Abstract: In order to weaken the dominant status of traditional retailer in channel bargain, the manufacturer tries to introduce direct online channel to compete with the traditional retailer. Aiming at the channel structure of Retailer Stackelberg, the competitive game theory is applied to analyze the price and service competition between manufacturer and retailer in the dual channels mixed of manufacturer direct online channel and traditional retailing channel. It considers the strategic value of service when it analyses dual channel competition, and divides all consumers into the high service preference consumers and the low service preference consumers. The results show that the strategic effect of online channel introduced by the manufacturer will succeed only when the product web-fit is high enough. The introduction of online channel will increase the manufacturer profit. The larger the product web-fit is, the manufacturer profit will be bigger. When the product web-fit is high enough, online channel can encourage the retailer to provide high level service. The larger the product web-fit is, the retail service level will be higher. As a result, the effect of double winners between the manufacturer and retailer will come true. The manufacturer profit and retailer profit will increase with the improvement of the scale of high service preference consumer and the marginal utility of service.

Key words: manufacturer, retailer, direct online channel, retailer stackelberg, dual channel competition