Behind the scenes or front? Branding strategy of technology provider in a technology-intensive supply chain

Abstract

In a technology-intensive supply chain, branding can significantly enhance consumers’ perception of a technology’s contribution to the final products, making it potentially beneficial for the technology provider. However, many technology providers operate behind the scenes as pure suppliers, rather than branding themselves. The reasons behind these heterogeneous branding decisions among technology providers remain unclear. Our findings suggest that without branding, the technology provider’s profitability is largely determined by the manufacturer’s quality. As a result, even if a technology provider offers technology of higher quality and possesses greater bargaining power, it may not necessarily realize higher profits. Branding can significantly mitigate this effect, allowing the technology provider to gain profit without being constrained by the manufacturer’s quality. The trade-off between bargaining power and additional branding costs plays a key role in the technology provider’s profitability. Interestingly, while one might expect that increasing the technology provider’s bargaining power would hurt the manufacturer’s profit, our findings show that when the technology provider opts for branding, an increase in bargaining power can lead to a win-win solution, provided that the branding cost is not too high. We further extend the model to investigate how the technology provider’s encroachment decision affect the competitive decision within the branding strategy. Finally, we examine the robustness of the major results by employing different decision sequences and licensing fee structures. Overall, the results of this paper offer technology providers valuable insights into the advantages and disadvantages of the branding strategy.