Manufacturer Encroachment Research Articles

The retailer's freebies promotion strategy with manufacturer encroachment

The retailer's freebies promotion strategy with manufacturer encroachment

Manufacturer encroachment with carbon cap-and-trade policy under asymmetric information

In order to mitigate carbon emissions and address environmental concerns, an increasing number of industries have started investing in green technologies to produce environmentally friendly products. This research develops a game theoretical model to examine the phenomenon of manufacturer encroachment in the context of carbon emission reduction and asymmetric information. Our analysis reveals that when the manufacturer does not encroach, a reduction in carbon emissions benefits all members of the supply chain. However, under encroachment, only the manufacturer stands to benefit from the reduction in carbon emissions. Moreover, with a low direct selling cost, we recommend that the manufacturer should aim to achieve a lower level of carbon emissions under encroachment compared to non-encroachment scenarios. Another key finding is that the benefits of encroachment for the manufacturer depend on the relative costs of direct selling and carbon emission reduction. Encroachment is advantageous to the manufacturer when either the direct selling cost or the carbon emission reduction cost is low. On the other hand, encroachment benefits the retailer only when both the direct selling cost and the carbon emission reduction cost are high. Furthermore, we demonstrate that it is in the retailer’s best interest to voluntarily share demand information with the manufacturer, particularly when the direct selling cost is either low or high. By sharing demand information, the retailer can enhance the overall performance of the supply chain. Overall, this study provides valuable insights for managers regarding encroachment and carbon emission decisions in the context of low carbon manufacturing, carbon cap-and-trade policies, and asymmetric information. These findings can guide decision-making processes and help optimize the performance of supply chains in environmentally conscious settings.

Optimal financing and sales channel strategies for a capital-constrained supply chain with different risk preferences

In a volatile market environment, it is an important issue whether a manufacturer with capital constraints should establish an online direct sales channel to encroach the retail market. In addition to loans from financial institutions, third-party logistics (3PL) financing provides an alternative way for the manufacturer to solve its capital difficulties. Considering that the manufacturer exhibits diversified risk preferences for uncertain demand, we build an analytical model to examine the financing and sales channel decisions of the manufacturer, retailer and 3PL. Further, the impacts of differentiated freight rates and portfolio financing on key decisions are explored. Our results mainly contribute to the literature in two aspects: In terms of financing strategies, the 3PL tends to conduct financial business at a lower interest rate under a single-channel strategy, but a reduction in the 3PL interest rate prevents the manufacturer from adopting 3PL financing. In contrast, a larger financing need promotes the 3PL to offer a loan with a higher interest rate under a dual-channel strategy, which in turn drives the manufacturer to enhance its preference for bank financing. 3PL financing is always more conducive to improving the retailer’s profit. In terms of sales strategies, a smaller establishment cost of the online channel or greater risk tolerance encourages the manufacturer to implement the dual-channel strategy, while lower price competition and online channel preference prevent the manufacturer from encroaching so that it only employs a single offline channel for sales. An increase in price competition between channels encourages the manufacturer to establish the online channel, and manufacturer encroachment weakens the retailer’s profit. Furthermore, differentiated freight rates reduces the participants’ propensity for 3PL financing, while portfolio financing enhances the manufacturer’s motivation to develop the online sales channel.

The bright side of outside market entry with manufacturer encroachment

This study discusses the possible benefits of inviting entrants for downstream retailers when facing the encroachment of their upstream manufacturers. We consider a model comprising one retailer, one manufacturer, and one potential entrant. The manufacturer decides whether to encroach or supply the retailer; The retailer decides whether to help a third-party firm overcome its entry barrier. We show that whether firms compete in quantity or price, the manufacturer, in the presence of an entrant, may choose to supply the retailer even if the retailer does not offer any advantages in terms of cost efficiency in retailing or channel differentiation. This is because, in such a scenario, the manufacturer treats the retailer as a strategic collaborator to either restrict the entrant’s market share or alleviate the downstream competition. In other words, triggering the intra-brand competition against the retailer may help the manufacturer perform better in the inter-brand competition against the entrant. On the other hand, the retailer may intentionally prompt entry to trigger inter-brand competition to avoid being foreclosed by the manufacturer and obtain a favorable procurement condition.

