Effect of seeding on the benefits of the manufacturer and retailer

Social network effects allow firms to deploy seeding strategies wherein free, new products are distributed to a select few consumers to promote product information diffusion and stimulate utility of consumers. This paper discusses the manner that seeding strategy affects the pricing decisions and sales activities of a supply chain by comparing three scenarios: No Seeding strategy (NS), Manufacturer Seeding strategy (MS) and Retailer Seeding strategy (RS). The analytical results show that seeding strategy is better than no seeding strategy for supply chain members under certain conditions and the supply chain can choose higher prices when seeding strategies are employed. Moreover, the optimal strategy choices for the supply chain are as follows: when the prior of the quality is smaller than a threshold, implementing seeding strategy is a better choice and MS is optimal; if not, no seeding is better; the retailer has no incentive to seed all the time only if the manufacturer is incapable and the prior is small.