The high popularity and profitability of gift cards encourage many sellers to use them to sell their goods. Retailers have also been encouraged to use independent third parties to sell their gift cards for increasing their sales channel and taking advantage of it. This paper develops a two-echelon supply chain for gift card incentive policy, with a third party and retailer at the first level and a supplier at the second one. The most important research questions are as follows: order amount of chain members to maximize their own and the whole chain profit, gift card prices by the retailer to its customers, gift card prices by the retailer to third party, and gift card prices by the third party to customers. Stackelberg's approach is used to solve the model, assuming that the third party is the follower and the retailer is the leader. In addition, by proving the concavity of the objective function, obtaining the closed-form solution for variables, and proving the resulting solutions, an algorithm has been developed to achieve the optimal answer. Findings showed that the use of cards in the case of economic order models increases the demand for retail and on the other hand attracts more customers and better brand expansion. A numerical example as well as a sensitivity analysis are performed to describe the model. Finally, conclusions as well as suggestions for future research are provided.
[1] Horne, D. R. (2007). Gift cards: Disclosure one step removed. Journal of consumer affairs, 41(2), 341-350.
[2] Thomas, L. M., & Dillenbeck, M. S. (2004). Best used by expiration date. Marketing Management, 13(1), 53-55.
[3] Khouja, M., Park, S., & Zhou, J. (2013). A free gift card alternative to price discounts in the newsvendor problem. Omega, 41(4), 665-678.
[4] Cachon, G. P., & Swinney, R. (2009). Purchasing, pricing, and quick response in the presence of strategic consumers. Management Science, 55(3), 497-511.
[5] Cao, K., Han, G., Xu, B. and Wang, J. (2020). Card payment or cash payment: Which payment is suitable for trade-in rebate?. Transportation Research Part E: Logistics and Transportation Review, 134, p.101857.
[6] Zhang, Q., Zhang, D., Segerstedt, A., & Luo, J. (2018). Optimal ordering and pricing decisions for a company issuing product-specific gift cards. Omega, 74, 92-102.
[7] Norvell, T. and Horky, A., 2017. Gift card program incrementality and cannibalization: The effect on revenue and profit. Journal of retailing and consumer services, 39, pp.250-257.
[8] Park, Y. and Yi, Y., 2021. Is a gift on sale “heart-discounted”? Givers’ misprediction on the value of discounted gifts and the influence of service robots. Journal of Retailing and Consumer Services, p.102489.
[9] Khouja, M., Pan, J., & Zhou, J. (2016). Effects of gift cards on optimal order and discount of seasonal products. European Journal of Operational Research, 248(1), 159-173.
[10] Khouja, M., & Zhou, J. (2015). Channel and pricing decisions in a supply chain with advance selling of gift cards. European Journal of Operational Research, 244(2), 471-489.
[11] Cao, K., Han, G., Xu, B., & Wang, J. (2020). Gift card payment or cash payment: Which payment is suitable for trade-in rebate?. Transportation Research Part E: Logistics and Transportation Review, 134, 101857.
[12] Li, Y., Pan, J., & Zhou, J. (2022). Optimal pricing with free gift cards in a two-product supply chain. Flexible Services and Manufacturing Journal, 34(1), 125-155.
[13] Li, Y., Pan, J., & Tang, X. (2021). Optimal strategy and cost sharing of free gift cards in a retailer power supply chain. International Transactions in Operational Research, 28(2), 1018-1045.
[14] Lashgari, M., Sadjadi, S. J., & Taleizadeh, A. A. (2022). Ordering and pricing decisions of regular products in a supply chain with the effects of product-specific gift cards. Sādhanā, 47(2), 1-19.
[15] Huang, W., & Swaminathan, J. M. (2009). Introduction of a second channel: Implications for pricing and profits. European Journal of Operational Research, 194(1), 258-279.
[16] He, Y., Song, , & Zhang, P. (2013). Optimal selling strategy in dual-channel supply chains. In LISS 2012 (pp. 247–252). Berlin/Heidelberg: Springer.
[17] Dumrongsiri, A., Fan, M., Jain, A., & Moinzadeh, K. (2008). A supply chain model with direct and retail channels. European Journal of Operational Research, 187(3), 691– 718.
[18] Yu, Y., Sun, L. and Guo, X., 2020. Dual-channel decision in a shopping complex when considering consumer channel preference. Journal of the Operational Research Society, 71(10), pp.1638-1656.
[19] Fassnacht, M. and Unterhuber, S., 2016. Consumer response to online/offline price differentiation. Journal of Retailing and Consumer Services, 28, pp.137-148.
[20] Tsao, Y. C., & Su, P. Y. (2012). A dual-channel supply chain model under price and warranty competition. International Journal of Innovative Computing, Information and Control, 8(3), 2125–2135.
[21] Chiang, W. Y. K., Chhajed, D., & Hess, J. D. (2003). Direct marketing, indirect profits: A strategic analysis of dual-channel supply-chain design. Management Science, 49(1), 1–20.
[22] Batarfi, R., Jaber, M.Y. and Glock, C.H., 2019. Pricing and inventory decisions in a dual-channel supply chain with learning and forgetting. Computers & Industrial Engineering, 136, pp.397-420.
[23] Ghosh, S.K., Seikh, M.R. and Chakrabortty, M., 2020. Analyzing a stochastic dual-channel supply chain under consumers’ low carbon preferences and cap-and-trade regulation. Computers & Industrial Engineering, 149, p.106765.
[24] Panda, S., Modak, N. M., Sana, S. S., & Basu, M. (2015). Pricing and replenishment policies in dual-channel supply chain under continuous unit cost decrease. Applied Mathematics and Computation, 256, 913-929.
Lashgari, M., Sadjadi, S. J., & Heydari, M. (2023). Gift Card Pricing through its Pre-sales and Ordering Decisions in a Two-echelon Supply Chain with a Separate Sales Channel and Price-sensitive Demand. Advances in Industrial Engineering, 57(1), 35-73. doi: 10.22059/aie.2022.342830.1837
MLA
Mohsen Lashgari; Seyed Jafar Sadjadi; Mahdi Heydari. "Gift Card Pricing through its Pre-sales and Ordering Decisions in a Two-echelon Supply Chain with a Separate Sales Channel and Price-sensitive Demand", Advances in Industrial Engineering, 57, 1, 2023, 35-73. doi: 10.22059/aie.2022.342830.1837
HARVARD
Lashgari, M., Sadjadi, S. J., Heydari, M. (2023). 'Gift Card Pricing through its Pre-sales and Ordering Decisions in a Two-echelon Supply Chain with a Separate Sales Channel and Price-sensitive Demand', Advances in Industrial Engineering, 57(1), pp. 35-73. doi: 10.22059/aie.2022.342830.1837
VANCOUVER
Lashgari, M., Sadjadi, S. J., Heydari, M. Gift Card Pricing through its Pre-sales and Ordering Decisions in a Two-echelon Supply Chain with a Separate Sales Channel and Price-sensitive Demand. Advances in Industrial Engineering, 2023; 57(1): 35-73. doi: 10.22059/aie.2022.342830.1837
)