Revenue sharing or not? Coordination of the buy‐online‐and‐pickup‐in‐store supply chain

Abstract While there is much research on coordinating the dual‐channel supply chain using the revenue‐sharing contract, it is unclear if there is a better mechanism design in the buy‐online‐and‐pickup‐in‐store (BOPS) mode. In this channel integration environment, the customer service provided by the bricks‐and‐mortar store is critical to the chain's success. Based on a stackable game model, we analyze the contract methods for the cases of revenue sharing and no revenue sharing, where the latter is classified into two types: All the credit goes to the offline or online channel. Focusing on improving consumer service and supply chain performance in the BOPS mode, we observe that revenue sharing is not necessarily the best contract type, while the non‐revenue‐sharing contract of a lump‐sum subsidy plus quantity discount can coordinate the supply chain. We also analyze the impacts of some endogenous parameters and derive the conditions for the equilibrium outcomes. We find that revenue sharing cannot effectively stimulate the offline channel to improve its service effort as the offline channel is more concerned about service cost sharing than revenue sharing. The results are similar to those of revenue allocation to the online or offline channel in the BOPS mode, but the conditions are slightly different. Conducting numerical studies to gain insights from the analytical findings, we find that the subsidy contract is better than the revenue‐sharing approach under various market conditions.