Managing Cost Reduction Efforts in Supplier Encroachment

Abstract

The extant literature has indicated that upstream supplier encroachment on the incumbent retailer could be beneficial to the supplier, the retailer, and the entire industry, when the supplier’s marketing disadvantage satisfies specific conditions. This study extends the previous investigations about supplier encroachment to the circumstance where the supplier is capable of managing and mitigating her marketing disadvantage, which further intensifies the retail competition and provides new managerial implications about the encroachment. We find that encroachment with cost reduction efforts does not necessarily hurt the retailer and the industry but always benefit the supplier and consumers. Compared to encroachment without the cost reduction effort, encroachment with cost reduction efforts does not necessarily benefit the supplier and the industry. Between encroachment with and without cost reduction efforts, the retailer and consumers always prefer the latter and the former, respectively. Our findings provide meaningful insights to manage cost reduction efforts in supply chain encroachment.

Manufacturer encroachment on a green supply chain with environmental labeling

“…Besides the classic “wholesale price effect,” that is, lowering wholesale prices to avoid the offline demand plunge, manufacturers often revise specific product attributes to coordinate dual‐channel conflicts. For example, product cost attribute adjustment generates the “spillover effect.” The manufacturer's cost‐reducing investment is stepped up upon encroachment, and investment return is spilled over through a lessened wholesale price to safeguard the retailer's encroachment profit (Wu et al, 2021; Yoon, 2016).…”

“…For example, product cost attribute adjustment generates the "spillover effect." The manufacturer's cost-reducing investment is stepped up upon encroachment, and investment return is spilled over through a lessened wholesale price to safeguard the retailer's encroachment profit (Wu et al, 2021;Yoon, 2016).…”