American Journal of Industrial and Business Management, 2013, 3, 435-443
http://dx.doi.org/10.4236/ajibm.2013.34050 Published Online August 2013 (http://www.scirp.org/journal/ajibm)
435
Brand Franchise Supply Chain Partnership Based on
Online and Offline Integrating Strategy
Rong Wang
Antai College of Economics & Management, Shanghai Jiao Tong University, Shanghai, China.
Received June 23rd, 2013; revised July 20th, 2013; accepted July 27th, 2013
Copyright © 2013 Rong Wang. This is an open access article distributed under the Creative Commons Attribution License, which
permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
ABSTRACT
Taking advantage of online shopping affecting major parameters of corporate business including customer experience,
customer word-of-mouth diffusion and customer complaints sharing, price elastic of consumer demand, and consumer
brand loyalty, this paper focuses on the role of brand franchise supply chain partnership in the online and offline inte-
grating environment. The findings suggest that the transfer payment shall be the critical contract clause to coordinate
the brand franchise supply chain partnership to implement Pareto optimal strategy on VMI policy. Moreover, the opti-
mal transfer payment has a strong positive relativity with the complementary of the online-offline shopping and VMI
scale economic effect, whereas negative relativity with the substitutability of the online-offline shopping and VMI
holding cost. The more VMI scale economic effect enhances, the larger online-offline integrating shopping market
shares and the more system revenue shall be obtained in the brand franchise supply chain whereas taking advantage of
the less transfer payment. The more VMI holding cost decreases, the larger online-offline integrating shopping market
shares and the more system revenue shall be obtained in the brand franchise supply chain whereas taking advantage of
the less transfer payment.
Keywords: Brand Franchise Supply Chain; Transfer Payment Contract; Online-Offline Integrating Strategy; VMI
Policy; Scale Economic Effect
1. Introduction
Since the Internet-based e-commerce (electronic com-
merce or Internet commerce) emerging with the creation
of Amazon.com and Yahoo.com in 1995, the incredibly
rapid evolution of the Internet from 1995 till the present
time makes the worldwide internet users hit 2.749 bil-
lion from 16 million of 1995 and the global Internet
penetration rate rises to 38.8% from 0.4% of 1995 while
the Internet penetration rate in the developed countries
such as the United States, Japan, South Korea and Ger-
many has reached over 78%, 79.5%, 82.5% and 83% for
June 30 of 2012, respectively [1].
Alba et al. (1997) and some relevant literatures have
been conducted exploring the consumer behaviors online
which are different from traditional offline shopping en-
vironment, and the differences ultimately impact brand
image, customer loyalty, corporate profitability and the
overall corporate value in turn [2-5].
According to the annual statistical reports released by
China Internet Network Information Center, the present
Internet penetration rate of 42.1% from 8.5% of 2005 in
China has surpassed the global average level 38.8%, with
along the utilization ratio of online shopping rising over
42.9% from 22.1% of 2007 in China [6]. The emergence
and growth of a series of e-commerce services in China
promote significantly the rapid growth of the consump-
tion scale and have a huge impact on the future of
China’s economy. By the end of December 2012, China
has had a total of 564 million Internet users and more
than 242 million online shoppers as exhibited in Table 1.
The customers no matter whether they are online or
offline are unshackled and empowered to find, rate, re-
view and comment products and services easily facili-
tated by social network websites, e-mails, discussion
groups, blogs, tweets, mobile applications and so forth.
The annual customer surveys reveal that today’s custom-
ers regardless of online or offline shopping are increase-
ingly sophisticated and less tolerant of poor customer
experience, with 89 percent of consumers saying they
will never go back to an organization after a bad cus-
tomer experience, up from 68 percent in 2006. And 86

