A Blessing or a Course? Strategic Sales of Branded Variants in the Marketplace with Market Entry

Abstract

Inspired by intensified retail competition and rapid development of private brands, this study examines how manufacturers and retailers choose between reselling mode and agency mode when retailers introduce private brand variants under the brand variant strategy. By constructing a two-tier supply chain model, this paper studies and analyzes the equilibrium results of manufacturers and retailers under different substitution intensities and commission rates. It is found that after retailers enter the market, the competition of supply chain members for pricing power dominates the choice of sales model. When the commission rate is not too large, manufacturers will adopt agency model to avoid the competitive risk of retailers’ products by controlling pricing power, while retailers prefer to choose resale model to maximize profits by using independent pricing power. In addition, our research also found the existence of a win-win range. Only the agency model can achieve a win-win situation in the case of no entry, while in the case of entry, because the prices of products of manufacturers and retailers are different to attract different types of consumers, both sides will benefit, so the resale model can also achieve a win-win equilibrium within certain parameters. Finally, no matter what kind of sales model, retailers have the motivation to enter the market. On the one hand, retailers can get part of their own brand income after introducing their own products, which reduces their dependence on manufacturers.