Manufacturer’s channel strategy with retailer’s store brand

This paper examines the manufacturer's channel strategy as it considers introducing an online channel to sell its own national brand (NB) product, when the brick-and-mortar retailer sells both the NB and its own lower-quality store brand (SB) product. The manufacturer is motivated to introduce an online channel when the customers' 'hassle cost' of shopping online is relatively low and their transportation cost is relatively high. However, our results also demonstrate that when the online shopping hassle cost is high and the transportation cost is low, and even when there are very few sales in the online channel, the online-sales strategy can still contribute positively to the manufacturer's profit. The introduction of the online channel by the manufacturer may result in a win-win situation for the manufacturer and the retailer. As a corollary effect, when the retailer is able to determine the SB quality, it should position the SB at a lower quality level to avoid competition with the manufacturer's online channel.