Sourcing Store Brand from Outside Contract Manufacturer or National Brand Manufacturer: The E-tailer’s Decision under Different Selling Formats

Abstract

In addition to providing a selling channel for manufacturer’s national brand (NB), the e-tailer also sells substitute store brand (SB), which can be sourced from an outside contract manufacturer or NB manufacturer. The NB manufacturer cooperates with the e-tailer through the agency or resale format. Our study analyzes the e-tailer’s source decision on the SB while considering the NB manufacturer’s decisions on whether to produce the SB and selling format. Meanwhile, we analyze how these decisions affect each other. We find that, first, the NB manufacturer prefers agency format if the commission rate is low. Meanwhile, sourcing the SB from the outside contract manufacturer encourages the NB manufacturer to choose the agency format. Second, the NB manufacturer always prefers to produce the SB. Third, the e-tailer’s source decision depends on the competition and the production cost of the outside contract manufacturer. When the competition is weak, the e-tailer prefers to source the SB from the outside contract manufacturer if the production cost is low. When the competition is intense, the e-tailer under resale format prefers to source the SB from the outside contract manufacturer regardless of the cost; the e-tailer under agency format prefers to source the SB from the NB manufacturer regardless of the cost.

Keywords

E-commerce / store brand / source / selling format / supply chain

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