Brand Franchise Supply Chain Partnership Based on Online and Offline Integrating Strategy 436
Table 1. Growth of internet users and online shopping users
in China from 2007 to 2012.
Year
Internet
Users
(Million)
Internet
Penetration
Rate
Online Shopping
Users
(Million)
Utilization Ratio
of Online
Shopping
2005 111.00 8.5% - -
2006 137.00 10.5% - -
2007 210.00 16.0% 46.41 22.1%
2008 298.00 22.6% 74.00 24.8%
2009 384.00 28.9% 108.00 28.1%
2010 457.30 34.3% 160.51 35.1%
2011 513.10 38.3% 193.95 37.8%
2012 564.00 42.1% 242.02 42.9%
Source: Adapted from The 17th-31st Statistical Report on Internet Develop-
ment in China, CNNIC, January 2006-January 2013.
percent of consumers will pay more for a better customer
experience while 79 percent of consumers who shared
complaints about poor customer experience online had
their complaints ignored [7].
Today’s powerful brand is everything customers ex-
periences about the product or service and the magical
difference beyond their competing products and services.
It can be seen that the new marketing era embedded in
online and offline integrating strategy, long overdue, is
heralded in. All online-offline business processes of the
brand enterprise famous for this strategy such as sports
retailer Nike and fast retailing UNIQLO, need to be inte-
grated to deliver a consistent and holistic experience that
stretches beyond the physical and rational experience.
Rothery (2008) thinks of 4Es instead of 4Ps from the
traditional offline marketing mix strategy comprised of
product, price, place and promotion. In the new market-
ing mix strategy of 4Es, where the product has evolved
into the customer experience (integrating online and off-
line), the place ranges over everyplace (including online
and offline), the price becomes exchange, and the pro-
motion has turned into evangelism. Alternatively, the
promotion is morphing with product as communications
seek to engage customers with experiences [8]. This new
online and offline integrating environment allows brand
enterprises to listen to customers everyplace while all the
time engaging customers, developing brand image and
nurturing customer loyalty along with inherently en-
hancing brand power, ensuring preferred purchasing and
encouraging repeat purchasing.
As to the brand enterprises, the powerful brand is the
strategic intellectual asset which is embedded in the ho-
listic experience online and offline that stretches beyond
the physical and rational experience into the psychology-
cal and emotional experience about the brand product
and service. The holistic experience including excellent
product quality, on-time delivery and superior customer
service, will be able to deliver and reflect the uncon-
scious desires and aspirations from their customers. And
then the truth is that their customers are simply exchang-
ing some of their own aspirations and perceiving the
magical difference beyond their competing products and
services.
The focus of this paper is the role of supply chain part-
nerships in the online and offline integrating environment.
The remainder of the paper is organized as follows. In
the next section, we will firstly overview the relevant
literatures on comparisons of consumer behaviors in
online-offline environment and supply chain partnership
coordinated with contracts. The third section will explore
the basic models and assumptions of brand franchise
supply chain partnership based-on the online-offline in-
tegrating strategy. Then, the fourth and fifth sections will
analyze and present the key finds and managerial insights
of the study on brand franchise supply chain coordination
strategy on VMI Policy, followed by the concluding re-
marks in the last section.
2. Relevant Literature
2.1. Comparisons of Consumer Behaviors in
Online and Offline Environment
Brynjolfsson and Smith (2000) find that the average
prices for books and CDs were lower online in 1999,
implying more price competition online than offline.
However, they also find the price dispersion is lower in
Internet channels than in conventional channels, reflect-
ing the dominance of certain heavily branded retailers
and branding, awareness, and trust remain important
sources of heterogeneity among Internet retailers [9].
Shankar et al. (2001) study how the online medium af-
fects the importance of price and the value of price
search in the hospitality industry. Comparing online and
offline shopper groups, they find that the online medium
does not have a main effect on the importance of price,
but it does increase the perceived value of price search
and thus increases price sensitivity [10]. Degeratu et al.
(2001) investigate how brand name, price, and other
search attributes affect consumer choice behavior in
online and conventional supermarkets. They find that the
importance of brand name varies across category, price
sensitivity is higher online because of the stronger sig-
naling effect of online price cuts, and the combined ef-
fect of price and promotion is lower online than offline
environment [11].
Danaher et al. (2003) compare online and offline con-
sumer brand loyalty and find that high market share
brands, and therefore are better-known brands, enjoy a
loyalty advantage in the online store, with the reverse
result for small market share brands. In all these studies,
the online and offline customers come from two separate

