Addendum to: “Dual Sales Channel Management with Service Competition”

The analysis in Chen, Kaya and Özer (2006) (henceforth, “the paper”) assumes that the manufacturer already has dual sales channels: a direct online channel, and an independent bricks-and-mortar retail channel. In this section, we study two single channel scenarios, and compare their results with the dual channel scenario results of the paper. First, we consider a manufacturer who sells only through a retail channel. By comparing the results of this scenario with the results of the dual channel scenario, we quantify the benefits of the direct channel to the manufacturer. The manufacturer can compare the benefits with the associated costs in deciding whether to open a direct channel. We also address the retailer’s concern about the effects of the direct channel on his profit (See, for example, Tsay and Agrawal 2004) by quantifying the impact of the direct channel on the retailer’s profit. Some researchers, studying price competition, have found that the direct channel can be used as a tool to influence the retailer’s pricing decision (Chiang, Chhhajed and Hess 2003). Along the same lines, we address whether the manufacturer can use the direct channel to influence the retailer’s service level decision. Second, we consider a manufacturer who sells only through his direct channel. By comparing the results of this scenario with the results of the dual channel scenario, we quantify the benefits of the retail channel to the manufacturer.