Customer Segmentation, Pricing, and Lead Time Decisions : A Stochastic-User-Equilibrium Perspective

We study a two-echelon supply chain network consisting of manufacturers and retailers facing customers that differ in their price- and time-sensitivity. We examine how many price/lead time options should be provided by manufacturers and retailers under decentralized and centralized supply chain management with time-cost tradeoffs. We adopt a stochastic-user-equilibrium (SUE) approach in a supply chain network by incorporating discrete choice theory and using a multinomial logit-based variational inequality to express equilibrium conditions. A critical part of our analysis is the establishment of concavity of profit functions, which allows for analytical derivation of the equilibrium strategies. We demonstrate that the variance of heterogeneous customers’ time-sensitivity distribution plays a crucial role in customer segmentations in a time-cost tradeoff supply chain. We find that under SUE conditions, there exists a unique equilibrium in the centralized and decentralized supply chain network, respectively. Compared with user-equilibrium (UE) conditions, retailers participating in the supply chain that is dominant/subservient in the supply chain competition give higher/lower equilibrium prices under SUE conditions. Firms participating in the supply chain that is dominant/subservient in the supply chain competition provide longer/shorter equilibrium lead-times under SUE conditions and then in turn gain higher benefits