Manufacturer Encroachment with Consumer Digital Privacy

Abstract

The rapid advancement of digital tools exacerbates privacy issues in the digital channel, despite providing enhanced media richness. This study distinguishes between consumers who prioritize privacy protection and those who prefer privacy disclosure, examining the impact of digital privacy on manufacturers’ channel strategy choices. Utilizing a game-theoretic model, we analyze manufacturers' decisions regarding the encroachment and retention of existing indirect channels. We explore three key strategies: no encroachment, encroachment, and shifting. Our findings indicate that when consumers favor privacy disclosure, manufacturers consistently opt for encroachment using the shifting strategy. Conversely, when consumers prioritize privacy protection, the optimal strategy for manufacturers varies according to the intensity of these preferences. Specifically, manufacturers tend to choose the encroachment strategy for weak preferences and the no-encroachment strategy for strong preferences. The potential for a win-win outcome between manufacturers and retailers is contingent upon the cost-efficiency of the manufacturer's channel construction. Furthermore, in scenarios where the manufacturer chooses to encroach, consumers consistently benefit. This study highlights the critical importance of assessing the type and degree of consumers' privacy preferences when establishing a direct-to-consumer digital channel. By understanding these nuances, firms can make informed decisions that maximize benefits for both themselves and consumers.