Optimal inventory and dynamic admission policies for a retailer of seasonal products with affiliate programs and drop‐shipping |
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Authors: | Yongbo Xiao Frank Y. Chen Jian Chen |
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Affiliation: | 1. Research Center for Contemporary Management, Key Research Institute of Humanities and Social Sciences at Universities, School of Economics and Management, Tsinghua University, Beijing 100084, China;2. Department of SE & EM, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong |
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Abstract: | This article investigates the optimal inventory and admission policies for a “Clicks‐and‐Bricks” retailer of seasonal products that, in addition to selling through its own physical and online stores, also sells through third‐party websites by means of affiliate programs. Through postings on partners' webpages, an affiliate program allows a retailer to attract customers who would otherwise be missed. However, this retailer needs to pay a commission for each sale that originates from the website operators participating in the program. The retailer may also refer online orders to other sources (such as distributors and manufacturers) for fulfillment through a drop‐shipping agreement and thus earns commissions. This would be an option when, for example, the inventories at the physical stores were running low. Therefore, during the selling horizon, the retailer needs to dynamically control the opening/closing of affiliate programs and decide on the fulfillment option for online orders. On the basis of a discrete‐time dynamic programming model, the optimal admission policy of the retailer is investigated in this paper, and the structural properties of the revenue function are characterized. Numerical examples are given to show the revenue impact of optimal admission control. The optimal initial stocking decisions at the physical stores are also studied. © 2009 Wiley Periodicals, Inc. Naval Research Logistics 2009 |
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Keywords: | electronic retailing admission control affiliate program drop‐shipping revenue management |
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