Abstract: Demand disparities are commonly existed among consumers on complementary products. For a product, it may be considered as a complementary one for certain consumers, but it is merely another at the stand of other consumers. By introducing the consumer heterogeneity for complementary product, this paper assumes a market with two manufacturers independently supplying complementary products at the upstream and one retailer selling the two complementary products at the downstream to analyze the marketing strategy and pricing equilibrium of the two-level supply chain.
In specific, firstly, the complementary products market is subdivided into two independent consumption segmentation and one co-consumption segmentation. Two corresponding marketing strategies, i.e., the overall market-based strategy and segmentation market-focused strategy, are introduced to the supply chain system. Then, by solving the game model, the equilibrium solutions together with the corresponding existence conditions on two market strategies are obtained, respectively. Thirdly, when consumer heterogeneity is considered, the equilibrium wholesale price and the impacts of the complementary degree to retailing price for two incomplete complementary products are investigated. Fourthly, the influences of the degree of complementary and the ratio of relative utilities of complementary products to the benefits of two suppliers and the retailer are discussed. Finally, the conditions of equilibrium price for the selection of the overall market-based strategy and the segmentation market-focused strategy are revealed and analyzed.
Numerical results demonstrate that, if the complementary degree and the ratio of relative utilities of complementary products are small, the overall market-based pricing equilibrium would be reached in the channel. On the contrary, if the complementary degree and the ratio of relative utilities of complementary products are large enough, segmentation market-focused pricing equilibrium is the best strategy. For the latter situation, the retailer would adopt the loss leader pricing strategy (retail price is lower than the supplier's wholesale price) to sell the product with lower relative utility.
Findings obtained in this research can help manufacturers and retailers determine the optimal marketing strategy and pricing for complementary product in supply chain.

Key words: consumer heterogeneity, complementary goods, complementary extents, supply chain pricing