This paper considers the price conflict problem between the online channel of a food processing factory and the offline channel of the food retailers in food supply chains by analyzing the pricing decisions and coordination mechanisms between the food processing factory and food retailers under the influence of a food quality information service. First, the Stackelberg game method and the Bertrand game method are used to optimize the pricing decisions with the goal of maximizing the profits of the food processing factory and retailer. The analysis shows that the food quality information service level is positively correlated with the price of the factory’s own channel, and the influence of the food quality information service level on the price of the food processing factory’s or the food retailer’s own channel is stronger than its influence on the price of a competitor’s channel. Second, the food supply chain members’ pricing decisions are analyzed using the case analysis method by considering practical problems in the food supply chain. The results indicate that the food processing factory should use the Stackelberg game to make pricing decisions. However, it is optimal for the food retailer to make pricing decisions under the Bertrand game, and the total profit of the food supply chain is optimized under centralized decision making. Finally, we use both the quantitative discount mechanism and the Stackelberg game method to analyze the profits obtained by the food processing factory and retailer. The results indicate that the food processing factory should implement a quantitative discount mechanism when the quantity discount coefficient is greater than 0.4, and the retailer should implement a quantity discount mechanism when the quantity discount coefficient is in the range of 0.25 to 0.4.
The O2O mode refers to the combination of an online channel and an offline channel. A food quality information service is an important criterion in consumers’ channel selection and purchase decisions. In this article, a food quality information service is provided by members of a food supply chain to provide consumers information about food quality. Zeithaml [
A food supply chain is a network structure formed by upstream and downstream enterprises, and it includes the food production and circulation processes involved in the products or services provided to consumers. Nianyugou Wangu Processing Co., Ltd., is located in Zhaoyuan farms, Daqing city, province of Heilongjiang, China. It is a food processing factory that uses a JD e-commerce platform in its Nianyugou flagship store (online channel) to sell products; at the same time, it also uses offline physical stores (offline channel) to sell products. Its success stems from its business philosophy, which involves the provision of services to retailers and consumers through its online and offline channels. The company aggregates consumer information obtained from food retailers and strives to respond to changes in consumer demand.
The research for this article is based on the food processing factory and a food retailer that provide food to consumers through online and offline channels, respectively. However, there are many problems in the food supply chain. On the one hand, the food quality information service level affects consumers’ channel selection decision, and food retailers have a significant information advantage over the food processing factory in terms of food quality information. On the other hand, the food processing factory has a price advantage over the food retailers, resulting in price competition in the food supply chain. Therefore, this problem needs to be resolved to set reasonable sales prices and optimize and coordinate the profits in the food supply chain.
In recent years, food supply chains have experienced substantial changes [
Recent studies have focused on the quality, safety, and sustainability of food [
The factors affecting food quality information services—customer service level and satisfaction, safety, sustainability, and cost-efficiency—are the primary targets of an effective food supply chain [
Food service quality attributes, such as the wait time and the server’s attentiveness and helpfulness, account for 31.8% of customers’ satisfaction. Richard et al. investigated the importance of service quality in customers’ selection of food products [
In summary, the literature related to this research has primarily focused on the impact of factors such as food quality, food safety, and food quality information on consumers’ evaluations. However, with the development of e-commerce, food processing factories are providing consumers services through online channels, and food retailers are providing consumers services through offline channels, resulting in the online-to-offline (O2O) mode. The emergence of the O2O mode has brought the online and offline channels into competition. Therefore, the rational formulation of pricing decisions and coordination among the members of a food supply chain have become urgent problems. Based on the characteristics of a food supply chain, this paper considers a situation in which the online channel of a food processing factory cooperates with the offline channel of a food retailer to provide food quality information services.
Secondary food supply chains are based on the O2O mode. First, according to the demand function, this paper introduces the food quality information service level into the demand function, and based on transaction cost theory, the total profit function of the food processing factory, food retailer, and food supply chain is established. Second, we discuss the food supply chain’s pricing decision under centralized decision making and decentralized decision making, and we obtain the optimal prices for the online and offline channels and the optimal profits for the food processing factory and food retailer. Then, we discuss the relationship between the food quality information service level and prices and profits. With the goal of optimizing the profitability of the food supply chain, we can establish a mechanism to coordinate a food supply chain quantitative discount and ensure a profitable relationship for the food processing factory and the retailer. Finally, the validity of the theoretical assumptions is verified using numerical simulations, and the coordination efficiency of the food supply chain is evaluated.
