Interaction between service investment and store-brand introduction in a dual-channel supply chain

Abstract

This study examines service investment decisions in the context of two store brand introduction modes and the mode selection of a retailer. The research focuses on a supply chain comprised of a national brand manufacturer (NBM), an external store brand supplier (SBS), and a retailer. A national brand product (NB) is distributed to the market through both direct and retail channels. The retailer consistently offers service efforts within the retail channel and has two options for launching a store brand product (SB): producing the SB or procuring it from an external source. The findings indicate that, when the retailer has a low fixed cost and a substantial market size for one-stop consumers, the retailer internally producing its own SB is more profitable. However, when the market size for one-stop consumers and the fixed cost of producing the SB are both low, or when the retailer possesses a relatively high fixed cost, it is advisable for the retailer to procure a lower-quality SB from the SBS. Alternatively, the retailer could establish its own production facilities to launch a higher-quality SB. Furthermore, it is noteworthy that the NBM consistently favors the retailer outsourcing the SB production to an external SBS. This implies that both the NBM and the retailer can achieve a “win-win” outcome when the retailer procures the SB.

Keywords

• Retailing
• Supply chain
• Service effort
• Channel competition
• Brand competition
• Consumer behavior