Quantifying Transaction Costs in Online/Offline Grocery Channel Choice

49 Pages Posted: 8 Feb 2009 Last revised: 1 Sep 2011

See all articles by Pradeep K. Chintagunta

Pradeep K. Chintagunta

University of Chicago

Junhong Chu

HKU Business School

Javier Cebollada

Universidad Publica de Navarra; Universidad Publica de Navarra

Date Written: February 8, 2009


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.

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

Suggested Citation

Chintagunta, Pradeep K. and Chu, Junhong and Cebollada-Calvo, Jose-Javier and Cebollada-Calvo, Jose-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: https://ssrn.com/abstract=1339646

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

HKU Business School ( email )

K.K. Leung Building
Hong Kong
Hong Kong
852-39103087 (Phone)

HOME PAGE: http://www.chujunhong.com

Jose-Javier Cebollada-Calvo

Universidad Publica de Navarra ( email )

Campus de Arrosadia s/n
Pamplona, Navarre 31006

Universidad Publica de Navarra ( email )

Campus de Arrosadia s/n
Pamplona, Navarre 31006

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