

Liyuan Sun, Bintong Chen, Jing Chen and Hui Yang

International Journal of Production Research, 2023, vol. 61, issue 5, 1664-1682

Abstract: We investigate whether and when a retailer who sells two quality differentiated products supplied by two manufacturers should reveal product fit information to help consumers find a product that better fits their needs. We show that the retailer’s optimal information strategy depends on the consumer’s unit misfit cost and production efficiencies of both manufacturers. The retailer should reveal product fit information when the ratio of the efficiencies of the two manufacturers is sufficiently low, or the consumer’s unit misfit cost is sufficiently high. The retailer is less likely to benefit from revealing product fit information when the consumer’s unit misfit cost is either low or very high. Two mechanisms, margin-enhancing (driving the efficient manufacturer to reduce the wholesale price) and market-targeting (setting higher retail prices for both products), that the retailer can benefit from revealing product fit information are discussed, and the associated conditions are identified. Our findings suggest that the inefficient manufacturer is always better off when the retailer reveals fit information, but the efficient manufacturer may suffer. A win-win-win for all supply chain members can be achieved under certain conditions.

Date: 2023
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DOI: 10.1080/00207543.2022.2044536

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