Efficacy of retailer rebates and delayed incentives under customer heterogeneity

¹ University of Technology and Applied Sciences Sur Sultanate of Oman
² Institute of Business and Management, University of Engineering and Technology Lahore Pakistan
³ Department of Operations Research and Logistics Management, School of Management, Huazhong University of Science and Technology Wuhan P.R. China

*Corresponding author: nasir.malik@uet.edu.pk

Received: 5 August 2020
Accepted: 24 April 2021

Abstract

In automobile and household appliances, the manufacturer’s decision to offer retailer rebates to retailers or delayed incentives directly to end customers is very important. Under game theoretic environment, we show that delayed incentive is an important tool not only for price discrimination but it also provides more flexibility to the manufacturer. We differentiate the impact of delayed incentives and retailer rebates. We draw implications for optimal rebate strategies for both retailer rebates and delayed incentives. We also discuss delayed incentives in the form coupons that give more control to the manufacturer, whereas retailer rebates require retailer’s participation. Analysis and numerical insights show that the manufacturer prefers better observance of retail price. We provide a decision rule to the manufacturer on how to select the rebate type based on customer heterogeneity.