A risk-averse marketing strategy and its effect on coordination activities in a remanufacturing supply chain under market fluctuation

Abstract The market fluctuation, usually caused by macro-economic shrinking/boom and ever-changing consumers' preferences/acceptance, brings a high managing challenge for remanufacturers and retailers’ collection efforts and their coordination activities. Besides increasing profit, a market strategy also aims to reduce risk, i.e., profit variations. Thus, apart from the “maximum-profit” marketing strategy, this study tries to explore a risk-averse marketing strategy for a remanufacturer and a retailer in a remanufacturing supply chain. The proposed strategy satisfies the need of reducing risk of shortage/inventory under heavy remanufacturing market fluctuation. By adding the risk-averse factor into objective functions and using a concept of risk tolerance as a risk measurement, this paper investigates the effect of risk attitude for the remanufacturer and the retailer on remanufacturing quantity, expected profit and coordination activities. This paper finds that the proposed risk-averse marketing strategy brings more profit for both the remanufacturers and retailers than that for the “maximum-profit” marketing strategy in a heavier market fluctuation environment. Further, a coordination mechanism with risk attitude is designed and certain conditions are identified for inspiring the remanufacturer and the retailer to participate in supply chain contract coordination, which is of use for remanufacturing practitioners as well as academics. When the remanufacturer and the retailer develop their remanufacturing supply chain contracts in a heavier market fluctuation environment, the proposed strategy succeeds in balancing the expectation of benefits and the risk of market fluctuation. A truck engine remanufacturing case demonstrates that the risk-averse marketing strategy is relatively insensitive to market fluctuation.