Contingent channel strategies for combating brand spillover in a co-opetitive supply chain

Abstract

Brand spillover, which arises frequently and increasingly, becomes a serious concern for well-known (strong) brand manufacturers, as some giant retailers may develop and sell their private (weak) brand products by sourcing from the same contract manufacturers as the strong brand manufacturers and disclosing such a relationship. To cope with such brand spillover, strong brand manufacturers may adopt contingent channel selling strategies. In this study, we investigate a co-opetitive supply chain wherein a weak brand retailer (she) ex-ante decides whether to implement the brand spillover strategy, whereas a strong brand manufacturer (he) determines channel selling strategies for his own-branded products. We specifically consider three channel formats for the strong brand manufacturer, namely, Scenarios R (i.e., the manufacturer sells his own-branded products only via the reselling channel), D (i.e., the manufacturer opts to establish the direct-selling channel and sells his own-branded products via dual channels), and S (i.e., the manufacturer sells his own-branded products only via the direct-selling channel), to explore the strategic interactions between the two firms. We find that regardless of whether the retailer implements the brand spillover strategy or not, any channel format (Scenario R, D, or S) could be dominant for the manufacturer, hinging on certain conditions. Moreover, we uncover that, compared with non-brand spillover, brand spillover can enhance the manufacturer’s incentive to construct the direct-selling channel. Counterintuitively, we demonstrate that employing brand spillover strategy does not necessarily benefit the retailer when the direct-selling cost is moderate and the brand spillover level is weak; otherwise, the retailer will opt to do so.