Brand Franchise Supply Chain Partnership Based on Online and Offline Integrating Strategy 437
samples; therefore, observed differences in shopping
behavior might not be caused by the shopping media, but
might be inherent in these two groups of consumers [12].
Chu et al. (2008) observe households that shop inter-
changeably at the online and the offline stores in the
same grocery chain and investigate their purchase be-
havior in specific product categories. Although nearly
90% of households in the sample shop both at online and
offline stores, they find that, across 12 vastly different
product categories, these households exhibit lower price
sensitivities when they shop online than when they shop
offline [13]. Granados et al. (2012) analyze the impact of
the Internet on demand, by comparing the demand func-
tions in the Internet and traditional air travel channels.
The results suggest that consumer demand in the Internet
channel is more price elastic for both transparent and
opaque online travel agencies [14]. Li et al. (2013) de-
velop a theoretical model to analyze the pricing strategies
of competing retailers with asymmetric cross-selling ca-
pabilities when product demand changes and suggest that
retailers with better opportunities for cross-selling have
higher incentives to adopt loss-leader pricing on high-
demand products than retailers with low cross-selling
capabilities [15].
Taking advantage of online shopping affecting major
parameters of corporate business including customer
experience, customer word-of-mouth diffusion and cus-
tomer complaints sharing, price elastic of consumer de-
mand, and consumer brand loyalty, this paper focuses on
the role of brand franchise supply chain partnership in
the online and offline integrating environment.
2.2. Supply Chain Partnership Coordinated with
Contracts
The supply chain parties are primarily concerned with
optimizing their own profitable objectives, and that self
serving focus often results in poor performance, however,
Pareto optimal performance is achievable if the supply
chain parties coordinate by contracts so that each party’s
objective becomes aligned with the supply chain’s objec-
tive. In other words, no party has a profitable unilateral
deviation from the supply chain contract because each
party’s profit is no worse off and at least one member is
strictly better off with the coordinating contract. The sup-
ply chain contracting literatures have been widely re-
searched and analyzed to coordinate the supply chain
partnership [16,17].
Pasternack (1985), Donohue (2000), Taylor (2002)
and Krishnan et al. (2004) have studied the return poli-
cies and buyback agreements for perishable commodities
such as consumer electronics, computers, software,
books, magazines, newspapers, cosmetics, and so forth,
which the manufacturer offers retailers a partial credit for
all unsold goods with the agreed-upon price clause can
achieve the supply chain coordination [18-21].
Bassok and Anupindi (1997), Moinzadeh and Nahmias
(2000), Cachon and Lariviere (2001) have analyzed the
quantity commitment contract for a single product that
specifies that the cumulative orders by a buyer, over a
finite horizon, be at least as large as the given total mini-
mum quantity commitment [22-24].
Eppen and Iyer (1997), Cachon and Swinney (2008)
have researched on the backup agreements in fashion
supply chain [25,26], Tsay (1999), Milner and Kouvelis
(2005) have studied quantity flexibility contracts in elec-
tronics industry such as Sun Microsystems, IBM, con-
tract manufacturers such as Solectron, and etc. [27,28].
Furthermore, Wang (2007) has analyzed systemically
supply chain contract clauses on supplier flexibility and
consequently put forward a supplier selection approach
for downstream buyer based on supplier flexibility from
the perspective of risk sharing in supply chain [29].
Barnes-Schuster (2002) have developed option con-
tracts in the apparel industry, Cachon and Lariviere
(2005) have demonstrated that revenue-sharing contracts
to coordinate the supply chain partnership in the video-
cassette rental industry, and Wang (2006) have given the
analysis of revenue sharing contracts with uncertain de-
mand in supply chain [30-32].
Wang and Benaroch (2004) discuss supply chain co-
ordination to analyze the decision of suppliers and buyers
to do or not do business in electronic markets while sell-
ing perishable products with random demand and find
that their decisions depend on the revenue structure of
the power of electronic markets, and then Netessine and
Rudi (2006) take the viewpoint of supply chain choice on
the internet [33,34]. Wang (2010) extends the R&D part-
nership contract coordination of information goods sup-
ply chain in government subsidy and finds that the per-
fect sharing contract may achieve greater effective coor-
dination than non-linear transfer payment contract, along
with the strengthening of the innovation basis and the
extent to which partners absorb and transform techno-
logical innovation knowledge, and the improvement of
intellectual property protection environment and the de-
gree of intellectual property protection [35].
Chen (2013) examines the dynamic supply chain co-
ordination for deteriorating goods under consignment
and vendor-managed inventory contracts with revenue
sharing from retailer-centric business-to-business trans-
actions in both traditional markets and electronic markets,
and shows that, in a cooperative setting, the electronic
markets with a consigned revenue-sharing VMI contract
tends to achieve lower retail prices, larger stock quantity,
improved channel efficiency, and increases in both re-
tailer and supplier profits through an additional one-part
tariff. Additionally, consumers benefit from lower retail
prices and society benefits from increased overall chan-

