Manufacturer Encroachment Research Articles

Strategic service investment by retailers confronted by manufacturer encroachment

<p style='text-indent:20px;'>This study investigates the service strategies of retailers confronted by manufacturer encroachment and explores the influences of retail services on profitability under different channel structures. In contrast to previous studies, this paper differentiates between channel costs and considers retail service. First, it is demonstrated that retail services are profitable for supply chain members under certain circumstances, regardless of whether the retail service effort is endogenous or exogenous. In particular, when the service effort is endogenous, the retailer can optimize its service effort to influence sales and profit outcomes. Second, this study finds that a service strategy can cause harm to manufacturers while benefiting retailers, which can help retailers regain market dominance and make manufacturers less competitive. The findings also suggest that there can be a "lose-lose" outcome due to service inefficiencies and intense competition. Third, the results indicate that a retailer would prefer to improve their service effort if market competition is less intense or the retail channel has obvious cost advantages. As the service effort increases, a manufacturer has little incentive to encroach on the market. Finally, consumer surplus and service spillovers are discussed.</p>

The impact of retailer's demand information sharing strategies on manufacturer encroachment

<p style='text-indent:20px;'>A two-echelon supply chain comprising a single retailer and a single manufacturer is investigated. The retailer may adopt different demand information sharing strategies. Likewise, the manufacturer may decide to encroach, or not encroach, on the retailer's space. The impact of such different decisions on the expected profits and strategies of both sides is discussed. The results reveal that: (1) Sharing or hiding demand information can lead to manufacturer encroachment; (2) Under each retailer's demand information sharing strategy, there are encroachment areas where Pareto improvement can be achieved; (3) Information sharing may not always benefit the manufacturer, and information hiding may not always be detrimental to the manufacturer. The effects of demand correction values and promotion fees on the strategies of both sides of the supply chain are further discussed in conjunction with numerical simulations.</p>

Channel structure of E-platform encroachment

This paper focuses on the supply chain consisting of a manufacturer, a third-party (3P) seller, and an e-platform, while the 3P seller sells products through the e-platform. If the e-platform not only provides a sales channel for the 3P seller, but also determines the retail price and then sells products directly, we call it e-platform encroachment, which creates price competition between the 3P seller and e-platform. We find that the encroachment benefits the manufacturer and e-platform but hurts the 3P seller. And both the manufacturer and 3P seller prefer the price discrimination strategy to the uniform pricing strategy, while the e-platform does not necessarily. The price discrimination strategy encourages the manufacturer to offer the 3P seller a preferential wholesale price as the compensation and to curb the competitive advantage of the e-platform. The two pricing strategies have the same total sales quantity but different allocations across channels. Moreover, we propose a new coordination mechanism to reduce the double marginalization effect and improve supply chain performance. In extensions, we demonstrate numerically how the e-platform should decide the commission rate and compare the e-platform encroachment model with the manufacturer encroachment model to reveal the impact of different encroachment roles on all parties in the supply chain.

Marketplace channel encroachment under private brand introduction of online platform

This paper studies the marketplace channel introduction of contract manufacturers and the response of the platform with an option to introduce a private brand. We develop a game-theoretical model to examine a three-tier e-commerce supply chain including a contract manufacturer (CM), an original equipment manufacturer (OEM) and a platform and derive the equilibrium results. We find that the marketplace channel introduction of the CM and the platform's private brand introduction influence each other. More specifically, marketplace channel encroachment may discourage the platform from introducing a private brand, and this preference is reinforced as the referral fee increases. Interestingly, the introduction of the platform's private brand increases the likelihood of contract manufacturer encroachment, which is mediated by the difference between the two private brands of the CM and platform--as the difference increases, the CM prefers to enter the marketplace channel. Furthermore, only contract manufacturer encroachment (or private brand introduction for the platform) can always benefit the whole supply chain, but the supply chain may be hurt when the platform and the CM perform their strategies simultaneously. In the extension section, in addition to demonstrating the validity of our main results when the CM and the OEM act as a single entity, we also find that the first-mover advantage of the platform may reduce the possibility of the contract manufacturer encroachment.

Quality differentiation with manufacturer encroachment: is first mover always an advantage for retail platform?

