Online Rebate Strategy for a Dual‐Channel Supply Chain

ABSTRACT

As online shopping channels become ubiquitous, consumers are faced with a vast number of digital purchasing options. To attract more consumers, many e‐shops utilize cashback websites (CWs) to provide online rebates. This study examines a dual‐channel supply chain, in which the manufacturer sells products through both its own online store and a downstream e‐tailer. Both the manufacturer and the e‐tailer need to decide whether to offer rebates via CW. We explore the rebate strategy of the two firms as well as its impacts on prices, profit, supply chain, and consumers. Our results show that (i) low‐end consumers' valuation plays a significant role on the equilibrium rebate strategy, and interestingly, a scenario where solely the manufacturer provides rebates never emerges in equilibrium. (ii) An intriguing asymmetry emerges: while manufacturer rebates invariably advantage the e‐tailer, e‐tailer rebates may benefit/hurt the manufacturer. (iii) As the valuation of low‐end consumers increases, the equilibrium rebate strategy initially enhances supply chain performance, then diminishes it, and ultimately has no effect. (iv) Low‐end consumers benefit from both manufacturer rebates and e‐tailer rebates when their valuation is at a medium level. In contrast, high‐end consumers incur losses under manufacturer rebates, while e‐tailer rebates may either benefit or disadvantage them. In addition, we extend the model to several alternative scenarios, such as simultaneous pricing, temporary rebates, product returns, and coordinated rebates.