How does the added new online channel impact the supporting advertising expenditure?

This research addresses the strategic effect of a newly added online channel on a manufacturers supportive advertising expenditure once a manufacturer opts to open an online channel to compete with its retailer. We first study the manufacturer-traditional retailer supply chain and consider three different scenarios: (1) product is less compatible with the online channel than with the traditional channel; (2) product is more compatible with the online channel than with the traditional channel; (3) product has the same compatibility with the online channel as with the traditional channel. Our results show that the added online channel significantly impacts the manufacturer's investment in supportive advertising. Depending on the different product categories, the impact of the newly added online channel on the supportive advertising expenditure also will be different. Furthermore, we extend our model to study the manufacturer-online retailer supply chain and investigate the effect of that added online channel on the manufacturer's supportive advertising to the online retailer. Based on our results, the manufacturer can utilize our findings to improve its decision-making when it plans to open an online channel to improve its product distribution. (C) 2014 Elsevier Ltd. All rights reserved.