PurposeWith the development of e-commerce and mobile payment, platform sales become unstoppable, and many manufacturers also encroach on online market by establishing direct selling channels. Channel conflict intensifies in online market and quality differentiation and is widely used in business practice as an effective way to alleviate such a competition. The authors study a retail platform's sales strategy and interactions with an upstream manufacturer's encroachment strategy in this paper. Unlike most online marketplace and encroachment research, product quality selection is also engaged in the present research to capture the motivation above.Design/methodology/approachThe authors analyze a game-theoretical model that the platform as the first/second mover participates in strategic decision-making, and then jointly decides the product quality level with manufacturer.FindingsThe authors find that encroachment always profits the manufacturer and almost hurts the platform. Interestingly, the first-mover advantage can help the platform guide the manufacturer encroachment and promote a “win–win” situation when product quality level is relatively slight or obvious. Nevertheless, the second-mover advantage can help the platform alleviate the profit loss caused by encroachment when product quality level is moderate. Furthermore, suffered from encroachment loss, the platform can make a credible threat by sales termination to restrain manufacturer encroachment.Originality/valueThis paper innovatively explores the strategic interaction between manufacturer encroachment and quality differentiation in a platform supply chain, and further analyzes the first-mover advantage in this interaction, which fills the gaps of previous platform research and has great significances to enterprise production and operational decision in business practice.

The manufacturer’s encroachment strategy in the presence of the retailer’s in-store service

We examine the manufacturer’s encroachment strategy in the supply chain in the presence of the retailer’s in-store service. The manufacturer has the option of encroachment with a direct channel, and the retailer has the option of providing in-store service. If the retailer decides to offer service, it sets the service level. We show that in the presence of in-store service, the manufacturer is less likely to encroach on the retail market than in the absence of in-store service. The retailer always prefers to provide in-store service. If the manufacturer decides to encroach, it will strategically use its direct channel with no sales as a threat to the retailer, independent of whether or not the retailer provides in-store service. The retailer can be better off with manufacturer encroachment, but it can be worse off when consumer sensitivity to in-store service is very low. We show that the retailer can strategically employ in-store service to deter the manufacturer’s encroachment when the consumer sensitivity to in-store service is sufficiently high.

Mode of store-brand introduction and contracting sequence under manufacturer encroachment

In recent years, retailers have spent heavily to develop and introduce store brands. Many store brands are regarded as mature brands and are popular with consumers. This paper investigates a retailer's preference for the mode of store-brand introduction and how a retailer enters into wholesale price contracts with a national brand manufacturer (NBM) and a store brand supplier (SBS) when buying a store brand product (SB). We develop a game theoretic model consisting of a NBM, a retailer, and an outside SBS, where the NBM sells a national brand product (NB) through the retailer and its direct channel. The retailer decides how to introduce a SB. If buying the SB, the retailer chooses either simultaneous or sequential contracting. The results show the retailer should not introduce the SB when the quality disadvantage of the SB is pronounced. Interestingly, for an intermediate SB quality, the retailer chooses to buy the SB under simultaneous contracting. If the SB has a high quality and the fixed cost is at an intermediate level, the retailer can earn more by buying the SB when the SB quality is relatively low; otherwise, the retailer would like to produce the SB. Furthermore, we find that the retailer always fails to earn a profit under two different contracting sequences, if the SB quality is low. Surprisingly, the retailer always chooses simultaneous contracting, if the SB quality is high. The results of this study may help a retailer choose the mode of store-brand introduction and the contracting sequence.

Online channel configuration strategy considering contract manufacturer encroachment and green investment

Online channel configuration strategy considering contract manufacturer encroachment and green investment

The impact of production diseconomies on manufacturer encroachment

AbstractWe consider a supply chain with a manufacturer and a retailer, where the manufacturer is diseconomy of scale regarding production and may encroach into the downstream market. We prove that the production diseconomy changes the traditional wisdom regarding the impact of manufacturer encroachment on supply chain performance. First, we show that the production diseconomy disincentivizes the manufacturer's encroachment. Second, different from the literature that believes retailer can be better off as long as it has a selling cost advantage compared with the manufacturer, we establish the condition where encroachment always hurts the retailer regardless of the selling cost advantage. Third, we find that when the price does not respond sensitively to the quantity, an encroaching manufacturer would increase the wholesale price. Surprisingly, the supply chain's profit still could increase. Finally, we check how the retail competition, imperfect substitution, and price competition affect the corresponding results shown above. We show that the retail competition disincentivizes the manufacturer's encroachment and weakens the whole industry's profit benefit from the encroachment. In contrast, imperfect substitution increases the manufacturer's encroachment incentives and strengthens the industry's profit benefit from the encroachment. In the case of imperfect substitution with quantity competition, the consumers might be worse off after the manufacturer encroaches; otherwise, they benefit from the manufacturer's encroachment.

