The impact of manufacturer rebates on supply chain profits

Xin Chen, Chung Lun Li, Byong Duk Rhee, David Simchi-Levi

Research output: Contribution to journalArticle

Abstract

Manufacturer rebates are commonly used as price discount tools for attracting end customers. In this study, we consider a two-stage supply chain with a manufacturer and a retailer, where a single seasonal product faces uncertain and price-sensitive demand. We characterize the impact of a manufacturer rebate on the expected profits of both the manufacturer and the retailer. We show that unless all of the customers claim the rebate, the rebate always benefits the manufacturer. Our results thus imply that "mail-in rebates," where some customers end up not claiming the rebate, particularly when the size of the rebate is relatively small, always benefit the manufacturer. On the other hand, an "instant rebate," such as the one offered in the automotive industry where every customer redeems the rebate on the spot when he/she purchases a car, does not necessarily benefit the manufacturer.

Original languageEnglish (US)
Pages (from-to)667-680
Number of pages14
JournalNaval Research Logistics
Volume54
Issue number6
DOIs
StatePublished - Sep 1 2007

Keywords

  • Newsvendor problem
  • Pricing
  • Rebates
  • Supply chain management

ASJC Scopus subject areas

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

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