Private label sourcing for an e-tailer with agency selling and service provision

Many electronic retailers (e-tailers) have introduced private labels (PLs). Although there is a vast literature on modeling pricing and e-tailers' operational issues, research on PL sourcing has been lacking. This paper seeks to fill this gap by investigating an e-tailer (she) who can manufacture her PL in-house or source it from an external third-party manufacturer or a national brand manufacturer (he). The e-tailer simultane-ously sells the PL directly and the product of the national brand (NB) manufacturer with agency selling. Furthermore, she provides consumer service for both products. Our analysis leads to the following major results. First, the e-tailer would charge the highest agency fee and provide the highest service level when sourcing from the NB manufacturer. Second, the PL sourcing preference of the e-tailer mainly depends on the production cost and consumer service sensitivity. In contrast, the profit of the NB manufacturer is influenced primarily by the consumer preference for PL and the sourcing strategy of the e-tailer. Third, there is always a PL sourcing strategy that can benefit the NB manufacturer and the e-tailer. Our model extensions explore how price elasticity, product quality, consumer loyalty, and exogenous fees affect our main results, which are shown to be robust.(c) 2022 Elsevier B.V. All rights reserved.

Automated summary

This paper investigates the PL sourcing strategy of an e-tailer and finds that the e-tailer charges the highest agency fee and provides the highest service level when sourcing from the national brand manufacturer. The e-tailer's preference for PL sourcing depends mainly on production cost and consumer service sensitivity. The profit of the national brand manufacturer is influenced by consumer preference for PL and the sourcing strategy of the e-tailer. The results show that there is always a PL sourcing strategy that benefits both the national brand manufacturer and the e-tailer.