Based on the supply chain management business philosophy of Nianyugou Wangu Processing Co., Ltd., this paper considers a situation in which the food processing factory is part of the food quality information services that a food retailer must review, and the food retailer receives the appropriate compensation, which is that the food processing factory cooperates with the food retailer in providing food quality information.
The food supply chain under the O2O mode consists of the online channel of the food processing factory and the offline channel of the food retailer. In a food supply chain dominated by a food processing factory, the food processing factory provides the food retailer with food at wholesale prices. Although the food processing factory sells its products through the food retailer’s offline channel, it also sells food directly through an online channel, resulting in price conflicts between the two channels, as shown in Figure
The structure of the food supply chain under the O2O mode.
To solve the problem of the price conflict and to increase the coordination between the food processing factory and food retailers in the food supply chain, this article relies on game theory and establishes a Stackelberg game model and a Bertrand game model to determine the optimal price and profit of the two channels given the constraints. Matlab software is used to visualize the relationship between the variables.
As shown in Figure
The roadmap of this paper.
Why did we choose these two models? When we conducted a survey among employees of Nianyugou Wangu Processing Co., Ltd., we found that the game relationship between the subjects involved in the food supply chain when making pricing decisions could be accurately reflected by the Bertrand and Stackelberg game models.
( where (
The wholesale price is determined by the market price.
The impact of channel prices on demand is greater than the effect of price differences between the two channels. The impact of the level of a channel’s food quality information service on demand is greater than the impact of the difference in the level of the food quality information service between the two channels.
Assuming that the food quality information service level is certain, the food retailers’ food quality information service costs are lower than the food processing factory’s costs; that is,
The food processing factory provides consumers with food quality information services through the online channel of its own network platform, while the food retailer provides consumers with food quality information services through the offline channel.
Referring to the demand function constructed by Yao et al. [
The profit function of the food processing factory, the food retailer, and the total food supply chain can be expressed as follows:
The Bertrand game model conditions apply. First, there is competition between enterprises, and at the same time, the enterprises make pricing decisions. In the market, no other enterprises have entered the competition. The Bertrand game occurs without the enterprises knowing the decision behaviors of the other players, and all of the parties set their own prices to maximize profits.
The food processing factory and the retailer are of similar strength, and the parties use the decentralized decision making of the Bertrand game to maximize their own profits as the goal. The approach to solving the model is consistent with the literature [
Referring to (
Under decentralized decision making in the food supply chain, one can solve the optimal food sales prices in the online channel and the offline channel according to the Bertrand game method. Thus, the optimal food sales prices in the online channel and the offline channel are as follows in (
Let
Let
We can obtain
Furthermore, substituting (
In the food supply chain under the O2O mode, the price is positively correlated with the food quality information service level of the channel.
In the food supply chain under the O2O mode, the food quality information service level at one channel’s price is greater than that of another channel.
From the above theoretical derivation, we conclude by theoretical analysis that, in the food supply chain under the Bertrand game, the price is positively correlated with the food quality information service level of the food processing factory’s or the food retailer’s own channel. When the food quality information service level provided by the food retailer is certain, the price in the online channel is higher than that in the offline channel when the food quality information service level is provided by the food processing factory. In contrast, when the food quality information service level provided by the food processing factory is certain, the price in the offline channel is higher than that in the online channel when the food quality information service level is provided by the food retailer. The specific conclusions are verified by the following numerical simulation.
In the Stackelberg game model for a leader and a follower, the food supply chain in the O2O mode is shown in Figure
Referring to (
The food supply chain is shown in Figure
The reverse induction method is used to solve the model. Based on the sales price in the online channel, the food retailer determines the price in the offline channel to maximize its own profit. Based on the price in the offline channel, the food processing factory sets the price in the online channel to maximize its own profit.
Let
The Stackelberg game method is used to solve the optimal food sales price in the online and offline channels. According to the demand function, we obtain the demand and the optimal wholesale price.
Furthermore, we derive the optimal profit of the food processing factory, food retailer, and food supply chain under the Stackelberg game as follows:
According to the food supply chain under the O2O mode, the price is positively correlated with the food quality information service level of the food processing factory’s or the food retailer’s channel.
According to the food supply chain under the O2O mode, the food quality information service level at one channel’s price is greater than that of another channel.
We conclude through theoretical analysis that in the food supply chain under the Stackelberg game, the price is positively correlated with the food quality information service level of the food processing factory’s or the food retailer’s own channel. Therefore, the food processing factory and food retailer should reasonably optimize the network layout of the offline channel and continuously improve the food quality information service level, which involves optimizing the functions of different types of offline channels and improving the control level of the food quality information.
