Manufacturer encroachment in the presence of the store-brand

Abstract

PurposeThis paper aims to identify the conditions under which encroachment is a viable strategy for a manufacturer to gain competitive advantage and achieve higher profitability in the presence of the store-brand.Design/methodology/approachThis paper proposes game-theoretic models in a two-echelon supply chain consisting of a manufacturer (him) and a retailer (her), in which he distributes his national brand through the retailer, and endogenously determines whether to establish a new direct sales channel to sell the national brand when the retailer introduces her store-brand.FindingsAnalytical results show that the bar for the manufacturer to encroach the end market in the presence of the store-brand is always higher than that for him to encroach in the absence of the store-brand. Although incurring channel competition, encroaching with the national brand in the presence of the retailer's store-brand can lead to either a win-lose or win-win result for the manufacturer and the retailer. Numerical studies claim that, higher brand substitution can push down the retailer's enthusiasm to introduce her new brand. Counterintuitively, when the retailer introduces her store-brand, higher brand substitution does not necessarily push up the manufacturer's enthusiasm to respond with national-brand encroachment. When consumer preferences for the two brands are heterogeneous, a higher consumer preference for the retailer's store-brand results in the retailer's higher enthusiasm to introduce her store-brand and the manufacturer's lower enthusiasm to encroach with his national brand.Originality/valueThis study can help researchers to better understand the retailer's store-brand introduction, manufacturer encroachment and their interaction theoretically, and further provide decision support for enterprises to choose brand and channel strategies in practice.