A product overlap strategy refers to a company’s decision to produce similar products under different brand names, through private labels or through original equipment manufacturers.
Market expansion is a major driver for a product overlap strategy. The development of two distinct brands, even if owned by a single company, creates the perception of a more robust market and product demand. Customers who take a wait-and-see approach when only one company offers a product may opt in if it appears that the product has enough traction for more than one brand to exist. Selling components to original equipment manufacturers makes it easier for other companies to produce similar products; this helps create the perception of product demand. As the market grows, at least until the saturation point, all of the companies enjoy more profit.
The company that creates the original product must build facilities and establish supply chains to manufacture it. That company stands to lose money if the demand for the product falls short of production capacity. Allowing other companies to sell the product under private labels enables the original company to maintain production at or near capacity, which improves the economies of scale.