optimality of network marketing integrated in a dual-channel distribution system

This paper provides a framework to study the integration of network marketing in a dual-channel distribution system. we develop an approach to optimize the main decision variables of this system simultaneously. these decision variables include the price paid by the customers of both channels, confidence level, the effort level of active distributors of network marketing, and wholesale price. although both channels compete with each other, it is vital to have a balanced pricing system to keep them motivated. however, the prices in network marketing and traditional retailer system are not necessarily equal due to the differences in their nature. furthermore, it is also required to develop an appropriate system of commissioning for the payoff of distributors at different levels of network marketing to keep them motivated. we also examine different scenarios of dual distribution systems, namely, centralized and decentralized operations of network marketing. furthermore, in case of decentralized system, we investigate revenue or profit sharing for all parties involved (manufacturer, retailer, and network marketing distributors). to illustrate the proposed approach, we present some numerical studies and investigate the impact of customer loyalty degree to retail channel on decisions.