Does free brand spillover benefit online retailers? Roles of logistics service selection

Abstract

Brand spillover is a pivotal tool that online retailers have adopted to market their new brand products, especially when competing against well-known product brands that prone to free-riding. This common practice seems beneficial to the adopters, but the motivation remains unclear in a supply chain setting. This study explores a co-opetitive supply chain in which a famous brand manufacturer (she) sells her own-branded products by commission via an online retailer (he) with a private label, who determines whether or not to utilize free brand spillover. The upstream manufacturer has to decide between two logistics service strategies, namely, Scenario T (i.e., using third-party logistics to serve the sales of their own-branded products) and Scenario R (i.e., employing the high-quality logistics of the online retailer). We explore the strategic interactions of the two firms and characterize their equilibrium. We reveal that when the decreased brand attractiveness of implementing third-party logistics is low, the brand manufacturer opts for the third-party logistics; otherwise, she embraces the high-quality logistics of the retailer. Interestingly, the brand manufacturer may be less inclined to utilize the logistics service of the retailer if he employs free brand spillover because it will help intensify market competition from the manufacturer’s perspective. Moreover, although free brand spillover enhances the attractiveness of the retailer’s private label without any cost, the retailer may not adopt it when the brand spillover intensity is low and the decreased brand attractiveness of the third-party logistics is moderate. Finally, we provide managerial insights and guidance for the firms’ managers on how to use the above strategies to obtain a “win–win” outcome. We also extend our analysis to the setting with imperfect substitutes, where the deterrence effect of brand spillover on the manufacturer’s logistics choice remains the same.