Business: Operations & Decision Sciences (ODS) Area
Selecting distribution channels strategies for nonprofit organizations (ABSTRACT)
Zhao, X., A.R. Niu, and I. Castillo
published: 2010 | Research publication | Refereed Journals - ODS
Zhao, X., A.R. Niu, and I. Castillo (2010). "A nonlinear optimization approach for solving the dashboard planning problem", European Journal of Marketing, 44(7/8):972-996.
ABSTRACT: Because of declining government/donor support, among other pressures, many nonprofit organizations have turned (and are turning) to commercial activities to increase revenues; thus, they face competition with for-profit channels. By selling products or services related to its institutional mission using a particular distribution channel strategy, a nonprofit organization might reach more people, including those it might otherwise never reach. Two channel strategies are generally considered: 1) an integrated channel where the nonprofit organization sells its products or services using its own selling departments or branches; and 2) a decentralized channel where the nonprofit organization sells through a for-profit retailer. Our fundamental question is: how should a nonprofit organization select its distribution channel strategy under certain market conditions? We find that selecting a decentralized channel strategy results in an optimal retail price that is higher than that under an integrated channel strategy, which results in lower customer welfare under the decentralized channel. We also find that a decentralized channel behaves as an integrated fully for-profit channel. Thus, whether a nonprofit organization should choose an integrated or a decentralized channel when facing competition from an integrated or a decentralized fully for-profit channel depends on its cost structure and the level of substitutability of the products or services offered by the two channels. When competing with an integrated fully for-profit channel, the nonprofit organization is better off using an integrated channel under strong competition or a decentralized channel under weak competition. When competing with a decentralized fully for-profit channel, the selection is more complicated. We find that a decentralized channel is the best choice if the price competition factor, which threshold value depends on the cost structure, is large. Finally, we investigate the pricing strategy and market coverage of the nonprofit organization when using a dual channel strategy.
revised Jul 3/10