Eliminate demand information disadvantage in a supplier encroachment supply chain with information acquisition

The retailer, who is closer to customers, usually has more information on demand than its manufacturer does. This paper focuses on a manufacturer's information acquisition strategy in a supply chain, and the design of the first-best contract to achieve a win-win for the manufacturer and its retailer. We consider a manufacturer encroachment supply chain in which the manufacturer sells products both directly to the consumer and indirectly through a retailer. The retailer has private demand information while the manufacturer has the option of acquiring demand information. The manufacturer sets the retail price in its direct channel, and the retailer sets the retail price in the retail channel. We consider the two retail price leadership cases, either the manufacturer decides the retail price first or the retailer decides the retail price first. We find that the manufacturer can be hurt by acquiring information, even when the cost is negligible, because competition between the two channels is intensified. Moreover, while one might expect that the retailer is better off from having more information, we show that the retailer can in fact benefit when the manufacturer acquires information. Lastly, we find that the retailer may be worse off from being the retail price leader when the manufacturer acquires demand information, and price competition can be intensified if more customers prefer the direct channel (indirect channel) when the manufacturer (the retailer) acts as the price leader.

How retailer overconfidence affects supply chain transparency with manufacturer encroachment

How retailer overconfidence affects supply chain transparency with manufacturer encroachment

Encroachment in a three-echelon supply chain: manufacturer encroachment or distributor encroachment

PurposeThe purpose of this paper is to investigate manufacturer encroachment and distributor encroachment in a three-echelon supply chain consisting of an upside manufacturer, an intermediate distributor and a downside retailer.Design/methodology/approachIn this paper, the authors use the optimization theory to mathematize the proposed question and build a model. First, the authors consider sequential quantity decisions, where the encroacher decides on the direct selling quantity after determining the retailer's order quantity. Second, the authors relax this sequential decision process assumption by reconsidering a circumstance in which quantity decisions are decided simultaneously.FindingsIn contrast to previous studies, this study shows that in three-echelon supply chains, the upside firm is more likely to encroach compared with the downside firm. The “bright side” of encroachment exists for all players only when the encroachment cost is at a moderate level. However, in manufacturer encroachment under simultaneous quantity decisions, the “bright side” skips the distributor but benefits the retailer directly as the encroachment cost increases from zero to a certain level. The main reason lies in that the distributor loses its pricing power because the end-market has been disturbed by the simultaneous quantity decisions. A comparison of the results of sequential and simultaneous quantity decisions reveals the merit of simultaneous quantity decisions. The authors find that the intermediate role (the distributor in our model) in three-echelon supply chains may benefit more from simultaneous quantity decisions. That is, the distributor may achieve a better profit even in a market with intensified competition.Originality/valueThe findings of this paper contribute to the marketing science literature on encroachment. The majority of existing literature has focused on manufacturer encroachment in two-echelon supply chains. This paper innovatively investigates and compares manufacturer encroachment and distributor encroachment in a three-echelon supply chain.

Probabilistic selling and manufacturer encroachment in retail markets with vertical‐differentiated products

AbstractThis study investigates the adoption of a probabilistic selling strategy in a vertical‐differentiated marketing channel. We build a styled model in a retail market in which a manufacturer sells two vertical‐differentiated products solely through a retailer, and the manufacturer can encroach on the end market by selling probabilistic products or continue to sell them through the retailer. Our findings indicate that the manufacturer can benefit from the probabilistic selling strategy only when the expenditure of building the direct‐selling channel is low, but the retailer is always worse off. Furthermore, when the quality of the low‐end product is relatively low, the manufacturer prefers to choose the traditional selling format. Finally, the consumer surplus is higher when the retailer adopts the probabilistic selling strategy.

Information acquisition, strategic ignorance, and manufacturer encroachment

Information acquisition, strategic ignorance, and manufacturer encroachment

Direct or Indirect? Implications of the Retailer's Investment Choices on the Manufacturer's Encroachment Strategy

Direct or Indirect? Implications of the Retailer's Investment Choices on the Manufacturer's Encroachment Strategy

Retailer Information Sharing with Green Manufacturer Encroachment in a Hybrid Supply Chain

Retailer Information Sharing with Green Manufacturer Encroachment in a Hybrid Supply Chain

Manufacturer encroachment on a closed‐loop supply chain with design for remanufacturing

This paper examines the manufacturer encroachment on both forward and reverse flows of a closed‐loop supply chain with two different design for remanufacturing (DfRem) approaches. We show that both DfRem approaches lead to Pareto improving encroachments under certain conditions. Design for modularity (DfM) compensates for the retailer's encroachment loss through dual positive spillover effects via lower wholesale price and higher buyback price to selling and collecting activities. Design for durability (DfD) simultaneously expands the retailer's sales and stimulates offline collecting via buyback price reimbursement. DfD outperforms DfM in achieving more profitable win‐win encroachments.

