A Hybrid Firm’s Pricing Strategy in Electronic Commerce under Channel Migration

International Journal of Electronic Commerce, 14(1), Fall 2009, pp. 11-54

38 Pages Posted: 9 Feb 2009 Last revised: 2 Jun 2018

See all articles by Robert J. Kauffman

Robert J. Kauffman

Singapore Management University; Singapore Management University - School of Information Systems

Dongwon Lee

Korea University Business School

Jung Lee

Korea University

Byungjoon Yoo

Seoul National University

Date Written: March 30, 2009

Abstract

Achieving effective business design across the Internet and the offline channel is a critical concern for a hybrid firm's choice of pricing strategy. To examine the effects of consumer channel migration - a form of one-way channel interaction from the traditional sales channel to the Internet - on pricing strategy, we propose two types of pricing models. One has no interaction between the Internet and offline channels. The other includes the possibility of one-way migration to the Internet channel, and incorporates consumers' channel switching costs and loyalty to the firm. The two models offer interesting results for understanding traditional and Internet-based selling. A high level of channel migration leads a firm to manage two channels as one. With low channel migration, in contrast, the firm should separately optimize and manage each channel. By comparing the results, we obtained two main findings. First, the level of channel migration determines a hybrid firm's pricing strategy. Second, the hybrid firm's price level choice should be determined by the online demand proportion of its business. We validated these modeling results with the business cases of well-known firms from the United States and empirical analysis for ten large South Korean e-commerce firms, by comparing the prices in different product categories for various types of hybrid firms and Internet-only firms. This research offers new marketing strategy insights for managers of the hybrid firm who wish to optimize price-setting decisions based on interactions between distribution channels and the intensity of the firm's involvement in the online channel.

Keywords: Business policy, channel migration, channel switching costs, empirical research, e-commerce, hybrid firm, loyalty, online channel, marketing, pricing models, pricing strategy

Suggested Citation

Kauffman, Robert J. and Lee, Dongwon and Lee, Jung and Yoo, Byungjoon, A Hybrid Firm’s Pricing Strategy in Electronic Commerce under Channel Migration (March 30, 2009). International Journal of Electronic Commerce, 14(1), Fall 2009, pp. 11-54. Available at SSRN: https://ssrn.com/abstract=1339875 or http://dx.doi.org/10.2139/ssrn.1339875

Robert J. Kauffman

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore
65-6828-929 (Phone)

Singapore Management University - School of Information Systems ( email )

80 Stamford Road
Singapore, 178902
Singapore

Dongwon Lee (Contact Author)

Korea University Business School ( email )

Anam-Dong, Seongbuk-Gu
Seoul, 136701
Korea, Republic of (South Korea)

HOME PAGE: http://dongwon.info

Jung Lee

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

Byungjoon Yoo

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

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