Brand Franchise Supply Chain Partnership Based on Online and Offline Integrating Strategy 438
nel profits in the cooperative channel and electronic
markets [36].
On the basis of the fore research literatures, this paper
proposes the brand franchise supply chain coordination
model on VMI policy for modeling and analysis of the
brand rand franchise supply chain partnership based on
online-offline integrating strategy.
3. Basic Models and Assumptions
Consider a brand franchise supply chain consists of two
members: one brand enterprise and one upstream VMI
partner-supplier with vendor managed inventory i.e. VMI
policy. Firstly, the notations and assumptions in the
models developed will be stated in details as follows.
Based on the online-offline integrating strategy, brand
franchise supply chain members listen to customers ev-
eryplace while all the time engaging customers, devel-
oping brand image and nurturing customer loyalty along
with inherently enhancing brand power, ensuring pre-
ferred purchasing and encouraging repeat purchasing.
And then we may suppose the brand enterprise expected
market demand with the price-sensitive consumers in the
online and offline integrating environment is




,
,
nnfn f

f
nff n
pd dadd
pdda dd


 

 


(1)
where, pn and pf are the online shopping price and offline
shopping price, dn and df are the online shopping quantity
and offline shopping quantity, respectively. The shop-
ping differentiation parameter, denoted by
 (−1 <  < 1),
represents the degree of substitutability of the online
shopping and offline shopping as  (0 <  < 1) is positive,
and the online shopping and offline shopping are perfect
substitutes for consumers if
 = 1; whereas, represents
the degree of complementary of the online shopping and
offline shopping as
 (−1 <  < 0) is negative, and the
online shopping and offline shopping are perfect com-
plements for consumers if
 = −1.
For simplifying the analysis further, under the whole-
sale contract, the linear transfer payments the down-
stream brand enterprise purchasing the online shopping
goods and offline shopping goods from the upstream
VMI partner-supplier shall be expressed with the whole-
sale price w as

,
nfn f
Tddw dd 

(2)
Similarly, as to the upstream VMI partner-supplier, for
simplifying the analysis, the production costs with unit
production cost c, and especially annual inventory hold-
ing costs with scale economic effect α (0 < α  1, note
that no scale economic effect if α = 1) for the online-
offline shopping can be mathematically expressed as


,
nfn f
Cddc dd 

(3)




