Multichannel Spillovers from a Factory Store

34 Pages Posted: 29 Jun 2013 Last revised: 8 Oct 2014

Date Written: June 2013

Abstract

We study how the opening of a factory store impacts a retailer's demand in its other channels. It is possible that a factory store may damage a retailer's brand image and lead to substitution away from its higher quality core channels. Alternatively, the opening of a factory store may have positive effects as it may attract new buyers and serve as a form of brand advertising. In this paper, we use a natural experiment that arises from a retailer introducing a factory store in 2002. We analyze data that spans all customers and all channels from 1995 to 2007. This allows for careful pre and post analysis of the factory store opening. We find that the introduction of the factory store led to substantial positive spillovers to the core channels that lasted for multiple years. Customers purchase more items from the higher priced, higher quality channels after the factory store is opened. These positive spillovers represent approximately 17% of all of the incremental sales that result from the factory store opening (the other 83% are contributed by sales in the factory store itself).

Suggested Citation

Qian, Yi and Anderson, Eric and Simester, Duncan, Multichannel Spillovers from a Factory Store (June 2013). NBER Working Paper No. w19176, Available at SSRN: https://ssrn.com/abstract=2287035

Yi Qian (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Eric Anderson

Northwestern University - Department of Marketing ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Management Science
Cambridge, MA 02142
United States
617-258-0679 (Phone)
617-258-7597 (Fax)

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