Sourcing strategy for brand extension with social influence

Manufacturers extend high-end parent brands into low-end sub-brands through brand extension and decide on the sourcing strategy for sub-brand products. However, brand extension causes social influence between the parent brand and the sub-brand. Therefore, this study constructs a supply chain with a supplier and a manufacturer to examine the sourcing strategy of the manufacturer’s brand extension considering social influence. We not only examine the impact of social influence and the sub-brand’s market share on supply chain members’ profits, but also obtain an equilibrium of the manufacturer’s brand extension and sourcing strategy. The analytical results show that the manufacturer should source from the existing supplier when the manufacturer’s internal production cost exceeds a threshold and the sub-brand’s market share is large; otherwise, the manufacturer chooses to source the sub-brand internally. Moreover, If the market share for the sub-brand is relatively low, the manufacturer will not choose to procure through the existing supplier. A larger sub-brand market share makes the choice of sourcing through the existing supplier optional. The magnitude of the positive social influence controls the manufacturer’s propensity to choose between the two sourcing strategies. In addition, when the manufacturer introduces the sub-brand and sources from the existing supplier, a win–win situation for both the supplier and the manufacturer can be achieved.