Manufacturer technology investment: A bane or boon to the store brand encroachment

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Manufacturer technology investment: A bane or boon to the store brand encroachment

Yu, Dongdong / Luo, Chunlin / Wang, Biao / Tian, Xin / Zhou, Xiaoyang

Abstract The retailers’ store brands (SBs) are prevalent worldwide and impose substantial competitive threats against the manufacturers’ national brands (NBs). A large number of manufacturers invest in technology innovation to deter the retailers’ store brand encroachment. This paper studies the interplay between a manufacturer’s technology investment choice and a retailer’s SB encroachment strategy. The research shows that the manufacturer’s technology investment strategy cannot always hold back the retailer’s SB encroachment, which depends on the two brands’ competition effect and the technology spillover effect. If the technology spillover effect is sufficiently pronounced, the technology investment strategy will instead serve to push forward the SB encroachment. Once the technology investment strategy is implemented, the SB encroachment may not serve as a credible threat. Moreover, the manufacturer will always prefer the technology investment strategy as long as the fixed cost of technology investment is relatively low.

Highlights • The joint endogenous decisions of technology investment (TI) strategy and store brand (SB) encroachment are explored. • In some cases, TI may instead serve to push forward the SB encroachment. • The equilibrium of TI and SB encroachment depends on the interplay of the technology spillover effect and brands competition effect. • Once TI is adopted, the SB encroachment may no longer be used as a threat tool to cut down the wholesale price.