The interaction between manufacturer-encroachment and information sharing in a closed-loop supply chain under technology licensing

This paper investigates the interaction between a retailer’s information sharing behaviour and a manufacturer’s encroachment strategies in a closed-loop supply chain in which the manufacturer licenses a third party to remanufacture. We apply the Stackelberg game to obtain the optimal pricing and production decisions and show that, information sharing always brings a profit increase to the manufacturer while a profit loss to the retailer. The retailer may be willing to share information in presence of manufacturer encroachment. We also show that, no matter whether the manufacturer remanufactures by himself or licenses the third party to remanufacture, the encroachment case is always profitable to the manufacturer due to the dual revenues from both the producing and marketing activities. In addition, whether the encroachment case is beneficial for the retailer is contingent on the encroachment cost. Specifically, when the encroachment cost is high enough, the encroachment case dominates the no-encroachment case because the manufacturer prefers to sell more products through the traditional retail channel rather than the direct selling channel. These results provide a new insight into information sharing and manufacturer-encroachment in a closed-loop supply chain.

Switching to profitable outside options under supplier encroachment

In practice, manufacturers may encroach on retail markets through a variety of methods, one being through the use of an online channel direct to the consumers, called encroachment. Current research typically assumes that downstream retailers retain procurement from the encroaching supplier. In reality, however, retailers may have the option of switching suppliers after encroachment. By considering a supply chain consisting of one manufacturer and one retailer with outside options, this paper analyzes the effects of the option of switching suppliers on the supply chain players' strategic interactions under the threat of supplier encroachment. We consider that the manufacturer makes encroachment decision preceding the retailer's switch decision. We capture various outcomes of the encroachment and switch decisions by using a classic encroachment model with quantity decisions (Cournot model). Specifically, we identify two effects of the outside option on the strategic encroachment decision. The first, the deterrence effect, means that the manufacturer's encroachment is deterred by the threat of switching supplies altogether; while the second, the permissive effect, indicates that the retailer intends to switch to the alternative source after the encroachment. Interestingly, we show that the encroachment could improve the total profit of the incumbent manufacturer and the retailer even when the retailer's switch has occurred. In this case, however, the manufacturer profits while the retailer is hurt by the encroachment and the switch. Finally, we also investigate several extended cases to demonstrate the robustness of our findings.

Manufacturer encroachment strategies and decision timing considering the product traceability preferences under e‐commerce

AbstractBlockchain technology is applied for product traceability in e‐commerce supply chains. In this context, the paper investigates the channel problem and decision timing problem considering product traceability. Using game‐theoretic framework, the manufacturer encroachment strategies, order quantities and profits under different channel structure, and traceability level are characterized. Research shows that selling traceability products can expand potential market demand and increase the sales volume of products and the profits of manufacturers and retailers. Under encroachment, members with information advantage can maximize their own profits. Additionally, manufacturers can regain the high ground by adjusting traceability levels to influence wholesale prices.

Manufacturer encroachment with a new product under network externalities

We study manufacturer encroachment in a two-echelon supply chain consisting of a manufacturer (her) and a retailer (him), in which she distributes a classic product through the retailer and endogenously determines whether to launch a new product with network externalities in a new direct sales channel. Analytical results show that the bar for the manufacturer to encroach with the new product is always lower than that for her to encroach with the same product and this bar can be further reduced by offering a more differentiated new product. We further establish that the retailer can be completely driven out of the market by encroaching with the new product, which is impossible under encroachment with the same product. Contrary to the conventional wisdom that the manufacturer should actively promote her new product under new-product encroachment, our research reveals that investing in enhancing the new product's network externalities can be detrimental to her profitability. Moreover, when the manufacturer cannot improve any of the following three factors to the right level, the strength of network externalities, direct sales channel efficiency, or product differentiation level, it is better for her to encroach with the same rather than new product. Counterintuitively, when network externalities are relatively weak and the direct sales channel is less efficient, the retailer prefers the manufacturer to encroach with the same rather than weaker new product.

