Manufacturer invasion and online sales mode strategy considering the level of service quality

Abstract

This study investigates the decision process of own-brand intrusion by contract manufacturers and their selection of invasion sales modes under the consideration of service quality disparities between brand manufacturers and contract manufacturers. Specifically, the study constructs a three-tier supply chain system comprising a brand manufacturer, a contract manufacturer, and an e-commerce platform. The equilibrium profits under different sales mode combinations are determined by using reverse induction methodology, and the optimal sales mode combinations are analyzed and compared. The study reveals that the decision process of contract manufacturers’ own-brand invasion depends on the potential market demand. Furthermore, when brand manufacturers adopt the reselling mode, the service quality level does not affect the decision process of invasion sales modes. However, when brand manufacturers adopt the agency mode, contract manufacturers with low service quality levels are more suitable for invasion through the agency mode, whereas contract manufacturers with high service quality levels are better suited for invasion through the reselling mode. Additionally, for the equilibrium sales mode combination among members of the supply chain, it is observed that with lower commission rates, both brand manufacturers and contract manufacturers choose the agency mode, while with higher commission rates, both choose the reselling mode. When commission rates are moderate, brand manufacturers prefer the agency mode, whereas contract manufacturers prefer the reselling mode.