Using MSRP to enhance the ability of rebates to control distribution channels |
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Authors: | Shilei Yang Charles L. Munson Bintong Chen |
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Affiliation: | 1. School of Business Administration, Southwestern University of Finance and Economics, Chengdu, Sichuan 610074, PR China;2. College of Business, Box 644736, Washington State University, Pullman, WA 99164-4736, United States;3. Department of Civil and Environmental Engineering, University of Delaware, Newark, DE 19716, United States |
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Abstract: | Manufacturers have increasingly instituted widespread mail-in rebate programs in recent years. Two primary purposes for rebates are to: (1) more directly impact consumer demand by reducing net retail price, and (2) capitalize on consumers’ slippage behavior because not all consumers who intend to redeem the rebate at purchase time end up actually redeeming it. However, retailers can counteract the power of rebates to impact demand by simply raising the retail price by the amount of the manufacturer’s rebate. We show that by combining a manufacturer’s suggested retail price (MSRP) along with a rebate, the manufacturer can better control the channel by inhibiting the retailer’s ability to raise price, particularly when consumers exhibit loss aversion. As a result, incorporating MSRP with a rebate promotion plan increases the manufacturer’s profit. More surprisingly, the profit of the supply chain as a whole also increases, and the channel efficiency increases as well. In fact, contrary to results from the existing rebate literature suggesting that rebates should always be offered whenever slippage exists, we demonstrate that MSRP can actually be a more effective tool than rebates in managing retailer and consumer behavior when consumers do not have sufficient loss aversion and the slippage rate is low enough. |
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Keywords: | Supply chain management Marketing Rebates MSRP Channel control |
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