Substitution effect of retailer store brand and manufacturer encroachment

• Published in: International journal of production economics 2021-09, Vol.239, p.108208, Article 108208
• Main Authors: Balasubramanian, Ganesh, Ponnachiyur Maruthasalam, Arulanantha Prabu
• Format: Article
• Language: English
• Subjects: Analysis; Game theory; Logistics; Management science; Manufacturer encroachment; Private labeling; Store brand; Substitution effect; Supply chain management
• ISSN: 0925-5273; 1873-7579
• DOI: 10.1016/j.ijpe.2021.108208

We study manufacturer encroachment in a supply chain in which there is partial substitution between the retailer's store brand and the manufacturer's national brand. Manufacturer encroachment and the store brand's substitution effect lead to several implications for the manufacturer and the retailer. We use a game-theoretic model to analyze the optimal decisions of the manufacturer and the retailer. In the absence of a store brand, it is well established that the retailer can benefit from manufacturer encroachment. However, our analysis reveals that (i) the retailer will not benefit from manufacturer encroachment when the national brand and the store brand are close substitutes, (ii) the substitution effect from the store brand can stifle the manufacturer's direct selling quantity and can impede the manufacturer encroachment, (iii) the coexistence of manufacturer encroachment and store brands may lead to a win-win-win outcome for the manufacturer, the retailer, and the consumer.