Manufacturer encroachment with an e‐commerce division

Traditionally, manufacturer encroachment is investigated under an integrated organizational structure where online business decisions are made at the whole firm level. However, with the establishment of a specific e‐commerce division, the manufacturer has the flexibility to delegate the decision‐making of the online business to its e‐commerce division to maximize the online revenue under a decentralized structure. We study manufacturer encroachment in a supply chain, where a manufacturer sells through a bricks‐and‐mortar retailer and plans to deploy its e‐commerce division to launch the online direct‐to‐consumer business. Different from prior research, we endogenize the manufacturer's choice between the integrated and the decentralized structures in its encroachment pursuit. Our results suggest that the decentralized structure could enlarge the manufacturer's feasible range to encroach, but it would also intensify the competition between the e‐commerce division and the retailer. Therefore, choosing the decentralized structure does not necessarily yield a higher profit for the manufacturer because the loss in the retail channel may be hard to offset due to the intensified competition. Instead, choosing the integrated structure could lead to a win–win–win outcome for the manufacturer, retailer, and e‐commerce division when the direct selling cost is sufficiently low. Although the manufacturer may benefit from encroachment under both organizational structures, it should not encroach when the direct selling cost is between low and moderate. Notably, the bright side of manufacturer encroachment's impact on the retailer still exists under the decentralized structure. We also study some alternative settings, including consumers’ offline hassle cost, market‐based transfer price, and quantity competition, to obtain additional insights.

Manufacturer encroachment on a green supply chain with environmental labeling

AbstractThis paper investigates manufacturer encroachment on a green supply chain wherein alternative environmental labels are utilized to disclose the hidden product greenness attribute. We show that both self‐ and government labels facilitate and adjust the promotion effect of encroachment on product greenness, stimulating green demand and retail prices for profitability improvement and raising wholesale prices for investment sharing. The difference is that self‐labeling's low credibility and complete self‐interest features only induce inferior greenness increments and coordination effects. Government labeling outperforms self‐labeling in simultaneously optimizing the interests of the manufacturer, retailer, and society, presuming the benefits of greenness improvement reimburse investments.

Manufacturer encroachment with competing dual-purpose online retail platforms

This study investigates the manufacturer encroachment strategy within a supply chain composed of a manufacturer and multiple competing dual-purpose online retail platforms who value profit and consumer surplus. We examine the strategic interactions among manufacturer encroachment, platform dual-purpose concern, and retail competition. Some interesting results are obtained. First, with a single platform, the manufacturer's encroachment incentive exhibits a non-monotonic relationship with respect to the platforms' concern of consumer surplus. However, with multiple competing platforms, the increased concern of consumer surplus and retail competition intensity dampen the manufacturer's encroachment incentive. Second, manufacturer encroachment benefits platforms (supply chain) only when the platform's concern of consumer surplus is low and commission fee is moderate (low enough). Moreover, the increased retail competition intensity and the platform's concern of consumer surplus further aggravate the detrimental effect of manufacturer encroachment on the platforms and supply chain. Third, the dual-purpose concern of the platforms may hurt consumer surplus, whereas the increased retail competition intensity may contrarily alleviate this adverse effect to some extent. Finally, the profits for the platform and supply chain and consumer surplus are non-monotonic with respect to the platform's concern of consumer surplus.

The interplay of manufacturer encroachment and blockchain adoption to combat counterfeits in a platform supply chain

Consumers’ perception of product value when purchasing is a critical issue relative to online platform commerce. This is especially true when the brand manufacturer authorises only a third-party reseller to sell through the platform, a practice that may provide opportunities to counterfeiters. To address this issue, we establish a theoretical model in which one brand manufacturer wholesales its products to a third-party reseller who then sells through an online platform. The platform acts as a marketplace, while multiple counterfeiters also exist on the platform, which may deceive consumers. In particular, we consider that the manufacturer can encroach with a direct channel and that the platform can adopt blockchain technology to help consumers identify authenticity. The results show that the platform could induce the brand manufacturer to encroach by deploying blockchain technology. Furthermore, an interesting result indicates that although either manufacturer encroachment or blockchain technology used alone can effectively boycott counterfeits, the coexistence of two strategies can raise the demand for counterfeit products. Finally, we find that when the brand manufacturer encroaches on the platform and the platform adopts blockchain technology, the brand manufacturer, platform, reseller and social welfare can achieve Pareto improvement, while the consumer surplus may be worse off.

