In this section, we assume that manufacturer can receive the information of customers’ personal preference through their online channel. The manufacturer offers the right for customers to design the appearance of the product. For example, the customer can upload their favorite pictures, which will be printed on a T-shirt, shoes, and other products, or choose their favorite styles and colors for products. For the ease of presentation in this paper, we call this sales channel the online customization channel .
The personalized products have some impact on our basic model. On the one hand, since customers take part in the production process and add personal preferences to the product, the satisfaction of customers who buy the product through this channel will be much higher than the indirect channel. We assume the average customer satisfaction rate when the product is purchased through channel
. On the other hand, the manufacturer will not offer the MBG return policy in the online customization channel. This is because each personalized product is specific and produced for the consumers who designed it. Therefore, in this situation, the return policy combinations of the whole supply chain are only two
. Furthermore, the online customization channel needs to collect customer’s demand for production, which costs more than setting up an ordinary online channel. The extra construction cost is recorded as
is the average added cost of each customized product. The sequence of events occurs the same as in Section 4
5.1. Equilibrium Solution
To compare the online customization channel, we assume that the manufacturer sells the ordinary products in the traditional sales channel (channel
) and sells the personalized products in channel
at the same time. The sequence of events is the same as the basic model. If a customer who values the product at
considers purchasing the product through channel
, its utility is
. The utility of the customer buying the product through channel
Like the basic model, the customers will buy the product through channel if and . Clearly, the total customer demands for channels and are easy to acquire. We use to simplify results, which reflects the online customization channel efficiency for selling products.
, the profit of the retailer is:
The profit of the manufacturer is:
represents the system efficiency of selling the product in the indirect channel in relation to the customer-made channel. From Table 2
and the above analysis, it is obvious that the two channels can co-exist only if
. The demands and profits of the manufacturer and retailer are summarized in Table 2
Proposition 5. For given, there exists a unique optimal equilibrium of the prices for the two channels (summarized in Table 2).
5.2. Channel Selection and the Impact of Personalized Customization
In this section, we find the basic conditions for the manufacturer to determine whether to open the online customization channel. Notice that the conditions apply to cases with and without MBG in either channel.
For any , , if , the manufacturer can sell through both the retail channel and the online customization channel.
Proposition 6 gives the basic conditions by which the retailer should select an online customization channel according to the demand. It shows that the channel decision relies on the relative efficiency of selling products in either channel, i.e., . If the efficiencies of selling the product in the two channels are relatively close (), the manufacturer can open an online customization channel based on the traditional sales channel. Notice that the boundary value only depends on , and the range of dual-channel establishment is narrower with the increase of . The ratio measures the relative selling efficiency. If the indirect channel offers an MBG, it becomes more efficient, as long as . Opening an online customization channel may not benefit the manufacturer in some cases, because the channel does not allow customers to return the product that does not fit.
We also study the equilibrium pricing strategy when manufacturers open online customization channels and analyze the optimal return strategy. Since the products produced by online customization channels have more customized costs, the sales price will definitely be higher than the sales price of ordinary online products, so we only discuss the changes in the retail price of indirect channels.
When,and, we have: if,; while,,.
We can learn from Proposition 7 that when a manufacturer opens an online customization channel, the sales price of the channel increases due to the increase in cost. Meanwhile, the sales price of the indirect channel will also increase to some extent due to the influence of the online channel price. This shows that the establishment of online customization channels not only increases the direct channels’ sales price, but also has an important impact on the overall price of the supply chain. However, when the selling efficiency of the online channels has no difference before and after offering the customization, the advantages of online customization in improving the price will not be reflected.
Whenand, we have: ifand if.
Proposition 8 shows an interesting result. When manufacturers open online customization channels, the manufacturer and retailer have made a unified decision about the choice of indirect channel return strategies. According to Theorems 1 and 2, when the net salvage of the returned product is positive (), both the manufacturer and retailer are willing to provide a return policy for the channel to achieve a higher demand. However, the online customization channel does not provide an “inappropriate” return policy for consumers’ personalized products. Therefore, in order to increase the overall demand, under certain conditions, members of the supply chain prefer to provide an MBG policy in indirect channels. It is worth noting that the main factor affecting the threshold conditions for providing a return policy is still consumer satisfaction. By analyzing the threshold, we can see that if the consumer satisfaction of indirect channels is closer to the satisfaction of online customization channels, then supply chain members will have greater willingness to implement an MBG for indirect channels.
In addition, we compared the profit of the manufacturer in two dual-channel models, the common dual-channel and the dual-channel that opens online customization, by numerical examples. We are particularly interested in how customer’s satisfaction influences the channel selection strategies of the manufacturer. We set
and vary the parameters values in the following ranges:
is the best return decision for manufacturers under ordinary dual-channels. Therefore, we compare the profit changes of
in consumer satisfaction of indirect channels in Figure 2
For manufacturer, exist by fixing the values of other parameters,
Whenit is beneficial for manufacturers to open online customization channels, regardless of the return policy adopted.
WhenONG is the optimal decision for the manufacturer.
When, maintaining an ordinary dual-channel structure and implementing MBG policies in both channels are the best decisions for manufacturers.
illustrates the effects of varying
on the profit of the manufacturer under different decisions. When the satisfaction of consumers shopping in the indirect channel tends to the satisfaction of ordinary online channels, i.e., the satisfaction of indirect channels is low, the improvement from opening the online customization is quite obvious. As
increases, the advantages brought by online customization are significantly reduced. When
, it is necessary to provide a return service as only relying on the online customization cannot bring more profits. If
, since consumers are more satisfied with general products, manufacturers do not have to pay more to open online customization channels. Moreover, as the net salvage of returned products increases,
move to left. This is because of the cost that the manufacturer paid to process returned products, so that the willingness to provide an MBG is increased.
demonstrates that opening online customization channels can increase customer satisfaction and channel demand and generate significant profit increases for manufacturers. However, when the satisfaction of indirect channels is close to the satisfaction of online customization channels, the advantages brought by the opening of the customization channel cannot make up for the cost.