Optimising O2O Supply Chain Strategies Through Cost-Sharing Contracts: Strategic Analysis and Empirical Insights
Journal Title: Journal of Engineering Management and Systems Engineering - Year 2024, Vol 3, Issue 4
Abstract
Manufacturers are increasingly leveraging both online and offline channels to diversify their sales strategies. However, competition between these channels presents challenges in maximising profits for all parties involved. This study investigates the use of cost-sharing contracts by manufacturers to promote marketing in both online and offline channels, with the goal of achieving Pareto improvements in supply chain profitability. The model also accounts for consumers’ reference quality perceptions in online channels, offering a comprehensive evaluation of how cost-sharing contracts influence the operational strategies and performance of both online and offline enterprises. An empirical analysis is conducted using the “US Stores Sales” dataset from Kaggle, comprising 4,249 samples with 20 recorded characteristics per sample. The findings indicate that: (1) Cost-sharing in marketing efforts facilitates a Pareto improvement in profits for manufacturers, online enterprises, and offline retailers, with manufacturers experiencing the most significant benefit. (2) When the manufacturer assumes a larger share of marketing costs for one channel (e.g., online or offline) and a smaller share for the other, the party receiving the higher cost-sharing proportion typically sees increased profitability, while the other party’s profitability may diminish. (3) Empirical analysis suggests that manufacturers should prioritise supporting online businesses’ marketing activities, as this strategy is more likely to result in higher overall profits for the manufacturer. (4) Interestingly, when equal cost-sharing proportions are offered to both online and offline enterprises for the sake of fairness, the manufacturer’s profitability is enhanced. Moreover, the profitability of online enterprises tends to increase when the equal cost-sharing proportion is smaller. These findings validate the proposed model and underscore the critical role of strategic cost-sharing contracts in optimising Online to Offline (O2O) supply chain performance. Further research could explore the implications of varying consumer preferences and digitalisation trends on the effectiveness of such strategies.
Authors and Affiliations
Fangfang Guo, Zeyi Yang, Wei Qin, Yuanyuan Wang, Siyi Chen
Keywords
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