Advertising decisions of new and remanufactured products under direct sales model

There are manufacturer, remanufacturer and advertising agency in the study. The first manufacturer is a traditional manufacturer that produces new product, while the second one operates a reverse channel producing remanufactured products from used cores. Both manufacturers bundle their products with advertisement and outsource advertising services to agents. The agents independently determine the advertising levels and take the advertising prices from manufacturers. The purpose of this paper is to study the advertising decisions of new and remanufactured products under direct-sales model.

In this study, it is assumed that the remanufacturer invests extra effort in facilitating the remanufacturing process. First, the authors establish a noncooperative Stackelberg model, where the manufacturers are the leaders and the agents are the followers. And the authors solve the equilibrium strategies backward in this two-stage model. Second, the authors observe the equilibrium characteristics with respect to the advertising price and level decisions for all members in the supply chain. The third, the authors also investigate the competition between two products and the profits of chain members. Based on the theoretical and numerical analysis, the authors derive economic and managerial insights for chain members.

The analysis generates the following insights. First, advertising prices and levels decrease with the increase of ultimate cost of advertising and product unit cost. Second, with greater cost-savings, remanufactured products have advantages over new products in advertising price, level and market demand. Third, when advertising elasticity is greater, remanufactured products are superior to new products in demand, advertising price and level, and remanufactured products become more competent than new products. Manufacturers and agents would like to choose the products with high advertising elasticity for remanufacturing or advertising, respectively, to pursue their maximum profits.

The contribution is constructive as no prior research has abstracted advertising service and regarded agents as chain members in a closed-loop supply chain (CLSC) with remanufacturing. Besides, the results also provide guidelines for choosing marketing strategies for advertising price and level decisions under CLSC condition.