The food supply chain under centralized pricing decisions (that is, the food processing factory and the retailer) aims to maximize the total supply of the food supply chain.
Referring to (
Let
Under centralized decision making in the food supply chain, the food supply chain’s profit can be maximized. In this case, the pricing decision is the global optimum. Thus, the optimal food sales price in the online channel and offline channel are
Furthermore, we derive the optimal profits of the food processing factory, retailer, and the total food supply chain under centralized decision making:
Based on the food supply chain under the O2O mode, the price is positively correlated with the food quality information service level of the food processing factory’s or the food retailer’s channel.
With the food supply chain under the O2O mode, the food quality information service level at the food processing factory’s or the food retailer’s own channel price is greater than that of another channel.
We conclude through theoretical analysis that in the food supply chain under centralized decision making, the price is positively correlated with the food quality information service level of the food processing factory’s or the food retailer’s own channel.
The conclusions can be summarized as follows. Under centralized and decentralized decision making, the online channel price of the food processing factory is positively correlated with the food quality information service level of its own channel, and the same is true for the food retailer. The results show that as the food processing factory improves the level of its food quality information service, the costs of that service will increase. Thus, the food processing factory will need to increase the sales price to compensate for the service cost, whereas the food retailer can take the opportunity to increase its price.
The food quality information service level of the food processing factory has a greater impact on the price in its own channel than on the price in the food retailer’s offline channel. The same is true for the food retailer. The results show that when the level of the offline channel’s food quality information service is reduced, the price in the online channel decreases. The food retailer adopts the decision to reduce the price. However, when the retailer improves the food quality information service level, the price in the offline channel increases. The food processing factory adopts the decision to increase the price.
To study a food supply chain that is in effective and continuous operation with high efficiency (reasonable cost), high credit, and high quality, we choose a supply chain with the following attributes. First, based on the previously discussed conclusions, we study a food processing factory that sets its wholesale prices based on the number of wholesale products for food retailers [
We can establish the quantity discount mechanism of the food supply chain as follows:
Let
We obtain the reaction function of the food retailer as
Then, by substituting
The food processing factory optimizes the profits of the food supply chain based on the response of the food retailer.
We obtain the optimal wholesale price:
At this time,
The food supply chain is shown in Figure
Nianyugou Wangu Processing Co., Ltd., uses its own retail channel and brand, and its downstream retailer provides a variety of support services. With this system, the relationships between the supply chain partners are more stable, and a win-win effect is achieved. Therefore, we combined the success stories involving Nianyugou Wangu Processing Co., Ltd., and we make recommendations for food processing factory management.
For the parameter selection, we draw on the literature, such as Garnett et al. and Bin et al., and we analyze the actual food supply chain situation, the basic parameter values of which are given as follows:
With the above theoretical deduction formula, we analyze the impact of the food quality information service level on the food processing factory’s and retailer’s pricing decisions under a different decision regime.
According to (
The impact of the level of the online channel’s food quality information service on price.
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
---|---|---|---|---|---|---|---|---|---|---|---|
| 28.2 | 30.26 | 36.06 | 45.6 | 58.89 | 75.91 | 96.69 | 121.2 | 149.5 | 181.5 | 217.2 |
| 49.2 | 50.01 | 52.54 | 56.79 | 62.74 | 70.41 | 79.8 | 90.9 | 103.7 | 118.2 | 134.5 |
| 28.38 | 31.34 | 39.59 | 53.13 | 71.97 | 96.1 | 125.5 | 160.3 | 200.3 | 245.6 | 296.2 |
| 50.26 | 50.6 | 51.69 | 53.53 | 56.13 | 59.49 | 63.6 | 68.46 | 74.08 | 80.46 | 87.59 |
| 29.19 | 29.94 | 31.69 | 34.44 | 38.19 | 42.94 | 48.69 | 55.44 | 63.19 | 71.94 | 81.69 |
| 31.06 | 31.81 | 33.56 | 36.31 | 40.06 | 44.81 | 50.56 | 57.31 | 65.06 | 73.81 | 87.59 |
The impact of the level of the online channel’s food quality information service on price.
As shown in Figure
According to (
The impact of the level of the offline channel’s food quality information service on price.
