Brand Spillover as a Marketing Strategy

Xiaole Wu (), Fuqiang Zhang () and Yu Zhou ()
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Xiaole Wu: School of Management, Fudan University, Shanghai 200433, China
Fuqiang Zhang: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Yu Zhou: School of Economics and Business Administration, Chongqing University, Chongqing 400044, China

Management Science, 2022, vol. 68, issue 7, 5348-5363

Abstract: When a weak-brand firm and a strong-brand firm source from a common contract manufacturer, the weak-brand firm may advertise this relationship to promote its own product. This paper investigates whether the weak-brand firm should use such brand spillover as a marketing strategy and how this decision depends on the firms’ characteristics and market conditions. We develop a game theoretic model consisting of one contract manufacturer and two firms with asymmetric brand power. The contract manufacturer determines the wholesale prices for the two firms and then each firm decides whether to source from the contract manufacturer. If both firms outsource to the contract manufacturer, then the weak-brand firm may choose whether to promote its product through brand spillover. Although brand spillover improves the attractiveness of the weak-brand firm’s product at no cost, we find that the weak-brand firm should not use brand spillover if (1) its original brand power is sufficiently low or (2) the contract manufacturer does not have a significant cost advantage. Interestingly, the adoption of brand spillover by the weak-brand firm can benefit all three parties under certain circumstances. Nevertheless, when the contract manufacturer has a significant cost advantage, in equilibrium the strong-brand firm will be hurt by brand spillover and hence should take actions to prevent it.

Keywords: brand spillover; marketing strategy; brand attractiveness; sourcing strategy (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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