,, 0;
nfn f
Hd dKddK

 01

 (4)
where, the annual-inventory-holding-cost parameter K (K
> 0) given in the above expression depends upon three
main factors, including the annual cost-to-hold-inventory
rate, the average product value, the relationship between
the average inventory level and the annual demand
throughput at the upstream VMI partner-supplier.
Accordingly, we define that the brand enterprise’s and
the upstream VMI partner-supplier’s expected revenue
function in the online-offline integrating environment is
as shown by express (5) and (6), respectively:




 
 
,, ,
,
,
rnfnnfnf nff
nfnf n

f
nf nf
dd pdddpddd
Td daddd
adddwdd


 




 

(5)



 
 
,,,

,
s
nfnf nfnf
nf nf
ddTdd CddHdd
wcd dKd d

  
 (6)
4. Brand Franchise Supply Chain
Coordination on VMI Policy without SEE
Now, start with the case of brand franchise supply chain
coordination on VMI policy without scale economic ef-
fect (SEE) that is the parameter α = 1, and we analyze the
optimal strategy of the brand enterprise in choice of the
linear transfer payment contract clause. So we have the
following:



 

,,
.. 11,
rnfn
ww
fnf nf
MaxMax addd
adddwdd
stw c








 

 

(7)
From differentiation using the first order condition for
dn and df, and then the optimal online shopping quantity
and optimal offline shopping quantity may be obtained,
respectively.


20
20
r
nf f
n
r
fn n
f
ad ddw
d
ad ddw
d





 






 



(8a)

** ,11, 1
21
nf
aw
dd





 (8b)
Next, we move the optimal strategy of the upstream
VMI partner-supplier focusing the wholesale contract

Brand Franchise Supply Chain Partnership Based on Online and Offline Integrating Strategy 439
clause, substituting the optimal shopping quantities dn
*
and df
*, into Equation (6),

,
,
11
.. 11,,0,1
s
w
w
aw aw
MaxMaxw cK
stwc K








 






 
(9)
Then, from the first-order and second-order conditions,
the optimal linear transfer payment can be determined as

2
2
*
11
0;
20;
1
,11,0, 1
2
s
s
aw aw
wc K
ww
w
acK
wK





 



 



 

 





(10)
Correspondently, the optimal profiles of linear transfer
payment contract coordination on VMI policy without
scale economic effect in the online-offline integrating
environment are solved as follows:

** ,11,0,1
41
nf
acK
dd K 


 

 (11)




2
*
2
*
,11,0, 1
81
,11,0,1
41
r
s
acK K
acK K





  


 


(12)
Now, observe the above Expressions (11) and (12) that
the optimal online-offline integrating strategy including
online-offline shopping optimal quantities (i.e. d
n
* and
df
*), and the brand enterprise’s and the upstream VMI
partner-supplier’s optimal expected revenues (i.e. πr
* and
πs
*), are negative relevant with the degree of substitute-
ability of the online shopping and offline shopping as

(0 <
 < 1), whereas positive relevant with the degree of
complementary of the online shopping and offline shop-
ping as
 (−1 <  < 0), shown as Figure 1.
Thus, it is easy to see that
[Proposition 1] The upstream VMI partner-supplier
has more incentive to implement Pareto optimal strategy
in choice of the linear transfer payment contract clause
for brand franchise supply chain coordination on VMI
policy without scale economic effect.
5. Brand Franchise Supply Chain
Coordination on VMI Policy with SEE
In this section, we focus on the analysis of brand fran-
chise supply chain coordination on VMI policy with
scale economic effect. In virtue of backwards induction,
1.0 0.50.5 1.0
4
6
8
10
d
on*
= d
off*

(a)
1.0 0.50.5 1.0
10
20
30
40
50
π
s
*

π
r
*
(b)
Figure 1. The numerical results in the optimal online-offline
integrating strategy as a = 10, c = 2, K = 1, α = 1. (a) Opti-
mal online and offline integrating shopping quantities with
 ; (b) Brand franchise supply chain partners’ expected
revenue with
 .
firstly, find the brand enterprise’s optimal online-offline
integrating strategy to maximize its own profit as a re-
sponse to the wholesale contract clause, that is