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 93.86 | 93.9 | 94.1 | 94.5 | 95.06 | 95.79 | 96.69 | 97.76 | 99 | 100.4 | 102 | 103.8 | 106.1 | 107.8 | 110.1 | 112.5 |
| 55.2 | 55.96 | 57.74 | 60.56 | 64.4 | 69.27 | 75.17 | 82.1 | 90.06 | 99.04 | 109.1 | 120.1 | 132.2 | 145.3 | 159.4 | 174.6 |
| 122.6 | 122.7 | 122.9 | 123.3 | 123.9 | 124.6 | 125.5 | 126.6 | 127.9 | 129.4 | 131 | 132.8 | 134.8 | 137 | 139.3 | 141.8 |
| 50.26 | 50.6 | 51.69 | 53.53 | 56.13 | 59.49 | 63.6 | 68.46 | 74.08 | 80.46 | 87.59 | 95.47 | 104.1 | 113.5 | 123.7 | 134.6 |
| 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 | 48.69 |
| 31.06 | 31.81 | 33.56 | 36.31 | 40.06 | 44.81 | 50.56 | 57.31 | 65.06 | 73.81 | 83.56 | 94.31 | 106.1 | 118.8 | 132.6 | 147.3 |
The impact of the level of the offline channel’s food quality information service on price.
As shown in Figure
Therefore, if the food processing factory and retailer want to increase their profits, they should continuously improve their level of food quality information service. At the same time, service regulations for food quality information should be adopted. On the one hand, the food retailer should improve the filter level for the food processing factory, including both food quality information and food production information. Through the constraints of the service contract, the level of the food quality information services can be improved. On the other hand, the food processing factory should strengthen its food quality information timeliness, and through its contractual relations, the fairness and validity of the contract under the Bertrand game pricing decision in the food supply chain will improve.
According to (
The impact of the level of the online channel’s food quality information service on the food processing factory’s profit.
| 0 | 0.8 | 1.6 | 2.4 | 3.2 | 4 | 4.8 | 5.6 | 6.4 | 7.2 | 8 | 8.8 | 9.6 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1802 | 1562 | 958 | 218.7 | | 13.28 | 1766 | 5823 | 14000 | 25000 | 42000 | 67000 | 100000 |
| 4279 | 3986 | 3161 | 1978 | 735.6 | | | 1541 | 5583 | 13000 | 25000 | 42000 | 60000 |
| 3851 | 3543 | 2545 | 971.9 | | | | | | | 2265 | 11000 | 24000 |
The relationship between the level of the online channel’s food quality information service and the food processing factory’s profit.
As seen from the inflection point in Figure
According to (
The relationship between the level of the online channel’s food quality information service and the food retailer’s profit.
As shown in Figure
According to (
The relationship between the level of the online channel’s food quality information service and the profit of the food supply chain.
As shown in Figure
In summary, when the food quality information service is provided by the online channel, the online channel’s food quality information service level is positively related to the profits of the food processing factory and negatively related to those of the food retailer. At this point, the total profit of the food supply chain also decreases. As a result, the food processing factory chooses the Stackelberg game to make pricing decisions, so the food retailer should choose to make a centralized pricing decision. In other words, the online channel’s food quality information service level only brings its profits, and for the retailer and the food supply chain, it is not the best decision.
Therefore, if the food processing factory wants to increase its profits, it should continuously improve the level of the food quality information service provided by the online channel. There are many shortcomings in the food quality information services provided by online channels, such as business fraud related to product information (quality), fictional product sizes, the uploading of fake photos, and other types of poor quality food information provided to consumers.
Therefore, to improve the online channel’s food quality information service level in terms of technical aspects, the information in the online channel should be quantified through graded information, and data sharing with food regulatory authorities should occur to provide consumers with adequate information. Regarding delivery, the online channel improves the logistical speed and enhances consumer confidence. In terms of business strategies, we recommend providing additional information in the online food categories, such as increasing the product information for imported food products, differentiating online products from those in the offline channel, and fully discussing the online channel advantages. To improve the online food traceability system, food production and “one-vote pass” distribution should be used to make the source of food quality information traceable, to ensure that quality and safety are controllable and to improve the transparency of food quality information services and thereby increase consumer confidence.
According to (
The relationship between the level of the offline channel’s food quality information service and the food processing factory’s profit.
In Figure
According to (
The relationship between the level of the offline channel’s food quality information service and the food retailer’s profit.
From Figure
Based on (
The relationship between the level of the offline channel’s food quality information service and the total profit of the food supply chain.
