The Manufacturer's Channel Strategy And Welfare Effect Analysis Under Price Leadership Competition

With the development of e-commerce,a large number of manufacturers set up online direct channel one after another on the basis of relying on traditional distribution channels,the impact of retailer behavior on its decision-making can not be ignored when manufacturer decides whether to establish online direct channel and how to make a price,due to the fact that the retailers are more aware of consumer needs during long-term business processes which play an important role in cultivating consumer's brand loyalty.Facing the pressure from competitors,apart from selling manufacturer brand,retailers are exploiting and selling private brand,particularly,some large retailers using their own funds and store brand advantage launch their private brand.The impact of the retailer's private brand on the manufacturer's decision-making can not be underestimated:on the one hand,private brand compete with manufacturer brand through occupying the shelves of manufacturer brand product,which enhance the bargaining power of the retailer and prompt manufacturer to find new channels to sell products;on the other hand,when retailers are faced with the threat of manufacturers establishing online direct channel,they can reduce the manufacturer brand sales and only rely on selling private brand to gain profits,which may hit manufacturer's enthusiasm to establish the online direct channel.Therefore,it is necessary to consider the impact of the retailer's private brand behavior in the study of the manufacturer's channel decision-making problem.However,the relevant litertures about the manufacturer's channel strategy have largely ignored private brand factors,in this respect,the manufacturer's channel decision problem is discussed in the context of retailer introducing their own brands.As the ultimate consumer of the product market,their purchase behaviours tend to seriously affect the competition between dfferent brands,and then have an assignable impact on the manufacturer's channel strategy.After the retailers launch their private brand,the consumer's perceived value difference for private brand will affect their purchase tendencies of private brand,while private brand compete with the manufacturer brand in the traditional retail channels,thus affecting the channel decision of the manufacturer brand.Therefore,this article will take the important factor of the consumer's private brand perceived value into the study of whether manufacturer to establish online direct channel.In addition,we observed in reality the online and offline price difference is getting smaller and smaller.When online and offline pricing of different subjects,this price convergence phenomenon may be the result of different pricing entities cross-reference pricing,which means either the retailer may refer to the manufacturer's online price to adjust store price or manufacturers decide the online price consulting the pricing of retailers.Therefore,who first pricing have what impact on manufacturers' channel expansion and consumers become a study problem of this article.In summary,this article focuses on the manufacturer's brand channel development issues in the background of retailers introducing their private brand.In the case of manufacturers and retailers respectively as price leaders,to discuss whether manufacturers have the incentive to establish online direct channel,whether the establishment of online direct channel is beneficial to retailers,whether to improve the level of social welfare,and the impact of consumers' private brand cognition on the pricing decision and profit of channel members.The conclusions of the discussion and analysis are conducive to enriching the vertical relationship and marketing theory in the industrial organization theory and advancing the theoretical progress about consumer behavior,and providing some references and suggestions for the choice of manufacturer's channel strategy.This paper assumes that retailers not only sell the manufacturer's brand but also sell their private brand in a vertical market consisting of a brand manufacturer and a traditional retailer,the manufacturer resolds his product to the retailer at the same time decides whether to build own direct channel.Research shows that manufacturer has the incentive to build online direct channel in order to increase profits when retailer introduces private brands.The manufacturer's decision is likely to be good for the retailer only when the manufacturer is a price leader,and may also increase consumer surplus and improve social welfare.While retailer acts as a price leaders,online direct channel will damage to retailer,and then reduce the welfare levels of consumers and whole society.Consumer's private brand cognition value has a positive impact on the retailer's profit and has a negative impact on the brand manufacturers' profit.The innovation of this paper lies in the study of the manufacturer's channel decision in the case of retailer introducing private brands,and the impacts of the consumer's private brand cognition difference and different pricing entities cross-reference pricing on the manufacturer's channel strategy.Unfortunately,this paper do some targeted simplification and strict assumptions on the model specification in order to highlight the main study issue,resulting in its scope of application are limited,inevitably there is a certain difference with the reality.At the same time,due to limited data collection,the lack of empirical analysis in this paper.