Direct or Indirect? Implications of the retailer’s investment choices on the manufacturer’s encroachment strategy

Nowadays, retailer investment is becoming increasingly prevalent in real life. This paper focuses on a retailer’s optimal investment strategy selection problem in a game model consisting of a manufacturer and a retailer. The manufacturer may establish a direct selling channel. For the same amount of money, the retailer has two investment choices: indirect investment through investing in upstream manufacturer’s equity or direct investment through investing directly in its retail channel marketing. We compare the equity investment case and the channel investment case to identify the optimal investment decisions and investigate the behavior patterns of the manufacturer and the retailer in both cases. The following results are obtained. First, instead of the frequently researched investment approach — channel investment, which is always an effective anti-encroachment measure for the retailer, the equity investment may promote the establishment of the manufacturer’s direct selling channel. Second, the retailer may benefit from manufacturer encroachment in the case of equity investment. In contrast, the retailer will get hurt once encroachment occurs under the channel investment case. Finally, the retailer’s optimal investment strategy critically depends on the difficulty between equity investment and channel investment. Particularly, the investment approach with a higher investment difficulty will be the best choice for the retailer.

Manufacturer encroachment in the presence of the store-brand

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.

The impact of retail pricing leadership under manufacturer encroachment

We examine how retail pricing leadership affects a manufacturer's encroachment decision and how manufacturer encroachment affects its retailer's profitability. When a manufacturer encroaches on the retail market by introducing a direct channel, both the manufacturer and its existing retailer need to set retail prices for their own channels. In setting the retail prices, either the manufacturer or the retailer may be the first mover, or the two may set prices simultaneously. We show that retail pricing leadership significantly affects the encroachment decision if the manufacturer has a selling cost disadvantage in the direct channel. If the manufacturer can lead by setting its direct channel selling price first, it is more likely to encroach, and will do so as long as the degree of consumer acceptance of the direct channel is larger than 1/2. Otherwise, the manufacturer is equally likely to encroach if the retailer sets the retail price first or if they set the prices simultaneously, and the encroachment decision depends on the degree of consumer acceptance of the direct channel and the direct selling cost. Interestingly, when the manufacturer sets its direct selling price before or simultaneously with the retailer, it launches the direct channel to create a threat to the retailer, while when the retailer has first-mover advantage, the manufacturer may directly sell to consumers.

Value of information with manufacturer encroachment

We study the value of information in a supply chain where the manufacturer introduces a direct‐selling channel to encroach in the retailer's market. Based on different information structures regarding the direct‐selling cost for the manufacturer, we analyze three models: incomplete information model, asymmetric information model, and full information model. By comparing the firms' profits in these models, we derive the value of the manufacturer's information acquisition and the value of sharing that information with the retailer. We find that the manufacturer's information acquisition may hurt the manufacturer but benefit the retailer simultaneously. However, we also find a win–win outcome for the manufacturer and the retailer due to the manufacturer's learning of its direct‐selling cost. Further, in expectation, the manufacturer always benefits from sharing its private cost information with the retailer, while the retailer does not. We also show that the direct‐selling channel is always valuable to the manufacturer, while the retailer's preference will depend on the information structure. Finally, we consider a supply competition model where the manufacturer competes with a spot supply source to sell to the retailer. In contrast to the case of no supply competition, the manufacturer sells less using direct selling. However, direct selling can become more valuable as it may contribute higher profit for the manufacturer due to the reduced wholesale price charged to the retailer. We find that supply competition can completely reverse the manufacturer's disincentive into incentive for information acquisition and facilitate information sharing with the retailer.