 

,,
.. 11,
rnfn
ww
fnf nf
MaxMax addd
adddwdd
stw c








 

 

(13)
As a result, the optimal online shopping quantity and
optimal offline shopping quantity generated is expressed
as following

** **,1 1,
21
nf
aw
dd w 

c


 (14)
Secondly, find the optimal strategy of the upstream
VMI partner-supplier focusing the wholesale contract
clause, substituting the optimal shopping quantities dn
*
and df
*, into Equation (6),

Brand Franchise Supply Chain Partnership Based on Online and Offline Integrating Strategy 440

,, 11
.. 11,,0,01
s
ww
aw aw
MaxMaxw cK
stwc K







 






 
(15)
Differentiating this expression with respect to πs and w
yields,

11 0
s
aw aw
wc K
ww





 




 


 (16)
Thus,

1
**
** **
2,
1
0, 01;11
aw
Gwa cwK
K











(17)
Ultimately, we have the following Stackelberg equi-
librium policies in online-offline integrating environment
are solved as following,


**
** **,0,0 1;1
21
nf
aGw
dd K 


 
1
(18)


 
 
2
**
**
** **
** **
,0,01;11
21
,
11
0,01;11
r
s
aGw
K
aGw aGw
Gw cK
K







  











(19)
5.1. Numerical Analysis on Substitutability and
Complementary of the Online-Offline
Shopping and Managerial Insights
In the meantime, letting a = 10, c = 2, K = 1 and α = 0.5
while  is variable, for −1 <  < 1, the respective nu-
merical simulation results of Equations (10) and (12)
comparing to Equations (17) and (19) are illustrated in
Figure 2.
As the Stackelberg leader, the upstream VMI part-
ner-supplier shall make the effective contract clause
“transfer payment w” for the brand enterprise to promote
the optimal online-offline integrating strategy. In this
way, the brand franchise supply chain coordination on
VMI policy with scale economic effect shall gain the
more system revenue than VMI policy without scale
economic effect whereas taking advantage of the less
transfer payment w. Hence, we can further summarize,
[Proposition 2] The brand franchise supply chain part-
ners have more incentive to implement Pareto optimal
strategy in choice of the transfer payment contract clause
for brand franchise supply chain coordination on VMI
w
*

w
**
(a)

П
**
=π
r
**
+π
s
**
П
*
=π
r*
+π
s*
(b)
Figure 2. The numerical results in substitutability and com-
plementary of the online-offline shopping as a = 10, c = 2, K
= 1, α = 0.5. (a) Brand franchise supply chain contract
clause with  ; (b) Brand franchise supply chain system ex-
pected revenue with
 .
policy with scale economic effect than the case of VMI
policy without scale economic effect. Furthermore, the
more incentive increases as the lower degree of substi-
tutability of the online-offline shopping; whereas the
more incentive increases as the higher the degree of com-
plementary of the online-offline shopping.
5.2. Numerical Analysis on VMI Scale Economic
Effect and Managerial Insights
Simultaneously, letting a = 10, c = 2, K = 1 while α is
given different levels and
 is variable, for −1 <  < 1,
the respective numerical simulation results from the
Equation (17) to the Equation (19) are illustrated in Fig-
ure 3. Therefore, the key managerial insight concluded
from this analysis is as below.
[Proposition 3] As the VMI scale economic effect en-
hances (0 < α  1, especially note that no scale economic
effect if α = 1), the brand franchise supply chain partners
have more incentive to implement Pareto optimal

Brand Franchise Supply Chain Partnership Based on Online and Offline Integrating Strategy 441
0.6 0.4 0.20.2 0.4
6.10
6.15
6.20
6.25
6.30
α=0.75

