263 / 2024-04-23 21:54:02

The interactions between the platform’s store brand sourcing strategy and the manufacturer’s innovation strategies

Supply chain management; platform; store brand; innovation; game theory

More and more platforms outsource their store brands (SBs) to national brand (NB) manufacturers for production, in addition to introducing SBs in-house. The existing literature does not address the game between SB sourcing and manufacturers’ countermeasures, this is the focus of our paper. We develop game-theoretic models to examine the strategic interactions between the platform’s SB sourcing choice and the manufacturer’s innovation strategies in the presence of brand spillover from NB to SB under both the reselling and agency modes. Our main findings include the follows. First, when the base quality of SB is low, or when the base quality of SB is high but the brand competition intensity is low, the platform and the manufacturer can reach an agreement on the outsourcing project for SB production if both the degree of brand spillover and production cost are high, regardless of whether and how the manufacturer innovates. Second, when the platform introduces an SB in-house, the manufacturer should invest in product innovation; when the platform outsources the production of SB to the manufacturer, the best option for the latter is not necessarily product innovation, but rather process innovation if both the base quality of SB and the production cost are high and both the brand competition intensity and the degree of brand spillover are low. Third, in equilibrium, the scenario where the platform adopts the outsourcing strategy and the manufacturer invests in either product innovation or process innovation may lead to a “win-win” result.