Self-building new brand or cooperating with a frenemy? Market expansion strategy of manufacturer in a C2M supply chain

Abstract

The Customer-to-Manufacturer (C2M) supply chain is an innovative mode in which the firm quickly producing and providing goods to dispersed end consumers. However, the fragmented orders may lead to production inefficient, which makes expanding market to obtain more demands be a necessary problem. Some C2M manufacturers have cooperated with a frenemy owning competitive brands or self-building another new brand. Then a question arises: How do different market expansion strategies affect a firm’s performance? This paper utilizes a Hotelling model to examine the optimal decision: no-expansion or expansion through self-building a new brand or cooperating with a frenemy. By comparing the firm’s profits under different strategies, results show that the no-expansion strategy may be better off despite only one revenue stream. For the strategy of self-building a new brand, surprisingly, we find that allowing competition is always more profitable than significantly differentiating brand positions to avoid market cannibalization. Furthermore, when implementing expansion strategy is beneficial, self-building a new brand is preferred to cooperating with the frenemy if his brand is not quietly distinguished from the incumbent one. Otherwise, fostering a competitive brand is more favorable because of the lower market erosion and no brand operation costs. When consumers value the latter launching brand more than the original one, or firms price simultaneously, as shown in extension, the C2M manufacturer becomes more inclined to build a new brand. The relaxation of cost coefficient of brand building does not change the primary findings qualitatively.