Analysis of manufacturers' dual‐source and dual‐channel strategies under the trend of brand weakening

Abstract

AbstractIn the context of the world economic downturn, consumers are showing a trend of brand weakening. In order to explore the product advantages of the source manufacturer, that is, the competitive supplier, we establish a game theory model to study the strategy choice of original equipment manufacturers (OEM), competitive suppliers (CS), and noncompetitive suppliers (NS) based on consumer heterogeneity. By dividing consumers into quality consumers and ordinary consumers and considering horizontal competition (between suppliers) and vertical competition (between OEM and suppliers), it is found that the products of the source manufacturers are becoming more and more popular with consumers. Contrary to the traditional view, we find that under the trend of brand weakening, the products of the source manufacturers should be positioned above the price range acceptable to consumers, and the OEM products of the brand owners should be appropriately reduced. The interesting question is whether CS will discontinue the supply of OEM components once it has its own branded products. Further, we analyze that CS terminating the component sales business is an untrustworthy threat to OEM. Finally, we find that there will be a “win–win” zone between OEM and competing suppliers, and the “win–win” region will decrease as the manufacturing cost of the competing supplier increases and increase as the manufacturing cost of the noncompeting supplier increases.