Mail-in-Rebates vs. Combined Rebate Mechanism: Which of Them is More Effective for Supply Chain Coordination?

25 Pages Posted: 19 Feb 2008

See all articles by Vijayender Reddy Nalla

Vijayender Reddy Nalla

Nyenrode University

Venu Venugopal

Nyenrode University

Jack A.A. van der Veen

Nyenrode Business Universiteit

Date Written: February 2008

Abstract

This paper considers a business setting, where a Supplier sells a fashion product to a Buyer, who in turn sells the product to the end consumers. Both the Supplier and the Buyer set their own selling price. The end consumer demand is assumed to be a linearly decreasing function of the final selling price (retail price). First, this paper compares the performance of mail-in-rebate mechanism and the no-rebate scenario. This comparative analysis shows that whatever the rebate value is, the Buyer always benefits from the mail-in-rebate mechanism. The Supplier benefits from mail-in-rebate when the rebate value is set within a specific range. The rebate value that optimizes the Supply Chain does not provide any additional profit for the Supplier. Secondly, we design a new rebate mechanism known as the combined rebate mechanism (Buyer provides a rebate to the end consumer and the Supplier provides a wholesale price rebate to the Buyer) and compare its performance with that of the mail-in-rebate mechanism. The comparative analysis shows that the combined rebate mechanism can coordinate the Supply Chain by retaining the maximum Suppliers profit as in the mail-in-rebate mechanism and provides a higher profit for the Buyer when compared to the mail-in-rebate mechanism. Moreover, the combined rebate mechanism is easy to implement and less costly to administer. A final conclusion is that Consumers receive greater surplus with the combined rebate and demand a greater quantity.

Keywords: Coordination, win-win, Mail-in-rebates, Combined rebate mechanism

JEL Classification: R30

Suggested Citation

Nalla, Vijayender Reddy and Venugopal, Venu and van der Veen, Jack A.A., Mail-in-Rebates vs. Combined Rebate Mechanism: Which of Them is More Effective for Supply Chain Coordination? (February 2008). Available at SSRN: https://ssrn.com/abstract=1094725 or http://dx.doi.org/10.2139/ssrn.1094725

Vijayender Reddy Nalla (Contact Author)

Nyenrode University ( email )

3621 BG Breukelen
Netherlands

Venu Venugopal

Nyenrode University ( email )

3621 BG Breukelen
Netherlands

Jack A.A. Van der Veen

Nyenrode Business Universiteit ( email )

PO Box 130
3621 AC Breukelen
Netherlands

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