The effects of medical insurance and patients’ preference on manufacturer encroachment in a pharmaceutical supply chain

With the development of e-commerce, manufacturers have opportunities to sell products to consumers through direct channels in addition to independent retailers. Although manufacturers’ encroachment upon the retailing market of traditional goods has been extensively studied, there is a lack of research on manufacturers’ encroachment in a pharmaceutical supply chain. This paper analyzes a pharmaceutical manufacturer encroachment strategy by taking into account the distinctive features of drugs, in which drug expenses are covered by medical insurance only in the physical channel and patients' channel preference is also considered. We find that under certain circumstances, the manufacturer encroachment may lead to a win-win outcome for both the manufacturer and the retailer, contradicting the conventional wisdom that the manufacturer's encroachment into retail space is detrimental to the independent retailer. Additionally, the manufacturer is more likely to encroach when the incurred extra cost is sufficiently small, the perceived quality of the drug selling through the direct channel is sufficiently high and the out-of-pocket percentage cost of the drug selling in the physical channel is high. We further study the impact of manufacturer encroachment on social welfare and find that the introduction of encroachment decreases the social welfare when patients' perceived quality of the drug obtained through the online store is low and improves the social welfare when the perceived quality exceeds a certain threshold.

Committed or contingent? The retailer’s information acquisition and sharing strategies when confronting manufacturer encroachment

Unlike most studies focusing on the manufacturer’s channel strategy, we investigate how a retailer strategically acquires and shares consumer quality preference information when confronting manufacturer encroachment. As a follower, the manufacturer decides the quality level and sales quantity based on the information he holds. Considering the retailer’s flexibility in acquisition timing, we focus on two formats, namely committed acquisition and contingent acquisition, depending on whether the retailer commits to her acquisition decision before or after the manufacturer’s quality investment. Assuming the manufacturer provides identical product through different selling channels, we find that when the manufacturer’s direct selling efficiency is high, contingent acquisition is always a weakly dominant strategy, while the retailer is suggested to commit to acquire information if and only if the direct selling efficiency is low and the acquisition cost is relatively high. If the consumer quality preference is acquired, information sharing occurs only when the direct selling efficiency is sufficiently high, via which the retailer can induce a lower expected wholesale price, gain a higher market share, and achieve a “win-win” situation. With the information advantage, the retailer can always obtain a positive profit in the distribution channel, while the inefficient manufacturer may stop selling in the direct channel when consumers have a low preference for quality. Our result explains why, despite manufacturers directly obtain profits from their own channels, they still sell products through retail channels and even treat them as main distributive ways. Based on the above equilibrium outcomes, we derive the retailer’s optimal strategy for information management, whereby the retailer can not only induce the highest product quality, but also the highest consumer surplus as compared to other acquisition strategies. Our work can guide retailers to better implement information strategies when confronting manufacturer encroachment.

Information acquisition with advertising threshold effect under manufacturer encroachment in a supply chain

In this paper, we examine the interaction between a retailer’s information acquisition and a manufacturer’s advertising strategies by incorporating the advertising threshold effect under manufacturer encroachment. We elaborate on two acquisition timings, namely, ex ante acquisition and ex post acquisition, depending on whether the retailer makes the information acquisition decision before or after the manufacturer’s advertising decision. We demonstrate that under ex ante acquisition, the retailer’s acquisition incentive and the manufacturer’s optimal advertising level exhibit a non-monotonic relationship with the advertising threshold. Under ex post acquisition, given that the threshold is not too high, the retailer’s acquisition incentive weakly increases with the advertising threshold, and the optimal advertising level is always pushed up by the advertising threshold effect and the acquisition inducing effect. More importantly, the advertising threshold effect does not necessarily hurt (benefit) the manufacturer (retailer), as the information acquisition effect can conditionally alleviate the detrimental effect of the advertising threshold. Moreover, the retailer may prefer either ex ante acquisition or ex post acquisition, depending on the advertising level comparison. By contrast, the manufacturer prefers ex post acquisition only when the acquisition incentive under ex post acquisition is higher than that under ex ante acquisition; otherwise, the manufacturer always weakly prefers ex ante acquisition.