Bricks or clicks: The impact of manufacturer ' s encroachment on both manufacturer-owned and traditional retail channels

Abstract

Purpose

The purpose of this paper is twofold: to investigate performance of both manufacturer-owned channel and traditional retail channel when the manufacturer encroaches upon the traditional channel in different forms (brick-and-mortar and online form) under different market structures (Stackelberg and Bertrand). To examine the effect of acceptance of the online channel and travel cost on profits of two channels.

Design/methodology/approach

The Hotelling model is employed to depict consumers ' channel choice behavior, where the consumer surplus captures travel cost, spatial distance and consumer heterogeneity in acceptance of the online channel. A game-theoretical framework is developed to determine the optimal encroachment form and market structure for both manufacturer-owned and traditional retail channels.

Findings

This paper finds that, in either form of encroachment, Stackelberg market structure always outperforms Bertrand market structure, and channel choice significantly relies on parameters, i.e. consumer acceptance of the online channel and travel cost. Moreover, a Pareto zone is proposed in which both channels consider the strategy that the manufacturer opens bricks-and-mortar channel under Stackelberg market structure as the optimal strategy.

Originality/value

The present work fills a theoretical and practical gap for a structured analysis of the channel performance when the manufacturer encroaches upon the incumbent retail channel in different forms and under different market structure.

Citation

Fu, Y., Lai, K.K. and Liang, L. (2013), "Bricks or clicks: The impact of manufacturer ' s encroachment on both manufacturer-owned and traditional retail channels", Asia Pacific Journal of Marketing and Logistics, Vol. 25 No. 4, pp. 695-714. https://doi.org/10.1108/APJML-08-2012-0082