Advertising strategy and channel structure selection on an online retail platform

PurposeThis paper considers a supply chain with a manufacturer (she) selling through an online retail platform (he) and studies the channel structure choices of two firms when investing in advertising.Design/methodology/approachThe authors assume that the platform provides the manufacturer with an agency and/or reselling channel; thus, there are three possible channel structures: agency channel, reselling channel and dual channel. By developing a game-theoretic model, the authors investigate the channel structure choices of two firms when advertising separately, simultaneously and cooperatively and analyze the optimal combination strategy of channel structure and advertising scheme for both firms.FindingsWhen the advertising efforts of the two firms are independent of each other, the equilibrium results show that different advertising schemes lead to different channel choices. For the manufacturer, it is optimal to choose the dual channel structure and adopt the advertising scheme that both subsidizes platform advertising and advertises on her own. For the platform, this combination is also optimal at a high commission rate; otherwise, the advertising scheme in which both firms advertise simultaneously is optimal and he is better off switching from the dual channel structure to the reselling channel structure as interchannel substitution intensity increases. The above results still hold for complementary advertising efforts and asymmetric marginal advertising costs, while in the case of substitutable advertising efforts, one firm may ride on another firm's advertising efforts, leading to different strategic combinations.Originality/valueThis paper not only provides useful guidance for manufacturers and platforms in channel selection and advertising strategy, but also theoretically enriches the literature on manufacturer encroachment.

Implications of risk aversion behavior on the green product promotion strategy under manufacturer encroachment

This paper considers a supply chain in which a manufacturer produces green products and distributes through a physical retailer. The retailer would like to make promotional investments to boost the market and the manufacturer determines whether to encroach the market directly. In the face of the channel competition and cannibalization, coupled with demand uncertainty, the retailer is considered to be risk averse and this attitude is measured by the CVaR method. In particular, the impacts of manufacturer encroachment and cooperative advertising on supply chain participants’ performance are explored. The results show that without cost-sharing contract, the manufacturer and the entire supply chain can benefit from the manufacturer's encroachment whereas the retailer always suffers. However, the retailer's risk-averse behavior can alleviate the profit loss. Furthermore, we find that under the cost-sharing contract, both of the chain members can achieve pareto improvement when the manufacturer encroaches the market.

Information-sharing strategy and manufacturer encroachment under advertising investment in gray markets

This study investigates how the manufacturer’s encroachment strategy and the retailer’s information-sharing strategy interact in gray markets under advertising investment. Different from the traditional view which holds that the retailer should retain private information to maintain an information advantage, we find that the retailer can strategically use private information to induce the manufacturer’s encroachment to improve investment level and increase potential market demand. We also derive the manufacturer’s optimal encroachment strategy. When the encroachment cost is extremely low (high), whether the retailer share information or not, the manufacturer will (will never) encroach. Particularly, when the cost is in the middle range, the encroachment decision depends on the retailer’s information sharing choice: the manufacturer encroaches when information is shared and does not encroach when information is not shared. Moreover, when the manufacturer effectively combats the gray market through encroachment, the retailer still has motivation to share information.

Manufacturer encroachment and quality investment decisions in a two‐period supply chain

AbstractWith the development of Internet technology, many manufacturers encroach into the retail market by selling products directly to consumers, which is called manufacturer encroachment. In practice, the manufacturer may encroach in normal sales period, markdown period, or both periods in a two‐period supply chain. It is a challenging task for the firm manager to provide appropriate quality level under different channel structures. This research originally studies manufacturer encroachment with endogenous quality investment decision in a two‐period supply chain considering that consumers' valuation of products depreciates over time. Using a game‐theoretic framework, this work explores four channel strategies of the manufacturer and discusses equilibrium decisions and profits. The analysis generates several insights. First, the manufacturer should promote quality investment if encroachment occurs when the direct selling is efficient. Second, regardless of which period and scenario, encroachment may increase wholesale price when the direct selling cost is smaller than a threshold. Third, results show the effect of encroachment time on price could be classified into quality investment effect, wholesale price effect, and channel‐adding effect. The quality investment effect increases retail price, while the channel‐adding effect and wholesale price effect decrease retail price. Finally, results reveal that encroachment is always the best choice for the manufacturer and it does not always harm the retailer's profits. Overall, our results and managerial insights can help the manufacturer to formulate channel strategies, wholesale price, and selling quantity decisions while help the retailer to make order quantity decision.