As shown in Figure
Overall, when the food quality information service is provided by the offline channel, the profitability of the entire supply chain is optimal. It is optimal when the food processing factory chooses decentralized decision making and when the food retailer chooses centralized decision making. As a result, the food retailer using the offline channel to improve the food quality information services is the best decision for the entire food supply chain.
Therefore, to achieve an optimal food supply chain overall, the level of the food quality information service of the offline channel should be improved. Considering marketing strategies, the offline channel should take advantage of the nature of offline retail to meet customers’ needs. For example, after the first purchase, it could improve customer experience and ensure food quality. Through the news media, it could use APP and other channels to deliver food quality information. A combination of online and offline information sources could also be used to increase the technical input and design a food quality information traceability system based on Android and QR codes to improve information sharing. At the staff level, employees should be trained in providing food quality information to enhance their understanding and to ensure accuracy and professionalism when providing such information, thus enhancing service awareness and the staff’s professional ethics.
We consider the operational decisions of Nianyugou Wangu Processing Co., Ltd., which provides food retailers with a variety of discounts. The food processing factory offers returns to food retailers in the form of lower prices, which are conducive to stabilizing the partnership with downstream members of the supply chain. However, a portion of the profits of Nianyugou Wangu Processing Co., Ltd., comes from the services that it offers to retailers, which in turn enhance the profits of the food supply chain. Therefore, by examining the successful experience of Nianyugou Wangu Processing Co., Ltd., we analyze the impact of quantitative discount mechanisms on food retailers and the food processing factory using numerical examples. Then, we optimize the effective range of the quantity discount factor.
In the food supply chain under the O2O mode, the basic parameter values are as follows:
We can compare the changes in profit for the food processing factory and food retailers before and after coordination.
Using (
The prices in the online and offline channels under the Stackelberg game are
Using (
The prices in the online and the offline channels under the quantity discount mechanism are
Using (
The prices in the online and offline channels under the Stackelberg game are
Using (
The prices in the online and offline channels under the quantity discount mechanism are
Based on the above results, the relationship between the profit and quantity discount coefficients before and after coordination between the food processing factory and the retailers under the Stackelberg game and the quantitative discount mechanism is shown in Figure
The relationship between profit and the quantity discount coefficients of the food retailer and the processor before and after coordination.
In Figure
This paper analyzes the pricing coordination decisions of a food processing factory and a food retailer in a food supply chain based on the O2O mode. We also discuss the impacts of the food quality information service level on prices and profits in the food supply chain. The following conclusions are drawn based on a numerical simulation analysis.
First, we have comprehensively analyzed the impact of food quality information services on price. We observe that there is an optimal price for the food processing factory under the Stackelberg game. When the level of the offline channel’s food quality information service is certain, the food quality information service level provided by the online channel is higher than the critical value. At the same time, there is an optimal price in the offline channel under the Bertrand game when the food quality information service level provided by the online channel is less than the critical value. Therefore, the food processing factory should make its price decision by adopting the Stackelberg game method, and the food retailer should make its price decision by adopting the Bertrand game method. Therefore, if the food processing factory and the retailer want to increase their profits, they should continuously improve the level of their food quality information services.
Second, we comprehensively analyze the impact of food quality information services on profits. We conclude that the food processing factory and the retailer should use centralized pricing decision making when the level of the online channel’s food quality information service is certain and the level of the food quality information service provided by the offline channel is lower than the critical value. At the same time, the food processing factory and retailer should adopt the Bertrand game method and the Stackelberg game method, respectively, when the food quality information service level provided by the offline channel is higher than the critical value. Therefore, the online and the offline channels should improve the food quality information service level in terms of technology, distribution, and business strategies. Further, the reliability of information services, warehousing, and logistics is one advantage of the offline channel, but these features are often inadequate for online channels. However, efficiency, informatization, and systematization are the strengths of online channels. Hence, the two channels can strengthen their cooperation to improve the food industry.
Third, the food processing factory’s profit increases when the quantity of discount factors increases under the quantity discount mechanism when
In summary, food processing factories should reduce their food quality information service costs and cooperate with food retailers with low service costs. At the same time, food processing factories should also improve the level of their food quality information services and competitiveness and thereby provide reasonable prices and food quality information services for consumers. The members of a food supply chain must consider competitors after coordinating with the other members and then make optimal competitive decisions. The competition between several food retailers and a food processing factory will be considered in future research.
The authors declare that they have no conflicts of interest.
This research is supported by the National Social Science Foundation of China (17BJY118).