Download this Paper Open PDF in Browser

Quantifying Transaction Costs in Online/Offline Grocery Channel Choice

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

Pradeep K. Chintagunta

University of Chicago

Junhong Chu

NUS Business School

Javier Cebollada

Public University of Navarre, Spain

Date Written: February 8, 2009

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.

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

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: 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

NUS Business School ( email )

15 Kent Ridge Drive
Singapore, 119245
Singapore
65-65166938 (Phone)

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/157-junhong

Jose-Javier Cebollada-Calvo

Public University of Navarre, Spain ( email )

Campus de Arrosadía
Pamplona, Navarra 31006
Spain

Paper statistics

Downloads
664
Rank
31,729
Abstract Views
3,034