α=0.25
(a)
0.6 0.4 0.20.2 0.4 0.6
2.0
2.5
3.0
3.5
4.0
4.5
5.0
α=0.75

α=0. 25
(b)
0.6 0.4 0.20.2 0.40
.
30
40
50
60
70
80
90
α=0.75

α=0.25
(c)
Figure 3. The numerical results in VMI scale economic ef-
fect as a = 10, c = 2, K = 1, α = 0.25 vs. α = 0.75. (a) Brand
franchise supply chain contract clause impacted by α; (b)
The optimal online-offline integrating shopping quantities
impacted by α; (c) Brand franchise supply chain system
expected revenue impacted by α.
strategy in choice of the wholesale contract clause
“transfer payment w” for brand franchise supply chain
coordination on VMI policy. Furthermore, the more VMI
scale economic effect enhances (that means the lower
level of α), the larger online-offline integrating shopping
market share and the more system revenue shall be ob-
tained in the brand franchise supply chain whereas taking
advantage of the less transfer payment w.
5.3. Numerical Analysis on VMI Holding Cost
and Managerial Insights
Finally, letting a = 10, c = 2, α = 0.5 while K is given
different levels and  is variable, for −1 <  < 1, the re-
spective numerical simulation results from the Expres-
sion (17) to Expression (19) are illustrated as Figure 4.
In particular, the level of VMI holding cost parameter K
depends upon the annual cost-to-hold-inventory rate, the
average product value, the relationship between the av-
erage inventory level and the annual demand throughput
at the upstream VMI partner-supplier. As a result, the
key managerial insight derived from this study can be
seen in the following proposition.
[Proposition 4] As the VMI holding cost decreases, the
brand franchise supply chain partners have more incen-
tive to implement Pareto optimal strategy in choice of the
wholesale contract clause “transfer payment w” for brand
franchise supply chain coordination on VMI policy. Fur-
thermore, the more VMI holding cost decreases, the lar-
ger online-offline integrating shopping market share and
the more system revenue shall be obtained in the brand
franchise supply chain whereas taking advantage of the
less transfer payment w.
6. Concluding Remarks
The purpose of this paper is to focus on the role of brand
franchise supply chain partnership in the online and off-
line integrating environment. The key managerial in-
sights derived from this study are that the “transfer pay-
ment w” shall be the critical contract clause to coordinate
the brand franchise supply chain partnership to imple-
ment Pareto optimal strategy on VMI policy. Moreover,
the “transfer payment w” has a strong positive relativity
with the complementary of the online-offline shopping
and VMI scale economic effect, whereas negative rela-
tivity with the substitutability of the online-offline shop-
ping and VMI holding cost.
 The brand franchise supply chain partners have more
incentive to implement Pareto optimal strategy in
choice of the wholesale contract clause “transfer pay-
ment w” for brand franchise supply chain coordina-
tion on VMI policy, as the lower degree of substitute-
ability of the online-offline shopping; whereas as the
higher the degree of complementary of the online-
offline shopping.
 The more VMI scale economic effect enhances, the
larger online-offline integrating shopping market
share and the more system revenue shall be obtained
in the brand franchise supply chain whereas taking

Brand Franchise Supply Chain Partnership Based on Online and Offline Integrating Strategy 442
1.0 0.50.5 1.0
6.5
7.0
7.5
8.0
8.5
K=10

K=1
(a)
1.0 0.5 0.51.0
50
100
150
200
K=10

K=1
(b)
1.0 0.50.5 1.0
2
4
6
8
10
12
K=10

K=1
(c)
Figure 4. The numerical results in VMI holding cost as a =
10, c = 2, α = 0.5, K = 1 vs. K = 10. (a) Brand franchise sup-
ply chain contract clause impacted by K; (b) The optimal
online-offline integrating shopping quantities impacted by
K; (c) Brand franchise supply chain system expected reve-
nue impacted by K.
advantage of the less transfer payment.
 The more VMI holding cost decreases, the larger
online-offline integrating shopping market share and
the more system revenue shall be obtained in the
brand franchise supply chain whereas taking advan-
tage of the less transfer payment.
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