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http://ssrn.com/abstract=1339646
 
 

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Quantifying Transaction Costs in Online/Offline Grocery Channel Choice


Pradeep K. Chintagunta


University of Chicago

Junhong Chu


NUS Business School

Javier Cebollada


Public University of Navarre, Spain

February 8, 2009

Chicago Booth School of Business Research Paper No. 09-08

Abstract:     
Households incur transaction costs when choosing among offline stores for grocery purchases. They may incur additional transaction costs when buying groceries online versus offline. We integrate the various transaction costs into a channel choice framework and empirically quantify the relative transaction costs when households choose between the online and offline channels of the same grocery chain. The key challenges in quantifying these costs are (i) the complexity of channel choice decision, and (ii) that several of the costs depend upon the items a household expects to buy in the store and unobserved factors that influence channel choice also likely influence the items purchased. We use the unique features of our empirical context to address the first issue and the plausibly exogenous approach in a hierarchical Bayesian framework to account for the endogeneity of the channel choice drivers. We find that transaction costs for grocery shopping can be sizable and play an important role in the choice between online and offline channels. We provide monetary metrics for several types of transaction costs such as travel time and transportation costs, in-store shopping time, item picking costs, basket carrying costs, quality inspection costs, and inconvenience costs. We find considerable household heterogeneity in these costs and characterize their distributions. We discuss the implications of our findings for the retailer’s channel strategy.

Number of Pages in PDF File: 49

Keywords: Channel Choice, Online Grocery Shopping, Transaction Costs, Plausibly Exogenous, Hierarchical Bayesian, Green Shopping

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Date posted: February 8, 2009 ; Last revised: September 1, 2011

Suggested Citation

Chintagunta, Pradeep K. and Chu, Junhong and Cebollada, Javier, Quantifying Transaction Costs in Online/Offline Grocery Channel Choice (February 8, 2009). Chicago Booth School of Business Research Paper No. 09-08. Available at SSRN: http://ssrn.com/abstract=1339646

Contact Information

Pradeep K. Chintagunta (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)
Junhong Chu
NUS Business School ( email )
Bukit Timah Road 469 G
Singapore, 117591
Singapore
65-65166938 (Phone)
HOME PAGE: http://www.bschool.nus.edu.sg/staff_profile/cv.asp?ID=2292
Jose-Javier Cebollada-Calvo
Public University of Navarre, Spain ( email )
Campus de Arrosadía
Pamplona, Navarra 31006
Spain
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